Valuation Question No.60

QUESTION

M/s XYZ is a partnership firm engaged in the business of Builders & Developers duly registered under GST voluntarily. Firm has started a residential construction project on 01/04/2019.The said scheme is not covered under the definition of affordable housing project and thus would be taxable @ 5%. During the year firm does not have any booking (Sale) or any other income and has incurred only construction expenses during the year 2019-20. Now As on 31st March 2020 the details of expenditure is as under Part A (Construction Material Purchases) Particulars of Item RD CGST SGST URD Total Total (A) 21,30,909.71 1,65,344.91 1,65,344.91 3,79,891.00 25,10,800.71 Part B (Direct Labour for Construction) Particulars of Item RD CGST SGST URD Total Total (B) - - - 11,84,759.00 11,84,759.00 Part C (All other Purchases/services/charges for the year) Particulars of Item RD CGST SGST URD Total Advertisement Expenses - - - 8,982.00 8,982.00 Bank Interest 14,06,240.00 - - - 14,06,240.00 Legal Processing Charges 1,00,000.00 - - - 1,00,000.00 interest on Unsecured loans - - - 7,76,026.00 7,76,026.00 Site Insurance 48,140.00 - - - 48,140.00 Stamp & Other Mortgage for Loan 1,50,000.00 - - - 1,50,000.00 Tractor Rent - - - 6,500.00 6,500.00LabourExps - - - 4,400.00 4,400.00 Legal Fees (RCM paid) 37,500.00 - - - 37,500.00 Printing & Stationery - - - 7,974.00 7,974.00 Study Tour Expenses - - - 1,10,000.00 1,10,000.00 Sundry Expenses - - - 10,025.00 10,025.00 Transportation & Hamali - - - 3,510.00 3,510.00Travelling Expenses - - - 2,180.00 2,180.00 Valuation Report - - - 11,800.00 11,800.00 Vehicle Rent - - - 25,450.00 25,450.00 Way Bridge Charges - - - 220.00 220.00 Total (C ) 17,41,880.00 - - 9,67,067.00 27,08,947.00 Total (A) + (B)+ (C ) 38,72,789.71 1,65,344.91 1,65,344.91 25,31,717.00 64,04,506.71 Now considering Notification No 11/2017 as amended, we would like to have your expert opinion following regarding which items tobe considered for calculation of 80% threshold for Inputs of Goods and Services from Registered Dealers : 1. Whether RCM is payable for shortfall in threshold of 80% in inputs of goods and services from registered dealers. 1. While calculating threshold of 80% of Reregistered Inputs of Goods & Services whether items mentioned under PART (A), (B) & (C) all are to be considered or only Part A and PART B are to be considered. 2. Whether Bank Loan interest is to be considered? if yes majority of Banks are registered under GST so can we consider such interest as are from registered dealers? 3. Whether Interest on Secured/unsecured Loans from others except from Banks are to be considered? 4. Whether Interest Paid to Partners on their capital to be considered ? If some unsecured loan is also given by any partner in such a case whether Interest paid on such loan is to be considered? 5. Salary paid / credited to partners account is to be considered? 6. Various Charges such as insurance, valuation report, search report, loan processing fees etc are to be considered ?if yes Some times Banks also debit such type of charges to loan account, majority of Banks are registered under GST so can we consider such expenses are from registered dealers? 7. Which of the items from PART C above are not required tobe taken for calculation of 80% of threshold? 8. Whether capital assets purchase

ANSWER

Point wise reply to your query is as follows:

1. While calculating threshold of 80% of Reregistered Inputs of Goods & Services whether items mentioned under PART (A), (B) & (C) all are to be considered or only Part A and PART B are to be considered.
You have to take all the three parts but some of the part three may be excluded. For this you can rely upon s.no. 8 of Press release enclosed for your perusal.

2. Whether Bank Loan interest is to be considered? If yes majority of Banks are registered under GST so can we consider such interest as are from registered dealers?
Bank are registered supplier but interest on loan and advances is exempt from GST. Please refer Sno 18 of the Press release which requires inclusion of exempted supply.

3. Whether Interest on Secured/unsecured Loans from others except from Banks are to be considered?
Same as replied in question no 2

4. Whether Interest Paid to Partners on their capital to be considered ? If some unsecured loan is also given by any partner in such a case whether Interest paid on such loan is to be considered?
Interest or salary paid to the partner of the firm is considered as allocation of profit .The partner ship firm is not a distinct entity different from the partner . A person can't provide service to the self. So salary /interest are not supply accordingly will be kept out of the calculation.

5. Salary paid / credited to partners account is to be considered?
Already replied in question no 4 above.

6. Various Charges such as insurance, valuation report, search report, loan processing fees etc are to be considered ? If yes Some times Banks also debit such type of charges to loan account, majority of Banks are registered under GST so can we consider such expenses are from registered dealers?
If the GST is charged then no need to pay tax but if the supply is exempt then take it into calculation.

7. Which of the items from PART C above are not required to be taken for calculation of 80% of threshold?
Please refer Sno 8 of the Press release

8. Whether capital assets purchase?
You have to pay tax. as per point no. 3 of Notification No. 07/2019 Central Tax (Rate).

Note 1. In our opinion the exempt supplies should not be taken in calculation but the sno 18 of Press release requires the same so we have to folllow it.
Note 2. In our opinion the purchase of capital goods also should not be taken in calculation but the point no. 3 of Notification No. 07/2019 Central Tax (Rate) requires the same, so we have to follow it although it seems to be unlawful.

If you don't want to follow this point then you might have to go through the legal process for challenging the scope of the circular but that may not be practical as when you will come to the figures you will find that in construction industry there is very low percentage of use of exempt supply. (Reply dt.28.08.2020)