Patna High Court Rules Builder Must Pay GST under RCM

The Patna High Court held that a builder is responsible for Goods and Services Tax (GST) under the Reverse Charge Mechanism (RCM) for construction services provided in lieu of development rights under a development agreement.

The bench, chaired by Justice Rajeev Ranjan Prasad and Justice Ashok Kumar Pandey, held that construction service in relation to building complexes, civil structures, or such constructions meant for resale to customers fall under GST unless the whole of the payment had already been made after the issuing of the completion certificate or first occupancy, whichever is earlier.

In this instance, the petitioner, being a Private Limited Company that deals in construction within the State of Bihar, questioned an order issued by the Assistant Commissioner of State Tax, Muzaffarpur, under Section 73(9) of the Bihar Goods and Services Tax Act. The petitioner questioned the order as well as the summary in Form GST DRC-07, requiring payment of Rs. 4,61,72,628 for CGST/BGST and IGST charges worth Rs. 2,37,59,706. Besides, interest of 1.5% per month amounting to Rs. 20,01,755.4 and Rs. 2,39,536.8 by way of penalty was imposed.

The petitioner also objected to Notifications Nos. 09/2023 dated 31.03.2023 and 56/2023 dated 28.12.2003, which granted extension of the time periods for passing orders under Section 73(9) of the GST Act.

The petitioner pleaded that since the agreement for development was signed on 27.11.2014, prior to the implementation of the GST legislation on 01.07.2017, the land was already conveyed to the developer before the roll-out of GST. The petitioner urged that as the conveyance of the land took place before 01.07.2017, the transaction under the agreement for development would not fall within the CGST/BGST Act or the associated notifications. Although the project was completed on 20.12.2018, the petitioner affirmed that the obligation to pay tax under the development agreement was triggered by Notification No. 04/2019 dated 29.03.2019.

But the court, in its decision, rejected the writ petition. It ruled in favor that the services in respect of development right transfer has been taxable under GST since the initiation of the act. In its ruling, as per Notification No. 04/2018, liability for payment of tax is imposed only when consideration on the construction service is received.