2025 (6) TMI 524 - AAR - GST

Option to pay tax at the rate of 12 per cent (6 per cent CGST 6 per cent MGST) with Input tax credit for supply of residential apartments in all its ten Aspirational towers in terms of item (ie) of Sl. No. of the Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 as amended from time to time - HELD THAT - The applicant initiated booking to these 3 towers A B and C from 15-01-2019. The applicant discharged GST @ 12% (net GST rate of 8% after considering land deduction) on the consideration received from prospective construction. Rate of 12% is applied as the project was to be an affordable housing project as per the criteria for the same prior to 01.04.2019. The applicant also availed input tax credit on the inward supplies of goods and services. However with effect from 01.04.2019 a new tax structure was introduced wherein the developers of residential projects had the option of paying GST at the rate of 1% (in case of affordable housing apartment) or 5% without Input tax credit. As regards all the projects which were incomplete as on March 31 2019 the new structure gave one-time option to continue paying GST at the old rates with ITC subject to the fulfilment of specified conditions for all ongoing projects. However the old tax structure as available upto March 31 2019 was not available in respect of projects commencing with effect from April 1 2019. In terms of Entry 3(ie) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 (as amended by Notification No. 3/2019-Central Tax (Rate) dated 29.03.2019) the service of construction of an affordable residential apartment in an ongoing project would be subject to GST at the rate of 12% (net GST rate of 8% after considering land deduction) subject to fulfilment of the conditions specified therein. The term ongoing project has been defined under 4(xx) of NN 11/2017. It is therefore pertinent to determine whether all ten towers along with its commercial units and amenities constitute a single project for the purposes of the Central Goods and Services Tax Act 2017 ( CGST Act ) and the notifications given thereunder. Conclusion - Applicant does not meet the criteria of ongoing project as per the Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 as amended from time to time only in respect of projects A B and C. Hence tax rate prescribed for the item (ie) of Sl. No. 3 of the said Notification would be applicable only to the sale of apartments in towers A B and C subject to the fulfillment of other conditions mentioned for the said item.

Summary

Issues Presented and Considered

The core legal questions considered by the Authority for Advance Ruling (AAR) were:

• Whether the applicant, a real estate developer, has the option to pay GST at the rate of 12% (6% CGST + 6% MGST) with input tax credit on the supply of residential apartments in all ten towers of its Aspirational housing project under item (ie) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended.
• Whether the entire project comprising ten towers constitutes a single ongoing project or whether each tower should be treated as a separate project for the purpose of GST rate determination.
• Whether the conditions for classification as an "ongoing project" under the GST notifications are fulfilled by the entire project or only by certain towers.
• Whether the apartments qualify as affordable residential apartments as defined under the relevant GST notifications.
• The legal effect of separate RERA registrations for different towers/phases on the classification of the project under GST law.

Issue-wise Detailed Analysis

1. Applicability of GST Rate of 12% with Input Tax Credit under Item (ie) of Notification No. 11/2017

Legal Framework and Precedents: Section 7 read with item 5(b) of Schedule II of the CGST Act treats construction of a building or part thereof intended for sale as a supply of services, subject to GST. Notification No. 11/2017-Central Tax (Rate), as amended, prescribes GST rates for various categories of construction services. Item (ie) provides for a 12% GST rate with input tax credit on construction of affordable residential apartments in ongoing projects, provided certain conditions are met, including the promoter exercising an option to pay tax under the old regime.

Court's Interpretation and Reasoning: The applicant's residential apartments fall under the category of low-cost houses with carpet area less than 60 square meters and are part of an affordable housing project notified by the Government of India. The applicant exercised the option to pay tax under the old regime before the stipulated deadline.

Key Evidence and Findings: The applicant obtained commencement certificates for the entire layout, environmental clearance, and RERA registration for three towers as of March 31, 2019. Bookings for apartments in three towers (A, B, and C) commenced before March 31, 2019, and GST was paid at 12% with input tax credit on these.

Application of Law to Facts: The applicant meets the conditions for paying GST at 12% with input tax credit for ongoing projects under item (ie) for towers A, B, and C where bookings and construction milestones were achieved before March 31, 2019.

Treatment of Competing Arguments: The applicant argued that the entire project of ten towers should be treated as a single ongoing project, thus entitling all towers to the 12% GST rate with input tax credit. The department contended that each tower, especially with separate RERA registrations, should be treated as a distinct project and that only towers fulfilling the ongoing project criteria qualify for the old tax regime.

Conclusions: The 12% GST rate with input tax credit under item (ie) applies only to those towers that qualify as ongoing projects, i.e., towers A, B, and C.

2. Determination of Whether the Ten Towers Constitute a Single Project or Multiple Projects

Legal Framework and Precedents: The term "project" is defined under the GST notification to mean a Real Estate Project or Residential Real Estate Project (RREP). The RERA Act defines a Real Estate Project as development of buildings or apartments for sale, including common areas and amenities. Section 3(2) of RERA provides that where a project is developed in phases, each phase is to be treated as a standalone project for the purpose of RERA registration.

Court's Interpretation and Reasoning: The applicant submitted that the entire layout with ten towers and common amenities constitutes a single Real Estate Project under RERA and GST law. The department relied on the Explanation to Section 3(2) of RERA and FAQs issued by the Ministry of Finance, which clarify that phases registered separately under RERA are to be treated as distinct projects for GST purposes.

Key Evidence and Findings: The applicant obtained separate RERA registrations for three towers before March 31, 2019, and the remaining towers were registered later or not at all by that date. The department noted that common amenities do not merge separate towers into a single project for GST purposes.

Application of Law to Facts: While the RERA Act treats phases as standalone projects for registration purposes, it does not create a deeming fiction that phases are separate for all purposes. However, the Ministry of Finance FAQs clarify that for GST, separately registered projects under RERA are distinct projects.

Treatment of Competing Arguments: The applicant challenged the binding nature of the FAQs, citing a Supreme Court precedent that clarificatory notes lack statutory force. The department maintained that the FAQs reflect the correct interpretation of the GST notification.

Conclusions: For GST purposes, each tower with separate RERA registration is a distinct project. Hence, the ten towers are treated as separate projects rather than a single consolidated project.

3. Fulfillment of Conditions for Classification as an Ongoing Project

Legal Framework and Precedents: Notification No. 11/2017-Central Tax (Rate), as amended, defines an "ongoing project" with four cumulative conditions: (a) commencement certificate issued on or before March 31, 2019, and construction started by that date certified by an architect, engineer, or surveyor; (b) where commencement certificate is not required, certification of construction start by the authorities; (c) no completion certificate or first occupation before March 31, 2019; (d) apartments partly or wholly booked on or before March 31, 2019.

Court's Interpretation and Reasoning: The applicant argued that the entire Aspirational Project met these conditions. The department examined the status of each tower individually.

Key Evidence and Findings: The commencement certificate for the entire layout was obtained on May 22, 2018, but for towers D to K, the certificate covered only the first floor, while the towers have 42 floors. Earthwork and excavation were completed only for towers A, B, and C. Booking of apartments occurred only in towers A, B, and C before March 31, 2019. Towers D to K did not satisfy the booking or construction start criteria.

Application of Law to Facts: Towers A, B, and C satisfy all conditions for ongoing projects. Towers D to K do not satisfy the booking or construction commencement criteria and therefore do not qualify as ongoing projects.

Treatment of Competing Arguments: The applicant relied on the commencement certificate for the entire layout and argued for a consolidated approach. The department emphasized the requirement for each project (tower) to independently satisfy the conditions.

Conclusions: Only towers A, B, and C qualify as ongoing projects under the GST notification; others do not.

4. Qualification of Apartments as Affordable Residential Apartments

Legal Framework and Precedents: Notification No. 11/2017-Central Tax (Rate) defines affordable residential apartments as those with carpet area not exceeding 60 square meters and gross amount charged not exceeding Rs. 45 lakhs in metropolitan cities.

Court's Interpretation and Reasoning: The applicant's apartments have carpet area less than 60 square meters, fulfilling one condition. However, the price exceeds Rs. 45 lakhs, failing the price condition.

Key Evidence and Findings: The applicant admitted that the price condition was not met.

Application of Law to Facts: Since the price condition is not fulfilled, the apartments do not qualify as affordable residential apartments under the GST notification.

Treatment of Competing Arguments: The applicant argued the project qualifies as affordable housing under separate government notification granting infrastructure status. The department emphasized the GST notification's price cap condition.

Conclusions: The apartments do not qualify as affordable residential apartments for GST purposes due to price exceeding Rs. 45 lakhs.

5. Effect of Separate RERA Registrations on Project Classification

Legal Framework and Precedents: Section 3(2) of RERA and FAQs issued by the Ministry of Finance clarify that separately registered phases/projects under RERA are treated as distinct projects for GST purposes.

Court's Interpretation and Reasoning: The department relied on the FAQs to treat each tower with separate RERA registration as a distinct project. The applicant challenged the statutory force of FAQs but did not provide contrary statutory provisions.

Key Evidence and Findings: The applicant had separate RERA registrations for towers A, B, and C before March 31, 2019, and subsequent registrations for other towers after that date or none at all.

Application of Law to Facts: The separate RERA registrations support the treatment of each tower as a distinct project for GST purposes.

Treatment of Competing Arguments: The applicant's contention that the entire layout is a single project was rejected in light of RERA provisions and FAQs.

Conclusions: Each tower with separate RERA registration is a distinct project for GST application.

Significant Holdings

The Authority for Advance Ruling held:

"Applicant meets the criteria of 'ongoing project' as per the Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 as amended from time to time, only in respect of projects A, B and C. Hence, tax rate prescribed for the item (ie) of Sl. No. 3 of the said Notification would be applicable only to the sale of apartments in towers A, B and C subject to the fulfillment of other conditions mentioned for the said item."

Core principles established include:

• A Real Estate Project for GST purposes is to be determined based on RERA registrations; phases or towers registered separately under RERA are distinct projects.
• Conditions for classification as an ongoing project under GST notifications are mandatory and must be satisfied for each distinct project independently.
• Common amenities or a single layout approval do not merge separately registered towers into a single project for GST classification.
• The option to pay GST at 12% with input tax credit under item (ie) applies only to those projects that qualify as ongoing projects and meet all specified conditions.
• Clarificatory FAQs issued by the Ministry of Finance, while not statutory, are persuasive and reflect the correct interpretation of GST notifications.