GST Caselaw

#GSTCase-22:-Relevant date for completion of property wherein state laws do not provide for completion certificate but provide for occupancy certificate on completion of property

#GSTCase-22:-Relevant date for completion of property wherein state laws do not provide for completion certificate but provide for occupancy certificate on completion of property

 

Bindu Ventures,  [2018] 100 taxmann.com 207 (AAR – KARNATAKA)

 

  1. Query:

 

Query 1: Which date should be considered as the date of completion of the property – the date of receipt of Occupancy Certificate from the local Authority or the date of receipt of completion certificate from a registered Chartered Engineer?

 

Query 2: What is meant by First Occupation?

 

  1. Facts

 

The applicant had undertaken a project in the name of “Bindu Galaxy” in the month of February 2016. Construction was completed in all aspects by the end of the month of November 2017.The state law does not provide for issuance of any completion certificate. However, the law provides for issuance of occupancy certificate on completion of construction of immovable property. The applicant was unable to obtain occupancy certificate from the local authority but has obtained completion certificate from chartered engineer stating that the construction of the building was complete in all respects by 01.12.2017.

 

  1. Contention of the Applicant

 

The applicant contended that since the state laws do not provide for completion certificate. Therefore, where completion certificate is not issued by any Governmental Authority, certificate issued by an architect or a chartered engineer or a licensed surveyor shall be regarded as the completion certificate and hence the date of issuance of such certificate is to be reckoned as the date of completion as provided under Para 5 (b) of Schedule II of CGST Act, 2017.

 

  1. Observation:

 

Query 1: Bangalore Mahanagara Palike Building Byelaws, 2003 provides a clear distinction between a completion certificate and an occupancy certificate and completion certificate obtained from the chartered engineer is part of the documentation to be submitted to local authority which in turn after verification issues the occupancy certificate. The bye laws brings out the fact that once a builder feels that construction of building is over, builder shall first obtain a certificate from a registered architect/engineer to that effect and shall apply to the BBMP for occupancy certificate i.e. permission to occupy the building. Therefore the certificate from the architect is only of the nature of a supportive document and law does not recognize it as a document which is enough as the competent authority is mandated to necessarily inspect and then certify whether the building is fit for occupation.

 

Therefore, the terms ‘Occupancy Certificate’ and ‘Completion Certificate’ become congruous to each other. An Occupancy Certificate, thus issued, means that the building has complied with all the required bye-laws and is complete in all respects in so far as its construction is concerned and can be occupied. So a certificate, by whatever name called, certifying that the building fit to be occupied is essentially declaring that the building construction has reached a stage where all bye laws and features of sanctioned plan have been accomplished or completion has taken place.

 

AAR found that the contention of applicant that state law does not provide issuance of any completion certificate is ill founded and not correct. Occupancy Certificate issued by the Local Authority is akin to Completion Certificate as provided under CGST Act, 2017 because unless the construction is complete it cannot be occupied.

 

Query 2: The word “first occupation” is not defined anywhere in the Act. The Bengaluru Mahanagara Palike Building Bye-Laws 2003, under clause 5.7, stipulates that nobody can occupy the building or portion of the building until the Occupancy Certificate is obtained from the competent authority. Therefore, AAR observed that question / situation of occupying the building / part of the building before obtaining the occupancy certificate does not arise and hence the date of first occupation can only be after the date of occupancy certificate.

 

 

  1. Held

 

Query 1: Occupancy certificate, which is a legal requirement, would act like a completion certificate and hence the date of such occupancy certificate would be deemed to be the date of completion. Therefore the chartered engineer’s certificate can’t be a substitute for Completion Certificate/Occupation Certificate, required by the CGST Act’ 2017. Hence the Chartered Engineer’s certificate has no relevance to the question.

 

The date of Occupancy Certificate issued by the Bruhat Bengaluru Mahanagara Palike, competent authority in the instant case, shall be considered as the date of completion of the property and if the entire amount of consideration has been received after such date of completion, then that would not be treated as a taxable service. If any part of the consideration is received before such date, then the transaction would be treated as a supply of service as per clause 5 of schedule II to the GST Act and attracts the levy of GST.

 

Query 2: The relevant date for first occupation can only be after the date of occupancy certificate.

 

  1. Comment:

 

Query 1: The Judgement would be having wide ramifications for the builders wherein completion certificate has been obtained from the chartered engineers but the occupation certificate is yet to be obtained under the State Laws. It would be relevant to highlight that CGST Act and state laws itself have used the terms completion certificate and occupancy certificate separately. Therefore, date of completion and date of occupation might be different in different scenarios and are not interchangeable terms.

 

The dispute between what would be the relevant date for Para 5(b) i.e. date of completion certificate obtained from Chartered Engineer or Date of occupancy certificate issued by Local Authority is a debate which would be settled as the GST regime unfolds itself.

 

Query 2: AAR observed that question / situation of occupying the building / part of the building before obtaining the occupancy certificate does not arise. In this respect Hon’ble Delhi High Court held in the matter of K. Industries v. Mohan Investments and Properties Private Limited (Suit No. 507 of 1984) wherein the issue was whether possession can be granted before obtaining occupancy certificate from Delhi Development Authority.

 

“The next point to be seen is whether the defendant could give vacant possession of the premises to the plaintiff in absence of obtaining any occupancy certificate from the DDA. From the bye laws 7.5.1, 7.5.2 and 7.6 of the Bye Laws in question applicable, it is evident that without obtaining any occupancy certificate the building could not be occupied. However, this Court in Municipal Corporation Of Delhi…Petitioner v. M/S. Piyush Traders (P) Ltd.…, 1988 Rajdhani LR 651, has held that the contract of letting does not become void even if no occupancy certificate had been obtained. The question which came up for consideration before the court was whether the rental being obtained by the landlord by letting out the premises in absence of occupancy certificate could be taken into consideration for fixing the rateable value for purposes of house tax. The contention was raised that as no occupancy certificate had been obtained by the landlord before letting out the premises the rental being obtained could not be taken into consideration for purposes of fixing the rateable value. This contention was negatived by this court observing that neither the letting of such a building in respect of which occupancy certificate is not obtained had been made invalid by any provision of law nor there is any prohibition in the statute that no contract would be made for letting before obtaining the completion certificate and if such contract is made, the same would be void. Under S. 246 of the Delhi municipal corporation act, there is a provision not to occupy the building till the permission is obtained. s. 351 read with schedule 12 of the Delhi municipal corporation act lays down certain fine to be imposed if there takes place any violation of provisions of S. 346(2) of the said Act. However, this Court held that mere fact that certain penalties are to be imposed for occupying the building in absence of occupancy certificate will not vitiate the contract of lease.”

 

Thus, contention that date of first occupation cannot be before date of occupancy certificate by local authority might be negated and can be challenged.

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