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TMI Blog2022 (3) TMI 1297X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Street, 4th Sector, K K Nagar, Chennai - 600 078, being a land admeasuring 3440 Sq.ft. They have entered into a Joint Development agreement with the developer, M/s Nu Tech Associates dated 10.04.2019. As per the Joint Development agreement, the developer should develop 6 Nos of Flats and the applicant was entitled to 1255 sq.ft of Super Built-up area in the Second Floor of the premises and another 1255 Sq.ft by virtue of her being guardian to another Sister. The developer is entitled to 2 Nos of Flats out.of 6 Nos of Flats. The completion certificate for the Construction of the Flat was obtained in March 2021 and the construction is almost completed, but the flat is yet to be handed over. The notification No.4/2018 - Central Tax (Rate) dated 25.01.2018 establishes liability of payment of GST and categories the coverage into two parts - (a) Supply of developmental rights (b) Supply of construction service The landowner being an unregistered person under GST, will not attract the liability of payment towards GST for the supply of development rights for the development of the property at Plot No 480, 19th Street, 4th Sector, K K Nagar, Chennai - 600078. In respect of cate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Developer is liable to pay GST even on the share of the landowner, as per Notification No 4/2018 dated 25.01.2018 only in respect of the Supply of Construction Service. In the case under question the applicant has consented to pay the GST on her share as per Clause No.11 of the agreement. The developed has demanded a sum of ₹ 5,69,230/- per flat towards GST and in respect of 2 Nos of Flats has demanded a sum of ₹ 11,38,460/-. The working for the construction cost and the demand thereof @5o/0 towards GST has not been furnished. The value of the constructed flats supplied to the applicant by the developer has to be determined under the provisions of Section 15 of the GST Act, 2017, read with Rules governing the valuation as envisaged under Rules 27 to 35 of the CGST Rules, 2017. 2.3 In terms of the Rule 27 of the COST Rules, 2017, where the supply of goods or services is for a consideration not wholly in money, the value of the supply shall (a) Be the open market value of such supply; The developer has registered the construction agreement entered by him Vide Document No 326/2021 with the first buyer belonging to the developer portion of the constructed premises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is not a party to the transaction in view of the joint development agreement and it is purely between the buyer and the developer. The problem arises only when the landowner is affected on account of registering the property much below the market value and increasing the cost of construction in the construction agreement entered into with the buyer by the developer and based on the illegitimate value reported in the construction agreement, demand GST on the constructed value reported in the construction agreement, without any basis. Moreover, as per Clause 2 of the Joint Development agreement, the Developer has consented to construct the building at ₹ 2,000/- Per Sq.ft. Having consented to construct the building at a cost of ₹ 2,000/-, the demand to consider GST based on the open market value of supply as per the first registered document in respect of the sale of flat belonging to the developer portion is unjustified, particularly when the demand is 2.62 times more than the consented value for construction. (iv) The landowner is not bound by the illegitimate construction agreement entered into by the developer with the buyer, for the simple reason that the owne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the open market value of the supply of construction service and the GST @5% on the above is ₹ 2,86,665/- for 4 Nos of Flats and ₹ 1,43,333/-, for 2 Nos of Flats, as against the demand of ₹ 11,38,460/- by the developer. The Cost of Construction as per the above with regard to the land owner portion works out to ₹ 1,142/- Per Sq.ft. Considering the fact, that all the materials included in the project are not subjected to GST, the above cost of construction may also be considered as reasonable for the purpose of GST. (c) If the value of supply is not determinable under clause (a) or clause (b), be the value of supply of goods or services or both of like kind and quality. - Under this clause, the developer may be requested to submit the value of supply of goods and services utilised in the project by means of copy of the bills, evidencing delivery of material and services at the site to the landowner for his verification. In the event of the developer not maintaining separate accounts for the project, valuation report from approved Panel Valuer, preferably from Central Public Works Department or the Income-tax Panel Valuer may be obtained for arriving at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards undivided share of Land, by means of which a super built-up area of 1,255 Sq.ft was sold together with 573.33 sq.ft of undivided share of the land. The total cost of the flat is ₹ 1,19,53,730/- @₹ 9,524.88 Per Sq.ft. This price of ₹ 9,524.88 per sq.ft comprises of both the market value of the Land and Building. The market value of the project based on the first sale is 7,530 Sq.ft @₹ 9,524.88 Per Sq.ft, works out to ₹ 7,17,22,380/-. The computation is as follows; Let x be the market value of the Undivided Share of Land and y be the market value of Supply of Construction Service. For the first sale executed by the Developer the mathematical equation is as follows; 573.33x + 1255y = 1,19,53,730/- Equation 1 The Land owner is entitled to 5,020 sq.ft of super built up area on surrendering an undivided share of area 1146.66 sq.ft. Therefore, the mathematical equation is Thus, the open market value of the supply of construction service based on JDA and the first sale of the flat is ₹ 3,174.96 Per Sq.ft and not what has been registered by the developer in favour of the buyer by manipulating the cost of construction with the so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red applicant dated 10.04.2019 Provides for payment of GST by the applicant with regard to the share of the landowner. The applicant is the payee of GST in to the GSTIN 33AAEPN4673Q1Z5 on the portion of the construction services received from the Registered applicant and thus step into the shoes of the Registered applicant and is obligated to pay GST. It is in this regard the department has granted a temporary registration with GSTIN/User id : 332100000490ARD. The fact that the applicant is the payee of GST in respect of the issue under question, a Temporary User Id has been granted, the prescribed fees has been paid by the applicant and that the application for advance ruling was not rejected in limine, make him/her eligible to seek Advance ruling. 3. Moreso, there was an element of supply by way of supply of land in the nature of Undivided Share of land, the positive interpretation should benefit the Party and the Department having fastened with jurisdiction stated supra, should not shy away from laying the ratio to the given set of facts. The issue under question cannot be thrown under the carpet at the guise of technicalities. Any action under the guise of technicality witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance ruling and has sought advance ruling to determine the liability to pay tax on services as per Q No 4 (e). 6. The Department having stood over and collected the prescribed fees, has taken the jurisdiction and no prejudice whatsoever shall happen, if advance ruling is provided on the subject matter. 7. On the contrary, if an order of rejection is give, it shall run against the interest of justice in the absence of genuine construction in the light of the contextual matter holistically. 4.1 The State Jurisdictional Authority, Assistant Commissioner (ST) K K Nagar Assessment Circle, vide letter RC. No. 686/2021/A-1, dated: 30.12.2021 has stated that: The Applicant is a service recipient of construction service under a Joint Venture Agreement. In this connection, I submit my remarks on the transactions effected under the GST Act, 2017. 1) A Deed of Joint Development Agreement was executed on 10.04.2019 with the Applicant namely Tmt. A. Nirmala and others called as Owners and Tvl. Nu Tech Associates called as Developers whereas the Stamp Paper No. 46AB 763650 was purchased on 09.07.2019. 2) Transfer of Construction services by Developer or Buildin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guardian to another Sister. The developer was entitled to 2 nos. of Flats of 6nos of flats. The completion certificate for the Construction of the Flat was obtained in March 2021 and the construction is almost completed, but the flat is yet to be handed over. The issue raised is on the value to be adopted for the construction service on which the developer builder has to pay GST. i.e., what should be the taxable value in respect of the supply of the construction services provided by the developer to the applicant as per Clause (b) of the notification No.4/2018? 6.1 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncerned officer or his authorised representative, by order, either admit or reject the application: 6.5 Further, the provisions of 5.103 categorically states that the ruling pronounced is binding only on the appellant. The section reads as under: 5.103 (1) The advance ruling pronounced by the Authority or the Appellate Authority under this Chapter shall be binding only- (a) on the applicant who had sought it in respect of any matter referred to in sub section (2) of section 97 for advance ruling; (b) on the concerned officer or the jurisdictional officer in respect of the applicant. From the, above, it flows that 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 def ..... X X X X Extracts X X X X X X X X Extracts X X X X
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