TMI Blog2020 (9) TMI 1249X X X X Extracts X X X X X X X X Extracts X X X X ..... Residential Projects to commence w.e.f. 1.04.2019 - Similarly 12% GST Rate, viz. two-third of (9+9) claimed by the Appellant pertains to other projects including commercial projects - Similarly 12% GST Rate, viz. two-third of (9+9) claimed by the Appellant pertains to other projects including commercial projects. Preferential Location service - Whether Preferential Location Service (PLS), is Construction Service? - HELD THAT:- It is clear from the Appellant's pleas that they are claiming the rates of 5% or 12% for Preferential Location service and simultaneously claiming these services as Construction Service/ a component of Construction Service. It is also clear that the claim includes entitlement to abatement of one-third from the value/ consideration of landed/ immovable property - As admittedly stated by the Appellant, the different rates of the houses can be on account of different locations. Thus premiumness of a location attracts a commensurate consideration which the buyer pays for an identified advantage, viz. view/ direction/ sunlight/ airiness/ vicinity/ serenity/ parking facility etc. etc., or a combination of these. This makes the provided service an exclusive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HELD THAT:- The most appropriate entry wherein the instant Service, viz. to be provided by M/s. DLF Ltd., is classifiable is Heading 9972, Group 99722 and Service Accounting Code (SAC) 997222 viz. Building sales on a fee or commission basis or on contract basis . Where the sale of a piece of land is being made as a 'stock in trade' the preferential location service shall classify under SAC 997223 viz., Land sales on a fee or commission basis or on contract basis . Rate of GST - HELD THAT:- PLS classifies under SAC 997222 and attracts the rate of 18% (9% under CGST Act vide Entry (iii) under Column (3) against the Serial Number '16' of the Notification 1 1/2017-CT(R) dated 28.06.2017 as amended. - HAAAR/2020-21/07 - - - Dated:- 28-9-2020 - SHEKHAR VIDYARTHI AND RAJESH SODHI, MEMBER Present for the Applicant : Sh. Sujit Ghosh Order under Section 101 of Central Goods and Service Tax Act, 2017/Haryana Goods and Service Tax Act, 2017 The present appeal has been filed under Section 100 (1) of Central Goods and Service Tax Act, 2017 / Haryana Goods and Service Tax Act, 2017 (hereinafter referred to as CGST Act / HGST Act, respectively) by M/s DLF L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licant has submitted the following:- i) The applicant has paid GST at 18% on the sale of properties in the GST law. The GST law is in infancy and concepts there under like the concepts of 'composite supply' are in a nascent stage, there is a certain ambiguity about the taxability of PLS collected by the Applicant. Therefore the applicant has filed this advance ruling for obtaining clarity on the same. ii) In case of sale/transfer of constructed property before the issuance of CC/OC, the applicant is paying GST @18% on PLS since inception of the GST Law. As per applicant opinion that such charges should qualify as composite supply and should be taxable @12% or 5% or NIL as applicable. Therefore, applicant should be allowed/refund of the excess GST paid on PLS so that the benefit can be provided to the customers. iii) In some cases, applicant recovers lump sum price for sale/transfer of properties/units. Such lump sum price can be different for various properties/units on account of various commercial factors such as location of the property/unit. In such cases, applicant opinion that GST should be applicable at a single rate on lump sum prices charged even if d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... definition of PLS (on the above lines); c. K Delhi High Court decision in the Service Tax case Suresh Kumar Bansal vs. Union Of India (June 2016) has been relied upon by the Appellant. In this case the petitioners had entered into agreements with the Builder for buying flats. They contested that agreements with builder being for purchase of immovable property, and also there being no machinery for computation of value of services if any involved in construction of a complex, there's no legislative competence to levy service tax on such a transaction. Hon'ble High Court further found/ held:- 39. In the present case, we find that there is no machinery provision for ascertaining the service element involved in the composite contract. In order to sustain the levy of service tax on services, it is essential that the machinery provisions provide for a mechanism for ascertaining the measure. 45. Whilst Rule 2A of the Rules provides for mechanism to ascertain the value of services in a composite works contract involving services and goods, the said Rule does not cater to determination of value of services in case of a composite contract which also involves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red is directly linked with the BSP (Base Sale Price) of the Property. f. There cannot be any separate recovery of PLS as it goes hand in hand with the Construction Service and follows as a consequence of supply of construction service. g. Without there being a sale of the property there can be no question of recovery of PLS; there can be no standalone existence of PLS without construction activity. 13. That, according to them (Appellant) the taxability of PLS shall be as under: - a. Preferential Location Charges (PLS) are liable to be included in the Construction Service charges and are subsumed within this single supply and would be chargeable at effective GST rate of 12%/ 5% and not at the residuary rate of 18%. b. Without prejudice to the above, the supply of the said 2 services is a composite supply of service. c. That, where buyer enters into agreement before issue of OC/CC (Occupation Certificate/ Completion Certificate) the PLS shall be chargeable to tax at the abated rate of 12%/ 5% in terms of Notification 11/2017-CT(R) dated 28.06.2017, viz. the rate applicable to Construction Service. d. That, where buyer enters into agreement after issue of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inciples of natural justice is of no value; The Appellant has concluded the Grounds of Appeal in following words: 2.8 Therefore considering the above, the AAR has erred in passing the Order, in spite of the fact no reasonable opportunity of being heard was afforded to the Appellant. Considering the same, on this ground alone, the impugned AAR Order is liable to be set aside. ORDER of AAR The Advance Ruling Authority (AAR) has rejected the Application for Advance Ruling holding that since it is bound to pronounce the Ruling within 90 days in terms of Section 98(6) and the Appellant is requesting for Hearing beyond that limit which cannot be granted, the Application is rejected under Section 98(2) of the CGST Act 2017. Relevant provisions are reproduced below: - 98. Procedure on receipt of application.- .... (2) The Authority may, after examining the application and the records called for and after hearing the applicant or his authorised representative and the concerned officer or his authorised representative, by order, either admit or reject the application: Provided that the Authority shall not admit the application where the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on whole price at the similar rate i.e.12% (in case of sale before issuance of CC/OC)/5% % (in case of sale before issuance of CC/OC under new projects which commence on or after 01.04.2019)/Nil % (in case of sale after issuance of CC/OC)? The ground for Appeal are that rejecting of the application for Advance Ruling by the State Authority for Advance Ruling, is incorrect in law and needs to be set aside. In the Appeal, the applicant has submitted the following also while requesting for the Rulings:- i) The applicant has paid GST at 18% on the sale of properties in the GST law. The GST law is in infancy and concepts there under like the concepts of 'composite supply' are in a nascent stage, there is a certain ambiguity about the taxability of PLS collected by the Applicant. Therefore the applicant has filed this advance ruling for obtaining clarity on the same. ii) In case of sale/transfer of constructed property before the issuance of CC/OC, the applicant is paying GST @18% on PLS since inception of the GST Law. As per applicant opinion that such charges should qualify as composite supply and should be taxable @12% or 5% or NIL as applicable. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or building 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) 9 - (ii) composite supply of works contract as defined in clause 119 of section 2 of Central Goods and Services Tax Act, 2017. 9 - (iii) construction services other than (i) and (ii) above. 9 - The Paragraph 2 (Explanation 2) under the Notification read at that time:- 2. In case of supply of service specified in column (3) of the entry at item (i) against serial no. 3 of the Table above, involving transfer of property in land or undivided share of land, as the case may be, the value of supply of service and goods portion in such supply shall be equivalent to the total amount charged f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovable property.. However Section 15 of the CGST Act and the relevant Rules meant for determination of the Value of Supply of the Construction Service still applied, after deducting the value of the land/ share of land from the 'immovable/ landed property' for arriving at the value of consideration for the supply (of construction service). The Notification 11/2017-CT (R) dated 28.06.2017 ibid was amended several times and entries were added or substituted, but the above position did not alter until 01.04.2019 when Notification 3/2019-CT (R) dated 29.03.2019 (made effective from 01.04.2019) split the Sr. No. (i) under Column 3 (opposite Sr. No. 3 ibid of the Notification) into 7 new categories such as, Construction of Affordable Residential Apartments by a Promoter in a Residential Real Estate Project (RREP) ; Construction of other than Affordable Residential Apartments by a Promoter in a. Residential Real Estate Project (RREP) ; Construction of Affordable Residential Apartments by a Promoter in a Real Estate Project (REP) other than a Residential Real Estate Project (RREP) ; Construction of other than Affordable Residential Apartments by a Promoter in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice capable of providing even by a dealer in immovable property. The same therefore need not necessarily be a component of construction service. CONDITIONS FOR TAXATION of PLS Question arises whether the provisioning of Preferential Location Service (PLS) would be considered as provided even when the entire consideration for the immovable property is received after the issue of Completion Certificate or Occupation Certificate. The answer, even prima-facie, is yes, since the service is identifiable separately from the construction service in the same way as a property agent's service is separate from the sale of a landed property or renting of a landed property. PLS - Whether a Component of IMMOVABLE PROPERTY: It may be argued here that the Service of PLS can be offered only once and the occupier/ purchaser of the flat/ immovable property cannot further offer such a service to a buyer from him, it is a component of immovable property and thus would not qualify as a Supply under GST. In this regard the Group 99721/ SAC 997213 above may be seen. The description against the Entry 997213 reads, Trade services of buildings. The Explanatory Notes on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SURESH KUMAR BANSAL Versus UNION OF INDIA [2016 (43) S.T.R. 3 (Del.)] has held the Preferential Location Service which was then defined as a taxable service under Section 65 (105) (zzzzu), as a taxable activity,- 54. Insofar as the challenge to the levy of service tax on taxable services as defined under Section 65(105)(zzzzu) is concerned, we do not find any merit in the contention that there is no element of service involved in the preferential location charges levied by a builder. We are unable to accept that such charges relate solely to the location of land. Thus, preferential location charges are charged by the builder based on the preferences of its customers. They are in one sense a measure of additional value that a customer derives from acquiring a particular unit. Such charges may be attributable to the preferences of a customer in relation to the directions in which a flat is constructed; the floor on which it is located; the views from the unit; accessibility to other facilities provide in the complex, etc... We also note that while rendering a Preferential Location Services i.e. Direction - pool facing, park facing, corner flat; Floor - first floor, top fl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9544 Assembly and erection of prefabricated constructions 35 Group 99545 Special trade construction services 45 Group 99546 Installation services 54 Group 99547 Building completion and finishing services 64 Section 6 Distributive Trade Services ; Accommodation, Food and Beverage Service; Transport Services; Gas and Electricity Distribution Services 65 Heading 9961 Services in wholesale trade 66 Group 99611 Services provided for a fee or commission or on contract basis on wholesale trade 68 Heading 9962 Services in retail trade 69 Group 99621 Services provided for a fee or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for road transport 144 Group 99675 Supporting services for water transport (coastal, transoceanic and inland waterways) 149 Group 99676 Supporting services for air or space transport 159 Heading 9968 Postal and courier services 160 Group 99681 Postal and courier services 165 Heading 9969 Electricity, gas, water and other distribution services 166 Group 99691 Electricity and gas distribution services 170 Group 99692 Water distribution and other services 174 Section 7 Financial and related services; real estate services; and rental and leasing services 175 Heading 9971 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elopment services in natural sciences and engineering 267 Group 99812 Research and experimental development services in social sciences and humanities 270 Group 99813 Interdisciplinary research services 272 Group 99814 Research and development originals 278 1 leading 9982 Legal and accounting services 279 Group 99821 Legal services 286 Group 99822 Accounting, auditing and bookkeeping services 291 Group 99823 Tax consultancy and preparation services 294 Group 99824 Insolvency and receivership services 296 Heading 9983 Other professional, technical and business serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abour supply service 410 Group 99852 Investigation and security services 420 Group 99853 Cleaning services 430 Group 99854 Packaging services 435 Group 99855 Travel arrangement, tour operator and related services 444 Group 99859 Other support services 454 Heading 9986 Support services to agriculture, hunting, forestry, fishing, mining and utilities 455 Group 99861 Support services to agriculture, hunting, forestry and fishing 462 Group 99862 Support services to mining 465 Group 99863 Support services to electricity, gas and water distribution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extruding and similar plastic manufacturing services 552 Group 99893 Casting, forging, stamping and similar metal manufacturing services 556 Group 99894 Materials recovery (recycling) services, on a fee or contract basis 559 Section 9 Community, social and personal services and other miscellaneous services 560 Heading 9991 Public administration and other services provided to the community as a whole; compulsory social security services 561 Group 99911 Administrative services of the government 566 Group 99912 Public administrative services provided to the community as a whole 576 Group 99913 Administrative services related to compulsory social security schemes 581 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Group 99949 Others 652 Heading 9995 Services of membership organisations 653 Group 99951 Services furnished by business, employers and professional organisations Services 656 Group 99952 Services furnished by trade unions 658 Group 99959 Services furnished by other membership organisations 668 Heading 9996 Recreational, cultural and sporting services 669 Group 99961 Audio visual and related services 675 Group 99962 Performing arts and other live entertainment event presentation and promotion services 680 Group 99963 Services of performing and other artists 684 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstruction services of industrial buildings such as buildings used for production activities (used for assembly line activities), workshops, storage buildings and other similar industrial buildings 8 995414 Construction services of commercial buildings such as office buildings, exhibition and marriage halls, malls, hotels, restaurants, airports, rail or road terminals, parking garages, petrol and service stations, theatres and other similar buildings 9 995415 Construction services of other non-residential buildings such as educational institutions, hospitals, clinics including veterinary clinics, religious establishments, courts, prisons, museums and other similar buildings 10 995416 Construction services of other buildings nowhere else classified 11 995419 Services involving repair, alterations, additions, replacements, renovation, maintenance or remodelling of the buildings covered above As may be seen, the construction service i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... volving own or leased non-residential property 224 997213 Trade services of buildings 225 997214 Trade services of time-share properties 226 997215 Trade services of vacant and subdivided land 227 Group 99722 Real estate services on a fee or commission basis or on contract basis 228 997221 Property management services on a fee or commission basis or on contract basis 229 997222 Building sales on a fee or commission basis or on contract basis 230 997223 Land sales on a fee or commission basis or on contract basis 231 997224 Real estate appraisal services on a fee or commission basis or on contract basis From the above description of entries under Real Estate Services it is clear that PLS wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced below for ready reference: Table SI No. Chapter, Section or Heading Description of Service Rate (per cent) Condition (1) (2) (3) (4) (5) 1 Chapter 99 All Services 16 Heading 9972 (i) Services by the Central Government, State Government, Union territory or local authority to governmental authority or government entity, by way of lease of land. Nil - (ii) Supply of land or undivided share of land byway of lease or sub lease where such supply is a part of composite supply of construction of flats, etc. specified in the entry in column (3), against serial number 3, at item (i); sub-item (b), sub-item (c), sub-item (d), sub-item (da) and sub-item (db) of item (iv); sub-item (b), sub-item (c). sub-item (d) and sub-item (da) of item (v); and sub-item (c) of item (vi). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(R) dated 28.06.2017 as amended. V. ORDER / RULING For the discussion on Rulings/ Answers to the Questions on which Advance Rulings have been requested, the sub-Para titled, GST rates on Construction Service under the preceding major Para IV. titled as, 'DISCUSSION AND FINDINGS' may be seen. The Rulings are, however, as given under: - QUESTION-1 Whether PLS collected along with consideration for sale of properties attracts GST rate of 12% or 18% where sale/transfer of constructed property has taken place before issuance of completion/Occupation certificate (CC/OC)? RULING: PLS collected along with consideration for sale of properties attracts GST rate of 18% where sale/transfer of constructed property has taken place before issuance of completion/Occupation certificate (CC/OC). QUESTION-2 Whether PLS collected along with consideration for sale of properties attracts GST rate of 5% or 18% where sale/transfer of constructed property has taken place before issuance of CC/OC under new projects which commence on or after 01.04.2019? RULING: PLS collected along with consideration for sale of properties attracts G ..... X X X X Extracts X X X X X X X X Extracts X X X X
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