Question

Facts of Case: - Suppose I am a builder and I am constructing a building of 100 flats. I received the Completion Certificate on 31/03/2017. Now, till 31/03/2017, 50 flats were booked and the service tax on advance received on same has been paid. Input Tax Credit to build the building has been taken till 31/03/2017 and utilized against payment of service tax on advance. Remaining 50 flats were booked after 31/03/2017. From 01/04/2017 onwards i.e in Quarter ending April’17 to June’17 I have sold the 50 booked flats before 31/03/2017 and also sold some flats booked after 31/03/2017. Service Tax was paid on the already booked flats and the flats booked after 31/03/2017 were treated as exempt and NO ITC was claimed against these flats. QUERIES
1) Will I get the Input Tax Credit against the Service Tax to be paid on flats which were booked before getting Completion Certificate??
2) Do I need to make Reversal of Input Tax Credit as per Cenvat Credit Rules 6(3A) 2004 or any other rule will be applicable; for the 50 flats which were booked after Completion Certificate against which no service tax was paid? If Yes, then what is the criteria for reversing the Input Tax Credit?
3) Suppose if I had Closing Credit balance in my ST-3 return as on 31/03/2017. Do I need to reverse the same ?? PLEASE PROVIDE YOUR VALUABLE SUGGESTION WITH ACT, RULE, CIRCULAR OR ANY CASE LAW

Answer

In your case the CENVAT Credit relating to 50 flats which are sold after completion will be disallowed as per Rule 6 of CENVAT Credit Rules. Similar provisions are contained in GST & CENVAT credit is to be disallowed under section 17(5) of CGST Act.

But the credit is taken in the era of Service Tax therefore the provisions relating to demand and recovery should be those which were applicable that time.

In this case Section-142 sub section (6) of the CGST Act, 2017 will apply. The same is Reproduced below

SECTION 142 OF CGST ACT
(a) every proceeding of appeal, review or reference relating to a claim for CENVAT credit initiated whether before, on or after the appointed day under the existing law shall be disposed of in accordance with the provisions of existing law, and any amount of credit found to be admissible to the claimant shall be refunded to him in cash, notwithstanding anything to the contrary contained under the provisions of existing law other than the provisions of sub-section (2) of section 11B of the Central Excise Act, 1944 and the amount rejected, if any, shall not be admissible as input tax credit under this Act:
Provided that no refund shall be allowed of any amount of CENVAT credit where the balance of the said amount as on the appointed day has been carried forward under this Act;

(b) every proceeding of appeal, review or reference relating to recovery of CENVAT credit initiated whether before, on or after the appointed day under the existing law shall be disposed of in accordance with the provisions of existing law and if any amount of credit becomes recoverable as a result of such appeal, review or reference, the same shall, unless recovered under the existing law, be recovered as an arrear of tax under this Act and the amount so recovered shall not be admissible as input tax credit under this Act.

As per above section the demand is to be deposited in cash.

There can be two possibilities. One is that all the flats are same in design & construction. If the flats are same then the amount will be calculated on Pro-rata basis i.e divide the total Service tax with number of flats and calculate credit for a unit of flat.
If the flats are of different design & construction, the reversal is to be made on Pro-rata basis which is calculated on the basis of ratio of sale price. (Reply dt.22/01/2019)