2023 (4) TMI 155 - AAAR - GST

Classification of services - rate of GST - Other Charges collected from its customers in respect of the sale of residential apartments - composite supply with construction of residential apartment as the principle supply and other services provided are incidental to the main supply or not - charges will be treated as consideration for construction services of the Company and classified under HSN 9954 along with the main residential construction services of the Company or whether the same will be treated as consideration for independent service(s) of the respective head? HELD THAT - In the present case, the different elements of transactions are available separately. The type of supplies or charges received in this case like advance maintenance charges, club house charges, share of municipal taxes (pertaining to period after occupancy), share money, application entrance fee of the organization, formation and registration of the organization and legal charges in connection therewith and infrastructure charges (for development of common area infrastructure) are independent from construction service. Even though any one or all of them is removed from the contract, the supply of services of construction of residential apartment / dwelling goes unabated. Therefore, the test that different elements are integral to one overall supply, even if one or more is removed, the nature of the supply would be affected, is not satisfied in the present case. So the nature of the other charges in respect of the above said independent services / activities which are not inextricably linked to a residential apartment shows that they don't fulfill the various tests of composite supply. Further the services provided would be considered as provided even when the entire consideration for the immovable property is received after issuance of Completion Certificate or Occupation Certificate. Here the services provided are clearly identifiable separately from the construction service. Further, other services provided can be offered only once and the purchaser of flat cannot offer such a service to a buyer from him during the resale. Thus, it is clear that charges in respect of some services are inextricably linked while other services are independently provided to the customer. The dominant intention test and principles for determination of naturally bundled services point out the independent nature of some of the services - the rate of tax on the inextricably linked services would be 12%. Appeal allowed in part.

Summary

Issues Involved:
1. Classification of "Other Charges" as part of composite supply or independent services.
2. Applicable GST rate on "Other Charges".
3. Condonation of delay in filing the appeal.

Summary:

1. Classification of "Other Charges":
The appellant, engaged in the construction and sale of residential apartments, contended that "Other Charges" (e.g., electric meter installation, water connection charges, etc.) should be treated as part of a composite supply with the principal supply being the construction services. The Advance Ruling Authority (AAR) rejected this contention, holding that these charges are independent services and not part of a composite supply. The Appellate Authority for Advance Ruling (AAAR) partially agreed with the appellant, determining that certain charges (e.g., water connection, electric meter installation, development charges, and legal fees) are naturally bundled with construction services and should be taxed at the same rate (12%). However, other charges (e.g., club house maintenance, advance maintenance, etc.) are independent services and should be taxed at their respective rates (18%).

2. Applicable GST Rate:
The AAR initially ruled that "Other Charges" are to be taxed independently at 18%. The AAAR revised this, stating that charges which are inextricably linked to construction services should be taxed at 12%, while others remain at 18%. The AAAR emphasized the "dominant intention test" and the principles for determining naturally bundled services to reach this conclusion.

3. Condonation of Delay:
The appeal was filed 36 days late. However, the AAAR condoned the delay based on the Supreme Court's order in SMW(C) No.3 of 2020, which excluded the period from 15.3.2020 to 2.10.2021 from the limitation period due to the COVID-19 pandemic. Consequently, the appeal was treated as filed within time and admitted for disposal.

Order:
The AAAR partly set aside the AAR's order, ruling that certain "Other Charges" are part of a bundled service with the principal construction service and should be taxed at 12%, while others are independent services taxable at their respective rates. The appellant was directed to refund any excess tax collected to the customers. The appeal was thus partly allowed.