Karnataka’s Authority for Advance Ruling (AAR) has upheld that amounts received for sale of shares in flat will not attract Goods & Services Tax (GST) in case entire consideration is paid after issuance of completion certificate.

This ruling has persuasive powers in matters related with sale and purchase of flats or building. Sometimes consideration is paid during construction phase while sometimes it is paid post construction and after issuance of completion certificates. Law prescribes applicability of GST before issuance of completion certificate. Still, doubts have been raised on time to time because of prevailing different payment system at various places.

In the said matter, Bengaluru-based resident BR Sridhar tied up with a developer for construction of residential flats on his immovable property. It was decided that upon the development of the said property, he will get 40 per cent share of undivided right, title and interest in the land. Sridhar approached AAR with a specific question whether the amount received by him post issuance of completion certificate will attract GST or not.

He contended that the liability to pay GST by him would not arise as he has not entered into any agreement with the prospective buyers before receiving the completion certificate from the competitive authority. He further stated that one clause of the agreement with the developers restricts his right to execute any sale agreements or any conveyancing deeds till he takes over their units and the occupancy certificate is issued. Sridhar had no occasion to enter into any transaction for transferring his right, title or interest in respect of his share of the flats till the occupancy certificate is issued by the concerned authority.

No liability

Accordingly, he said there is no liability upon him to pay GST in respect of 40 per cent of super built area received by him.

After going through the facts, AAR highlighted clause 5 (b) of the Schedule II of the CGST Act 2017, which says, “Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly shall be treated as supply of services except where the entire consideration has been received after issuance of completion certificate.” The Authority noted that share of units/flats have been received by the applicant after issuance of completion certificate.

“The amount received by the applicant, either by himself or through his agents towards sale of their share of flats are not exigible to GST, if and only if the entire consideration related to such flats is received after the issuance of completion certificate,” AAR said in his order.