2022 (8) TMI 365 - AAR - GST

Levy of GST on RCM basis - project is falling under other than On-going Projects - New project or not - share of land lord -applicability of notification 4/2019 - applicability of RCM to daily wages, Labour Charges and Contract Labour - limit on the percentage of material to be used in project - Whether Salaries, Incentives, Brokerage, Remuneration and interest on Working Capital are liable for RCM? - project of combination of affordable Flats (Carpet Area is less than 60Sq Mts), and Non affordable flats (Carpet Area is more than 60Sq Mts) - whether different rate of tax be adopted for different units, i.e., GST 1% in case of affordable Units and 5% in case of Non affordable units based on the Carpet area? HELD THAT - The Notification No. 03/2019 makes a distinction between Ongoing project in clause (xx) of Para 4 and Other than ongoing project in clause (xxviii) of Para 4. Accordingly Other than ongoing project means a project which commences on or after 01.04.2019. Therefore the project undertaken by the applicant does not fall under this definition as claimed by him in the statement of facts submitted separately on 21.12.2021 - This notification offers the promoter an option to shift to the new scheme or to continue under the earlier scheme. Under the new scheme, for residential apartments, the developer promoter has to pay CGST as well as SGST @0.5% without ITC for affordable residential apartments and 2.5% without ITC for other residential apartments and reverse the input tax credit available in the credit ledger as on 31.03.2019. However if the developer promoter intends to continue under the old scheme and avail ITC, he has to submit a declaration before 20.05.2019 to the jurisdictional authority. In the case of the applicant, it appears they have not opted for the old scheme, hence they fall under new scheme and therefore have to pay tax @0.5% for CGST as well as SGST for affordable residential apartment and @ 2.5% CGST SGST for other residential apartments without availing ITC. The tax on the portion of constructed area shared with the land owner-promoter has to be paid by applicant as his liability in the capacity of developer-promoter and not as Reverse charge mechanism. The law regarding services by an employee to the employer in the course of or in relation to his employment enumerated in Schedule III to CGST Act, 2017 remains unchanged. Therefore tax will not be attracted for labour engaged on daily basis or employees etc., if the service is rendered in the course of such an employment. However manpower supply or labour supply services by manpower supply agency falls under SAC 98519 and is taxable @18%. This tax has to be paid by the manpower supply agency. The Notification No. 03/2019 makes a distinction between Ongoing project in clause (xx) of Para 4 and Other than ongoing project in clause (xxviii) of Para 4. Accordingly Other than ongoing project means a project which commences on or after 01.04.2019. Therefore the project undertaken by the applicant does not fall under this definition as claimed by him in the statement of facts submitted separately on 21.12.2021 - If the initial contract for land and building, even if entered through (2) different un severable agreements, constitutes a single contract and hence will attract tax @0.5% for affordable housing and @2.5% for other housing under CGST SGST respectively without ITC. However any other agreement which is beyond the scope of initial agreement and is a severable agreement vis- -vis the initial agreement then the construction made under this contract will attract 9% tax under CGST SGST each with ITC.

Summary

Issues:
1. Interpretation of notification 4/2019 for GST payment on RCM basis for new projects.
2. Applicability of RCM to daily wages, labor charges, and contract labor.
3. Limit on the percentage of material used in the project.
4. Tax liability on salaries, incentives, brokerage, remuneration, and interest on working capital.
5. Different tax rates for affordable and non-affordable flats based on carpet area.
6. Tax rates for sale agreement and work order in the case of semi-finished residential flats.

Analysis:
1. The applicant sought clarification on whether notification 4/2019 applies for GST payment on RCM basis for new projects. The ruling clarified that the project commenced before 01.04.2019 and did not fall under the definition of "other than ongoing projects," as per Notification No. 03/2019. Thus, the project did not qualify for RCM under the said notification.

2. The ruling stated that RCM does not apply to daily wages, labor charges, or contract labor, as per Schedule III to the CGST Act, 2017, which exempts services by employees to employers from tax if rendered in the course of employment. However, manpower supply services are taxable at 18%.

3. There is no specified limit on the percentage of material to be used in the project, such as cement or sand, as per the ruling.

4. Salaries, incentives, brokerage, remuneration, and interest on working capital were deemed not liable for RCM, as per the ruling.

5. The ruling confirmed that different tax rates based on carpet area can be adopted for affordable and non-affordable flats in a project, allowing for GST rates of 1% and 5% respectively.

6. In the case of entering into two types of agreements for selling semi-finished residential flats, the ruling clarified that if the initial contract for land and building constitutes a single contract, it attracts tax rates of 0.5% for affordable housing and 2.5% for other housing under CGST & SGST without ITC. However, any additional agreement beyond the initial contract would attract a 9% tax rate under CGST & SGST each with ITC.

This detailed analysis of the judgment provides a comprehensive understanding of the issues addressed and the rulings provided by the Authority for Advance Ruling, Telangana.