Homebuyers cancelling purchase of an under-construction house after paying the purchase price and goods and services tax (GST) will get the refund directly from the government, said experts.
The finance ministry said in the 48th GST Council meeting that there is no procedure for claim of refund of tax borne by unregistered buyers in cases where the contract or agreement for supply of services, such as construction of flat or house and long-term insurance policy, is cancelled and the time period of issuance of credit note by the concerned supplier is over.
Most of the homebuyers are not registered under the GST law with tax authorities. “The council recommended amendment in CGST Rules, 2017, along with issuance of a circular, to prescribe the procedure for filing application of refund by the unregistered buyers in such cases,” said the GST Council.
Experts said it is a positive for consumers of services like persons buying houses under construction. “For example, a person purchased a house worth Rs 1 crore under construction on March 31 and paid GST of Rs 5 lakh on the same. However, on December 17, he cancelled this deal.
Now, since the time barring period to issue credit note for the builder expires on November 30, therefore the builder would not refund this GST amount to the consumer and the consumer would lose the Rs 5 lakh of GST paid,” said Vivek Jalan, partner, Tax Connect Advisory, a multidisciplinary consultancy firm.
“Among the very few cases in the GST regime, the GST Council has decided that these consumers would directly get the refund from the government. The procedure regarding this would be set up in time to come,” said Jalan.
For supplies made in a financial year, the CGST law permits issuance of credit notes only by November 30 following the end of the previous financial year. Accordingly, if a flat was booked in March 2022 and cancelled in December 2022, issuance of credit note would not be permitted since the cancellation is after the deadline of November 30.
“As opposed to that, under the GST law, an application for refund can be made within two years from the relevant date (date of payment of tax or receipt of services),” said Harsh Shah, partner, Economic Laws Practice.
“The only other option in this is claiming a refund, which could potentially be exercised by the supplier (developer). However, in terms of the principle of ‘unjust enrichment’, a developer can claim a refund only if the tax was refunded back to the customer.
