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TMI Blog2023 (7) TMI 518X X X X Extracts X X X X X X X X Extracts X X X X ..... er than affordable residential apartments by a promoter in a residential real estate project intended for sale to a buyer except where the entire consideration is received after issuance of completion certificate. From the definition of the term apartment ; residential apartment real estate project and promoter , it is clear that the residential villas being constructed by the applicant fall within the definition of residential apartment and the projects undertaken by the applicant fall within the definition of real estate project and the applicant fall within the definition of promoter . Further, on a conjoint reading of the provisions of law, the facts as stated in the application; the terms and conditions in the agreements and the documents produced it is seen that the services of construction of villas provided by the applicant squarely fall within the description of services specified in Item (i) and (ia) of SI. No. 3 of the Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 03/2019 Central Tax (Rate) dated 29.03.2019 and accordingly the tax rates as prescribed in the said entries shall be applicable to the said services suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5% / 7.5% (effective tax rate 1%/5%) without benefit of Input Tax Credit? 2.2. How the taxable value of construction of villa is to be calculated by the applicant on the projects developed and promoted by the applicant on the arrangement of agreement with landlord, landlord selling the plots directly to various villa buyers identified by the applicant. Whether out of the total value of the villa including land value, 2/3rd of the total value shall be taken for payment of GST at the rate of 1.5% / 7.5% (effective rate of 1% /5% on the total value of villa)? 2.3. Whether the amount charged by the applicant from villa buyers for some structural changes, to add some additional area or undertake interior works etc carried out before the completion of the construction is also part of gross amount charged for construction and sale of villa and accordingly the effective tax rate of 1%/5% will also be applicable on such amount charged without input tax credit? 3. Contentions of the Applicant: 3.1. The applicant submits that they are presently engaged in development of a Villa Project (namely, The Mateo) for the prospective villa buyers and have started the construction activit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f land including the undivided portion of common areas and the consideration for construction of villa stage wise as per the agreed terms and conditions in the agreement for sale of land including the undivided portion of common area and agreement to construct the villa. On completion of the construction of the villa, the occupancy certificate is taken in the name of the villa buyer. After completion and handing over of the villas to the villa buyers they make necessary arrangements to form an association including all villa buyers in that project and then hand over all common amenities to them to take care. 3.8. They submitted that some of the villa buyers before completion of construction and handing over of the villa may request them to make some structural changes, to add some additional area or undertake interior works etc for which they charge extra amount based on a supplementary agreement or by endorsement on the construction agreement itself. 3.9. As per Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 03/2019 - Central Tax (Rate) dated 29.03.2019 projects started on or after 01.04.2019 attract GST at the following rates sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged for such supply less the value of such transfer of land or undivided share of land in such supply and the value of land or undivided share of land shall be deemed to be or one third of the total amount charged for such supply. Therefore, the taxable value shall be 2/3rd of the total value of villa including the value of land. The CBIC in Q. No. 36 of the FAQ on Real Estate Sector issued under F.No. 354/32/2019 -TRU dated 07.05.2019 clarified that the developer cannot take deduction of actual value of land, as the valuation mechanism prescribed in Para 2 of the said notification clearly prescribes one-third abatement towards value of land. Therefore, in all cases the value of land included in the value of villa shall be deemed as 1 /3rd of the total value of villa including the value of land. The actual value of land even if mentioned in any of the agreement is of no relevance to calculate the GST payable on the construction services of villa. Accordingly, they are liable to pay GST after deducting 1 /3rd towards value of land and the actual value of land mentioned in the agreement is to be ignored. 3.14. The Kerala Advance Ruling Authority in the case of M/s Dharmic Living ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construed that there are no proceedings pending on the issue against the applicant. 5. Personal Hearing: 5.1. The applicant was granted opportunity for personal hearing on 05.07.2022. Shri M.P. Tony, Chartered Accountant represented the applicant for personal hearing. He reiterated the contentions made in the application and requested to issue the ruling on the basis of the submissions made in the application. 6. Discussion and Conclusion: 6.1. The matter was examined in detail. The questions to be answered are regarding the rate of tax and taxable value in respect of the construction services of the villas rendered by the applicant. The contention of the applicant is that as per provisions of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 03/2019 Central Tax (Rate) dated 29.03.2019, the rate of GST applicable is 1.5% for affordable villas and 7.5% for villas other than affordable villas and the provisions of Paragraph 2 of the said notification apply for valuation of the service and accordingly one-third of the total amount charged for the supply is eligible as deduction as the value of transfer of land or undivided shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for item (ie) or (if) below, as the case may be, in the manner prescribed therein, intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier. (Provisions of paragraph 2 of this notification shall apply for valuation of this service). 6.4. The rate of GST applicable for entry at Item (i) is 1.5% [0.75% - CGST + 0.75% - SGST] and for the entry at Item No. (ia) is 7.5% [3.75% - CGST + 3.75% - SGST]. The above rate of GST is subject to the conditions mentioned therein. 6.5. The conditions that are common for both the entries are as extracted below; Condition : Provided that the central tax at the rate specified in column (4) shall be paid in cash, that is, by debiting the electronic cash ledger only; Provided also that credit of input tax charged on goods and services used in supplying the service has not been taken except to the extent as prescribed in Annexure I in the case of REP other than RREP and in Annexure II in the case of RREP; Provided also that the registered person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l year till the date of issuance of completion certificate or first occupation of the project, whichever is earlier) falls short of the said threshold of 80 per cent, central tax shall be paid by the promoter on value of input and input services comprising such shortfall at the rate of nine percent on reverse charge basis and all the provisions of the Central Goods and Services Tax Act, 2017 shall apply to him as if he is the person liable for paying the tax in relation to the supply of such goods or services or both; Provided also that notwithstanding anything contained herein above, where cement is received from an unregistered person, the promoter shall pay tax on supply of such cement at the applicable rates on reverse charge basis and all the provisions of the Central Goods and Services Tax Act, 2017 shall apply to him as if he is the person liable for paying the tax in relation to such supply of cement; Explanation. - 1. The promoter shall maintain project wise account of inward supplies from registered and unregistered supplier and calculate tax payments on the shortfall at the end of the financial year and shall submit the same in the prescribed form electroni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment intended for residential use as declared to the Real Estate Regulatory Authority or to competent authority. 6.7. The relevant clauses of Section 2 of the Real Estate (Regulation and Development) Act, 2016 which contains the definition of the terms; apartment ; promoter and real estate project are reproduced below; (e) apartment whether called block, chamber, dwelling unit, flat, office, showroom, shop, godown, premises, suit, tenement, unit or by any other name, means a separate and self-contained part of any immovable property, including one or more rooms or enclosed spaces, located on one or more floors or any part thereof, in a building or on a plot of land, used or intended to be used for any residential or commercial use such as residence, office, shop, showroom or godown or for carrying on any business, occupation, profession or trade, or for any other type of use ancillary to the purpose specified. (zk) promoter means,- (i) a person who constructs or causes to be constructed an independent building or a building consisting of apartments, or converts an existing building or a part thereof into apartments, for the purpose of selling all or some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a buyer except where the entire consideration is received after issuance of completion certificate. 6.9. From the definition of the term apartment ; residential apartment real estate project and promoter as above it is clear that the residential villas being constructed by the applicant fall within the definition of residential apartment and the projects undertaken by the applicant fall within the definition of real estate project and the applicant fall within the definition of promoter . Further, on a conjoint reading of the above provisions of law, the facts as stated in the application; the terms and conditions in the agreements and the documents produced it is seen that the services of construction of villas provided by the applicant squarely fall within the description of services specified in Item (i) and (ia) of SI. No. 3 of the Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 03/2019 Central Tax (Rate) dated 29.03.2019 and accordingly the tax rates as prescribed in the said entries shall be applicable to the said services supplied by the applicant. Accordingly, the applicant is liable to pay GST at the rate of 1.5% [0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id notification the taxable value in respect of the service specified at item (i) and (ia) of SI. No. 3 of the said notification is the total amount charged for the supply less the value of land or undivided share of land and the value of land or undivided share of land shall be deemed to be one third of the total amount charged for the supply. As the value of land or undivided share of land is deemed to be one-third of the total amount charged for the supply irrespective of the actual value of land the applicant is eligible to avail deduction of one-third of the total amount charged for the supply in arriving at the taxable value of the supply. In view of the observations stated above, the following rulings are issued; RULING Question 1: Whether the rate of GST applicable on the applicant on the construction and sale of villas is 1.5% / 7.5% (effective tax rate 1%/5%) without benefit of Input Tax Credit? Ruling : The applicant is liable to pay GST at the rate of 1.5% [0.75% - CGST + 0.75% - SGST] in respect of the services of construction of affordable residential apartments as per entry at Item (i) and at the rate of 7.5% [3.75% - CGST + 3.75% - SGST] in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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