EXAMPLE-76

Whether the following are supply of goods or services?

(i)                 Company was engaged in manufacture of pipes and company also carries on the business of laying of GRP pipes to its customers from whom it receives the labour charges. The GRP pipes are laid inside the factory as underground/buried construction. The Buried pipe laying activity involves trenching, bedding and laying inside the trench and aligning appropriately.

(ii)               ABC builders doing construction of flats and constructed 100 flats. Out of which 75 flats are sold during construction to clients and consideration is received in installments and rest 25 flats are sold after construction was over and entire consideration received after issuance of completion certificate.

Determine the taxability under GST.

Answer

Definition of work contract is given under section 2(119) which is as follows:-

“works contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract;

In view of above definition

(i)                 Activity of supply of pipes and laying down / erection of pipes is in the nature of work contract supply. Schedule II, para 6(a) specifies that this kind of composite supply is treated as supply of services.

(ii)               Supply related to sale of building and sale of land are outside the net of GST according to schedule III para 5. Thus in the above example sale of 25 flats, where entire consideration is received after issue of completion certificate is pure sale of  building and not taxable according to Schedule III.

However sale of under construction property is chargeable under GST. Schedule II point 5(b) specifies that 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, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier, is treated as supply of services.

According to GST tariff rate construction of a complex, building, civil structure or a part thereof, intended for sale to a buyer, wholly or partly. The value of land is included in the amount charged from the service recipient. This shall be taxable at the rate of 12%. Builder is entitled for full ITC on input, capital goods and input service, but no refund of overflow ITC is available.