2019 (7) TMI 39 - AAR - GST

Scope of GST - development of land and construction of flats to be given out on lease as per the Agreement of Lease entered by them with the customers - classification of Supply - appropriate rate of tax - transaction in immovable property or not - Works contract or not - composite supply - HELD THAT - As per Schedule II (5)(a), renting of immovable property shall be treated as a supply of services and as per Schedule II (5)(b), construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier, shall be treated as a supply of services. In the subject case we find that there is a composite supply of works contract in relation to construction of a complex, building, etc. which is intended to be handed over to the buyer, where the transaction is shown as a lease transaction and not, sale. The entire consideration will be received by the applicant before issuance of completion certificate by a competent authority which does not generally happen in a lease transaction - there is not a very large difference between the lease price and the ready reckoner rates of the properties in that area (as submitted by the applicant). We find that the transaction of sale of flats in a building under construction is being projected as a lease transaction of residential units by the applicant. There is a taxable supply in the subject case, which is a supply of services in the form of construction of a complex, building, civil structure or a part thereof, including a complex or building to their prospective lesses, a part of which i.e. flats are intended to be handed over to the buyer, for which consideration is received by the applicant in installments, on completion of work, slab wise viz. the developed units will be transferred to prospective customers through an agreement wherein the allotment is given to their customers. In the form of construction service, a composite supply of works contract as defined in clause 119 of Section 2 of the CGST Act, 2017, is provided to prospective lessee in compliance of an agreement and the same is taxable under GST Laws. Thus, the transaction between Applicant and lessee is taxable under GST. It is not a transaction in immovable properly - the transaction is a composite supply of works contract as defined in clause 119 of Section 2 of the CGST Act, 2017 and classifiable under CH 9954 (ii) and will attract tax @ 18%.

Summary

Issues Involved:
1. Whether the transaction between Applicant and lessee is outside the purview of GST as a transaction in immovable property.
2. Appropriate classification and rate of GST if the transaction is not outside the purview of GST.

Issue-wise Detailed Analysis:

1. Whether the transaction between Applicant and lessee is outside the purview of GST as a transaction in immovable property:

The applicant, M/s. Nagpur Integrated Township Private Limited (NITPL), is engaged in the development of land and construction of flats to be given on lease. The applicant sought an advance ruling to determine if their transaction with the lessee is outside the purview of GST as a transaction in immovable property.

As per Section 7 of the CGST Act, 2017, the expression "supply" includes all forms of supply of goods or services such as sale, transfer, barter, exchange, license, rental, lease, or disposal made for a consideration by a person in the course or furtherance of business. Schedule II of the CGST Act specifies that any lease, tenancy, easement, or license to occupy land is a supply of services, and any lease or letting out of the building for business or commerce is also a supply of services.

The applicant argued that the transaction does not involve the transfer of ownership and hence does not constitute a sale of land or building as per the Transfer of Property Act. They contended that the transaction should be considered a lease of immovable property, which is outside the purview of GST.

However, the authority observed that the applicant is receiving lease amounts during the construction process, which is typically associated with the sale of under-construction flats. The payments made by the lessees are akin to the installments paid by buyers in a sale transaction. Additionally, the lease amounts are substantial, and the lessees are also responsible for maintenance charges, which is not common in standard lease transactions.

The authority concluded that the transaction between the applicant and the lessee is not a mere lease of immovable property but a composite supply of works contract services, which is taxable under GST. The transaction is structured as a lease to give it the appearance of being outside the GST purview, but in substance, it is a supply of construction services.

2. Appropriate classification and rate of GST if the transaction is not outside the purview of GST:

Since the transaction is considered a composite supply of works contract services, it falls under the definition of works contract as per Section 2(119) of the CGST Act, 2017. The appropriate classification for such a transaction is under Heading 9954, which pertains to construction services.

The rate of GST applicable to works contract services is 18%, as specified under Chapter 99 of the GST tariff.

Conclusion:

The authority ruled that the transaction between the applicant and the lessee is taxable under GST and is not a transaction in immovable property. The transaction is classified as a composite supply of works contract services under Heading 9954 and attracts a GST rate of 18%.