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2021 (6) TMI 481 - AAR - GSTClassification of services - Works Contract - Composite supply - activities of construction carried out by the applicant for its customer under the Construction Agreement - classifiable under Heading 9997, and chargeable to CGST E.1 9% under S.No.35 of Notification No.11/2017-CT (Rate) dated 28.06.2017 or otherwise? - HELD THAT - Works Contracts were subjected to Sales Tax on the Value of Goods involved in the works and on the labour and Service portion of the same contract, service tax was levied in the Pre-GST Era. These very contracts are treated as supply of service in the GST Era. Going by the extracts of the Minutes of the council meetings, it is evident that the carve out of Para 6 of Schedule II to the Act was only to avoid any legal challenge in view of the same types of contracts considered for taxation under the provisions of Laws under PRE-GST and under GST. This, in no way can be said to establish that Para 5 does not extend to cover composite supplies as claimed by the applicant and this contention holds no merit. In the case at hand, the applicant supplies the prospective buyer, the construction service of the Unit intended for purchase by the buyer in the RREP being developed/ constructed by the applicant and the contract, i.e., the construction agreement is entered into for construction of the said Unit of the project developed by them - in the facts of the case, the applicant being a Promoter of the approved RREP, the construction of a Unit in the said RREP is an activity of Construction of part of the building with the intention for sale. Classification of services - HELD THAT - The classification of service may be Construction, erection, commissioning, etc of the immovable property and the contract for execution may be a works contract, in which, while providing the service, there is a transfer of property in goods. The mode of supply does not determine the classification of Service. Classification of Service is to be done based on the Scheme of Classification and there are no reason to agree to the contention of the applicant that the service provided by them is not classifiable under SAC 9954 - In the case at hand, the applicant develops RREP along with all the infra structures and constructs the Units of the RREP, i.e., construction of single /multiple dwelling unit and as such it clearly falls under construction services and the contention of the applicant to classify the same under 9997 is thus not entertainable and not tenable under law - In the case at hand, the most specific description being construction services, the subject activity falls under the SAC 9954 and therefore, the classification of service is Construction Service only, for the purpose of Notification No. 11/2017-C.T.(Rate) dated 28.06.2017 as amended. The rate for construction of Other than affordable residential apartments , i.e., Unit in the proposed RREP - Ashiana Shubam - Phase IV , by the applicant, promoter of the RREP, is as specified under SI.No. 3 (ia) which is 3.75% CGST and 3.75% SGST and the applicant has to satisfy the conditions stipulated in column (5) of the said entry.
Issues Involved:
1. Classification of construction activities under the GST regime. 2. Determination of applicable GST rate for the construction activities. Issue-wise Detailed Analysis: 1. Classification of Construction Activities under GST: The applicant, a real estate developer, sought a ruling on whether their construction activities for a residential project under a Construction Agreement are classifiable under Heading 9997 and chargeable to CGST @ 9% under S.No.35 of Notification No.11/2017-CT (Rate) dated 28.06.2017. Applicant's Argument: - The applicant argued that their activities should be classified under Heading 9997 as a composite supply of works contract, involving the transfer of goods (cement, steel, mortar, etc.) and services. - They referred to the definition of ‘works contract’ under Section 2(119) of the CGST Act and various judicial precedents to substantiate their claim. - They contended that their activities do not fall under the specific entries of Heading 9954 (Construction Services) and should therefore be classified under the residual Heading 9997. Authority's Analysis: - The authority examined the agreements (Agreement for Sale, Construction Agreement, Indenture of Understanding, and Sale Deed) and concluded that the applicant is involved in the construction of a Residential Real Estate Project (RREP). - It was established that the construction agreement is not a stand-alone agreement but part of a composite supply intended for sale. - The authority referred to Schedule II of the CGST Act, which treats construction intended for sale as a supply of services. - The classification of services under GST is based on the Scheme of Classification of Services, and the authority found that the applicant's activities fall under Heading 9954 (Construction Services). 2. Determination of Applicable GST Rate: The applicant sought clarity on the applicable GST rate for their construction activities under the Construction Agreement. Applicant's Argument: - The applicant argued that their construction activities should be taxed under the residual entry (Heading 9997) at 9% CGST as they believe their activities do not fit into the specific entries under Heading 9954. Authority's Analysis: - The authority established that the construction of residential units in the RREP by the applicant is a construction service under SAC 9954. - The applicable GST rate for construction services is provided under Notification No. 11/2017-CT (Rate) as amended by Notification No. 03/2019. - The authority concluded that the construction of residential apartments other than affordable residential apartments by a promoter in an RREP is covered under S.No. 3(ia) of the Notification, attracting a GST rate of 3.75% CGST and 3.75% SGST. Conclusion: The proposed construction activities by the applicant for residential units in the RREP are classifiable under SAC 9954 as 'Construction Services'. The applicable GST rate for these activities is 3.75% CGST and 3.75% SGST as per Entry S.No. 3(ia) of Notification No. 11/2017-CT (Rate) dated 28.06.2017, subject to the conditions specified in the notification.
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