2022 (3) TMI 1297 - AAR - GST

Maintainability of Advance Ruling application - Recipient of supply - Valuation - taxable value of supply of construction services provided by the developer to the applicant - time of supply - applicability of N/N. 4/2018 - HELD THAT - In the case on hand the applicant herself admits in the question raised by her that the services are provided by the developer to the applicant. The applicant is the recipient of the construction service of the flat for which an agreement was also entered on 10.4.2019 between the applicant and the developer for providing the services of the construction service. The cost of the construction service is determined by the developer and recovered from the applicant for handing over the flats to the applicant. In the subject case, we find that the applicant is a recipient of services and has raised the questions as a recipient of services. Whether or not the activities undertaken by the applicant pertain to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant and that the application is admissible under the ambit of this authority? - HELD THAT - Section 95 of the CGST Act 2017 allows this authority to decide the matters in respect of supply of goods or services or both undertaken or proposed to be undertaken by the applicant. We find that the applicant has not undertaken the supply in the subject case. Rather the applicant is a recipient of impugned services in the subject case. The impugned transactions are not in relation to the supply of goods and services or both undertaken or proposed to be undertaken by the applicant This authority is governed by the statutory provisions of Chapter XVII of the GST Act. Section 98 of the Act, prescribes the procedure to be followed on receipt of the application and it clearly states that prima-fade, on receipt of the application, the authority should examine its admissibility after extending an opportunity of hearing to the applicant - if a recipient obtains a ruling on the value to be adopted of his inward supply of goods or services, the supplier of such goods or services is not bound by that ruling and he is free to assess the supply according to his own determination, in which case, the ruling loses its relevance and applicability even. Any law provision has to be interpreted in a constructive and harmonious way keeping in mind the object of the purpose of the provision. All parts of it should be read in aid of and not in derogation of that purpose. Any interpretation, if it defeats the very purpose of the objective and purpose of the law provision, is not only incorrect but also improper and bad in law. Thus, only a supplier and not the recipient is eligible to seek an advance ruling and therefore the subject application cannot be admitted as per the provisions of Section 95 of the CGST Act - application rejected as not admissible.

Summary

Issues Involved:
1. Determination of taxable value for the supply of construction services.
2. Eligibility of the applicant to seek an advance ruling as a recipient of services.

Issue-wise Detailed Analysis:

1. Determination of Taxable Value for the Supply of Construction Services:

The applicant, an unregistered dealer under the GST Act and a service recipient of construction services, sought an advance ruling on the taxable value in respect of the supply of construction services provided by the developer as per Clause (b) of Notification No. 4/2018. The applicant had entered into a Joint Development Agreement (JDA) with the developer, M/s Nu Tech Associates, for the development of 6 flats, with the applicant entitled to 2510 sq.ft. of super built-up area.

The applicant argued that the value of supply should be based on the consideration in the form of transfer of development rights of 1146.66 sq.ft. of undivided interest in the land. The time of supply was when the developer transferred possession or the right in the constructed area, which had not yet occurred. The developer, being a registered person under GST, was liable to pay GST on the construction services provided.

The applicant contended that the value of construction services should not be based on the open market value unilaterally decided by the developer at ?7,240.70 per sq.ft., which was deemed illogical and inflated. Instead, the value should be determined under Section 15 of the GST Act, read with Rules 27 to 35 of the CGST Rules, 2017, considering the actual cost of construction agreed in the JDA at ?2,000 per sq.ft.

The applicant proposed that if the open market value was not available, the value should be the sum total of consideration in money and any such further amount equivalent to the consideration not in money. They suggested that the value of supply of service could be based on the undivided share of land relinquished by the landowner, which was ?57,33,300 for 1146.66 sq.ft., resulting in a GST liability of ?2,86,665 for 4 flats.

Alternatively, the applicant suggested obtaining a valuation report from an approved panel valuer if the value was not determinable under the previous clauses.

2. Eligibility of the Applicant to Seek an Advance Ruling as a Recipient of Services:

The applicant argued that they were eligible to seek an advance ruling as a recipient of construction services, having paid the prescribed fees and obtained a temporary registration with GSTIN/User ID. They referred to FAQs on the GST portal, which stated that both registered and unregistered persons could apply for an advance ruling on matters prescribed under the GST Act.

However, the authority examined the admissibility of the application under Section 95 of the CGST Act, which defines "advance ruling" as a decision provided to an applicant in relation to the supply of goods or services undertaken or proposed to be undertaken by the applicant. Since the applicant was a recipient of services and not the supplier, the authority concluded that the application was not admissible.

Ruling:

The application was rejected as not admitted under Section 98(2) read with Sections 95(a) and 103(1) of the CGST/TNGST Act, 2017. The authority determined that only a supplier, not a recipient, is eligible to seek an advance ruling.