2019 (10) TMI 1020 - AAR - GST

Rate of GST - constructions comprising entirely of construction of commercial space - rate of tax applicable both with ITC and without ITC? - HELD THAT - The transaction of the applicant is examined and found that the applicant has entered into a joint development agreement with the landowner for developing a purely commercial property. There is a supply of development rights to the applicant by the landowner and there is a supply of construction service in the form of works contract service by the applicant to the landowner - the landowners are transferring the development rights of the land in lieu of construction service to the applicant and the applicant is providing construction services to the landowners to the extent of the value of the rights in land. The supplies of the applicant needs to be verified and on verification it is observed that the applicant is not intending to supply the constructed commercial apartments to any prospective buyers and himself capitalizing the same and intends to use it for leasing/ renting. Since no resale of the constructed portion is intended, the project is not covered under the definition of a real estate project - Since the applicant is not intending to sell any of the said commercial area, the project undertaken by the applicant cannot be covered under a Real Estate Project and hence cannot be covered under subitem (if) of item 3 of the Notification. The tax rate applicable on the supply of construction service to the land owner in lieu of transfer of development rights to the promoters portion is liable to tax at 9% under CGST and 9% KGST under entry no 3(xii) of the Notification No.11/2017 - Central Tax (Rate) dated 28.06.2017 as amended by Notification No.3/2017-Central Tax (Rate) dated 29.03.2019. The applicant is eligible for input tax credit on the same. In the instant case can the applicant, the service provider of construction of commercial space utilise the ITC relating to the construction activity on supply of other goods and services? - HELD THAT - The applicant is capitalizing his portion of the building as an immovable property and as per section 17(5)(d) of the CGST Act, 2017, the applicant is not eligible to claim input tax credit on the inputs and input services to the extent used for such construction. Can input tax paid on inputs relating to construction activity i.e. on construction of buildings / built up space be utilised against the output tax payable on letting out of the same space? - HELD THAT - Since the input tax credit is not available relating to his portion of the constructed building, the same is not available for utilization of it against the output tax payable on letting out of the same space. Is providing residential accommodation as paying guest to students outside the premises of the University/ College / School campus taxable under GST? If yes, what is the rate of tax applicable? - HELD THAT - This is not answered as the applicant has withdrawn the question.

Summary

Issues involved:
1. Applicability of new tax rates on construction of commercial space.
2. Utilization of Input Tax Credit (ITC) for construction of commercial space.
3. Utilization of input tax paid on construction against output tax on letting out space.
4. Taxability of providing residential accommodation to students.

Analysis:

Issue 1 - Applicability of new tax rates on construction of commercial space:
The applicant sought clarification on whether the new tax rates recommended by the GST Council for housing projects are applicable to their commercial complex project. The ruling authority examined the nature of the project and concluded that the project does not fall under the definition of a real estate project for residential purposes. Therefore, the project is not covered under the specified subitems of the notification, and the construction service is deemed liable to tax at 9% under the CGST Act.

Issue 2 - Utilization of Input Tax Credit for construction of commercial space:
The authority determined that since the applicant is capitalizing their portion of the building as an immovable property, they are not eligible to claim input tax credit on inputs and input services used for such construction. This decision is based on section 17(5)(d) of the CGST Act, which restricts input tax credit in such scenarios.

Issue 3 - Utilization of input tax paid on construction against output tax on letting out space:
As the input tax credit is not available for the constructed building, the authority ruled that the applicant cannot utilize it against the output tax payable on letting out the same space. This decision is in line with the unavailability of input tax credit for the construction of immovable property for own use.

Issue 4 - Taxability of providing residential accommodation to students:
The applicant withdrew this question during the hearing, and hence, the authority did not provide a ruling on this issue. However, it was noted that the applicant's provision of paying guest accommodation exclusively to students may be considered a service related to education and could potentially qualify for exemption from GST.

In conclusion, the ruling provided clarity on the tax implications for the construction of commercial space, input tax credit eligibility, and utilization, while also highlighting the specific provisions under the CGST Act applicable to the applicant's project.