2022 (1) TMI 300 - AAR - GST

Benefit of Exemption from GST - property currently under construction is a Residential Real Estate Project (RREP) - property under construction is an affordable residential apartment or not - GST rate to be charged from customers for sale of flats in the said property should be 1.5% (0.75% CGST and 0.75% SGST), as further reduced by 1/3 rd to factor in the value of land or it should be 7.5% (3.75% CGST and 3.75% SGST), as further reduced by 1/3 rd to factor in the value of land - HELD THAT - The activities undertaken by the applicant, as it appears from the available records, is development of a building consisting of apartments for the purpose of selling all or some of the said apartments. The instant project, therefore, can be termed as a real estate project . Further, a REP shall be treated as RREP if the carpet area of the commercial apartments is not more than 15 per cent. of the total carpet area of all the apartments in the REP. Here, from the submitted documents, it is found that the instant project doesn t have any commercial apartment. As a result, the instant project falls under the category of RREP. According to clause (9) of section 2 of the Kolkata Municipal Corporation Act, 1980, Kolkata means the area described in Schedule I. The instant project, being located in the district of Purba Bardhaman, is undisputedly in the towns other than Kolkata metropolitan cities. It therefore qualifies for carpet area not exceeding 90 square meter for the purpose of affordable residential apartment. Applicable rate of tax to be charged from customers for sale of flats in the said property - HELD THAT - The applicant has also raised his doubt towards applicability of new tax rate of 1% effective from 01.04.2019 on the ground that the said property or the firm is not registered under any affordable housing scheme of the Central or State Government. In this context, it is found that the schemes which are notified as affordable residential apartment are applicable only for an ongoing project in respect of which the promoter has not exercised option to pay tax on construction of apartment at the rates specified for items (ie) or (if) against Sl No, 3 of the relevant Notification. As the instant project has commenced after 01.04.2019, it cannot be termed as ongoing project. Hence, affordable housing scheme of the Central or State Government, as pointed out by the applicant is not applicable for the instant project. GST rate to be charged from customers for sale of flats in the said project, 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 1.5% (0.75% CGST and 0.75% SGST), as further reduced by 1/3rd to factor in the value of land.

Issues Involved:
1. Whether the property under construction qualifies as a Residential Real Estate Project (RREP) under relevant GST notifications.
2. Whether the property qualifies as an affordable residential apartment as per the relevant GST notifications.
3. Determination of the applicable GST rate to be charged from customers for the sale of flats in the said property.

Issue-wise Detailed Analysis:

Issue 1: Residential Real Estate Project (RREP) Qualification
The applicant is involved in constructing a property in Katwa, West Bengal, intended solely for residential purposes without any commercial spaces. The definition of RREP, as per the relevant GST notifications, states that a RREP is a Real Estate Project (REP) where the carpet area of commercial apartments does not exceed 15% of the total carpet area of all apartments. The project in question does not include any commercial apartments, thus qualifying it as a RREP.

Issue 2: Affordable Residential Apartment Qualification
The project commenced after April 1, 2019, and all apartments have a carpet area below 90 square meters, with the maximum price per apartment being ?23,35,594. According to the relevant GST notifications, an affordable residential apartment in non-metropolitan areas must have a carpet area not exceeding 90 square meters and a price not exceeding ?45 lakhs. The project meets these criteria. The applicant's concern about not being registered under any affordable housing scheme of the Central or State Government is addressed by noting that such registration is not required for projects commencing after April 1, 2019.

Issue 3: Applicable GST Rate
The initial GST rate for construction services was 18%, reduced to 1.5% (0.75% CGST and 0.75% SGST) for affordable residential apartments in RREPs commencing after April 1, 2019. The rate is further reduced by one-third to account for the value of land, effectively making it 1% (0.5% CGST and 0.5% SGST). The project qualifies for this reduced rate as it meets all criteria for affordable residential apartments in a RREP.

Observations and Findings:
The project is confirmed as a RREP, and the apartments qualify as affordable residential apartments. The applicable GST rate for the sale of these flats, except where the entire consideration is received after issuance of the completion certificate or first occupation, is 1.5%, further reduced by one-third for the value of land, making the effective rate 1%.

Ruling:
1. The project under construction is a Residential Real Estate Project (RREP).
2. The apartments qualify as affordable residential apartments.
3. The GST rate to be charged is 1.5% (0.75% CGST and 0.75% SGST), further reduced by one-third for the value of land, effectively making it 1% (0.5% CGST and 0.5% SGST).

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