GST must be paid on under-construction flats, says Karnataka high

The Karnataka High Court has ruled that flats booked before the issuance of a Completion Certificate (CC) will be treated as a service and are subject to Goods and Services Tax (GST). However, if the agreement between the buyer and the builder is made after the construction is complete, it is not considered a works contract, and hence, no GST is applicable.

The judgment came while dismissing several petitions filed by homebuyers challenging the Bengaluru Development Authority’s (BDA) demand for GST payments. The court emphasized that under the Central GST Act, 2017, any payment—partial or full—made before the CC is issued constitutes a taxable service.

The division bench, led by Justice M.G.S. Kamal, examined the case of an applicant who had booked a flat in Valagerahalli apartment project before its completion.

Although the project was scheduled to be completed by December 31, 2018, the applicant had already paid four installments during the construction phase. The court noted that this clearly indicates a service contract between the buyer and BDA before project completion.

Petitioners had argued that no GST should be levied as the apartment was fully built when they applied, and there was no service exchange. However, the court rejected this claim, stating that since part payment was made during construction, GST applies. The court concluded that applicants who did not register for allotment before project completion must pay GST as demanded by BDA to complete the transaction.