Experts say the government should refund GST if an incomplete house purchase is cancelled.

Experts say the government should refund GST if an incomplete house purchase is canceled. Homebuyers who cancel their purchase of an under-construction home after paying the purchase cost and GST will receive a refund from the government, according to experts.

In the 48th GST Council meeting, the finance ministry stated that there is no procedure for claiming a refund of tax borne by unregistered purchasers in cases where the deal or agreement for the supply of services, such as the construction of a flat or house and long-term insurance plan, is canceled and the time period for issuance of credit note by the concerned supplier has expired.

The majority of homeowners are not registered with tax authorities under the GST law. “The GST Council recommended amending the CGST Rules, 2017, as well as issuing a circular, to prescribe the process for filing an application for refund by unregistered buyers in such cases,” the GST Council stated.

According to experts, it is beneficial to consumers of services, such as those purchasing new homes. “For example, on March 31, a person paid Rs 5 lakh in GST on a house worth Rs 1 crore that was under construction. However, on December 17, he decided to cancel the agreement.

Now, because the builder’s time barring period for issuing credit notes expires on November 30, the builder will not refund this GST amount to the consumer, and the consumer will lose the Rs 5 lakh of GST paid,” said Vivek Jalan, partner at Tax Connect Advisory, a multidisciplinary consulting company.

“In one of the few cases in the GST regime, the GST Council agreed that these customers would receive a direct refund from the government”. The procedure for this would be established in due course,” Jalan said.
For supplies made during a fiscal year, the CGST law allows credit notes to be issued only by November 30 following the end of the previous fiscal year.

As a result, if a flat was scheduled in March 2022 and forced to cancel in December 2022, no credit note would be issued because the cancellation occurred after the November 30 deadline. “In contrast, under GST law, an application for refund can be made within two years of the relevant date (date of tax payment or receipt of services),” explained Harsh Shah, partner of Economic Laws Practice.

“The only other choice in this situation is to request a refund, which the supplier may do” (developer). However, under the ‘unjust enrichment’ principle, a developer can only claim a refund if the tax was deducted from the customer.