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TMI Blog2023 (7) TMI 520X X X X Extracts X X X X X X X X Extracts X X X X ..... te project intended for sale to a buyer except where the entire consideration is received after issuance of completion certificate. From 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 (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 7.5% in respect of the services of construction of residential apartments other than affordable residential apartments as per entry at Item No. (ia) of SI. No. 3 of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 subject to the conditions prescribed under the respective entry. Taxable value of the services of construction of residential villas - HELD THAT:- The amount charged by them from the villa buyers for some structural changes, to add some additional area or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 29.03.2019)? 2. When agreement for construction with a purchaser is entered into after the execution of sale deed for land in favour of the purchaser, is PPD eligible for effective rate of 5% on gross value of land and construction (i.e.; availing 1/3rd deduction towards land on effective rate of 7.5% as per notification number 03/2019 dated 29.03.2019)? 3. Pursuant to the agreement for sale of land and agreement for construction entered into with a purchaser, there may be supplementary items of works executed by PPD for the purchaser prior to completion of construction of the villa. Can GST on such extra works be at 5% without input credits? 4. Contentions of the Applicant: 4.1. The applicant submits that for villa projects they identify land for the project and either buys the land outright or enters into agreement for sale with the Landowners. The agreement for sale is to purchase the property in their name or in the name of their nominees in one or more deeds. A combination of outright purchase of a part of the property and agreement for sale for the remaining area may also be followed. Then they prepare layout plan and get it approved by the local authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they are identified. In some cases such transfers will be done after the occupancy certificate for the Villa is obtained. 4.7. The applicant is currently promoting a villa Project namely; Prithvi in 509.81 areas of land in Attipra Village, Thiruvananthapuram Taluk. Majority of the land area; i.e., 308.76 areas of land is owned by the applicant and for the remaining portion of land they have entered into agreements for sale with the Landowners. A copy of the agreement with one such Landowner is attached as Annexure - A. The applicant has obtained Development Permit from the Corporation of Thiruvananthapuram and the permit is attached as Annexure -B. They have started initial work and had obtained registration from Kerala Real Estate Regulatory Authority and the Certificate of Registration is attached as Annexure-C. The agreements entered info with purchaser comprising agreement for sale of land is attached as Annexure -D and agreement for construction is attached as Annexure -E. The gross amount [Land + Construction] for all the Villas is expected to exceed Rs. 45 lakhs and hence do not fall under affordable apartment category. 4.8. The applicant has started the Villa Projec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.2019 clarified that the developer cannot take deduction of actual value of land, as the valuation mechanism prescribed in Para d 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 tb pay GST after deducting 1/3rd towards value of land and the actual value of land mentioned in the agreement is to be ignored. 4.13. Accordingly, the applicant is of the view that since the sum of the value of plot and undivided share of land and the value of services provided by the applicant are considered for the purpose of arriving at the total value, it is not material whether the sale deed was executed before or after the execution of construction agreement. It has no effect on the effective rate of taxation. Hence, irrespective of the fact that the sale deed for land is executed before or after the construction agreement, ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rued that there are no proceedings pending on the issue against the applicant. 6. Personal Hearing: The applicant was granted opportunity for personal hearing on 20.07.2022. Shri. S. Unnikrishnan, 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. 7. Discussion and Conclusion: 7.1. 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 the Villas being constructed by them fall under other than affordable category and as per provisions of Notification No. 11/2017-Central Tax (Rate) dated 28.0 .2017 as amended by Notification No. 03/2019-(Central Tax (Rate) dated 29.03.2019, the rate of GST applicable is 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apartments at the rates as specified 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). 7.4. 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or part of the financial 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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt shall mean an apartment intended for residential use as declared to the Real Estate Regulatory Authority or to competent authority. 7.6. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t intended for sale to a buyer except where the entire consideration is received after issuance of completion certificate. 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 (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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: When agreement for construction is entered into with a purchaser before the execution of sale deed for land in favour of the purchaser, is PPD eligible for effective rate of 5% on gross value of land and construction (i.e.; availing l/3rd deduction towards land on effective rate of 7.5% as per notification number 03/2019 dated 29.03.2019)? Answer : The applicant is liable to pay GST at the rate of 7.5% [3.75% - CGST + 3.75% - SGST] in respect of the services of construction of residential apartments other than affordable residential apartments as per entry at Item No. (ia) of SI. No. 3 of N ..... X X X X Extracts X X X X X X X X Extracts X X X X
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