TMI Blog2021 (6) TMI 481X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case at hand, the applicant supplies the prospective buyer, the construction service of the Unit intended for purchase by the buyer in the RREP being developed/ constructed by the applicant and the contract, i.e., the construction agreement is entered into for construction of the said Unit of the project developed by them - in the facts of the case, the applicant being a Promoter of the approved RREP, the construction of a Unit in the said RREP is an activity of Construction of part of the building with the intention for sale. Classification of services - HELD THAT:- The classification of service may be Construction, erection, commissioning, etc of the immovable property and the contract for execution may be a works contract, in which, while providing the service, there is a transfer of property in goods. The mode of supply does not determine the classification of Service. Classification of Service is to be done based on the Scheme of Classification and there are no reason to agree to the contention of the applicant that the service provided by them is not classifiable under SAC 9954 - In the case at hand, the applicant develops RREP along with all the infra struct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Applicant has submitted the copy of application in Form GST ARA -01 and also submitted a copy of Challan evidencing payment of application fees of ₹ 5,000/- each under sub-rule (1) of Rule 104 of CGST rules 2017 and SGST Rules 2017. 2.1 The Applicant has stated that they are a company registered in India and are real estate developer. They have stated that the present application pertains to development of a residential project by them under a defined arrangement. In the said arrangement, they hold the development rights to develop a particular parcel of land. They enter into two agreements with their customer. The First agreement is an Agreement for Sale of undivided share in land (for short UDS ) to the customer (for short UDS Agreement ). The Second agreement is an Agreement for Construction (for short Construction Agreement ), whereby the customer appoints the Applicant for construction of units on the said UDS. Such arrangement is under an umbrella Indenture of undertaking (for short IOU ) recording the understanding of both the UDS Agreement and Construction Agreement. On completion of the construction, a Sale Deed will be executed for sale of UDS to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rse of its execution, qualifies as works contract under Section 2 (119) of the CGST Act. In the instant case, they undertake activity of construction of unit, being immovable property, for the customer, which involves transfer of property in goods such as cement, steel, mortar, etc. to the customer. Such activities of the Applicant answer the description of definition under Section 2 (119) of the CGST Act and thus, qualify as works contract . They have placed reliance on the judgement of the Hon ble Supreme Court in the case of State of Madras v. Gannon Dunkerley Co.(Madras) Limited, 1955 SCR 379. 2.5 The applicant has referred to 46th Constitutional Amendment Act, wherein a new clause (29A) was introduced in Article 366 of the Constitution. After the 46th Amendment, the works contract, which was an indivisible one, was altered, by a legal fiction created in Article 366(29A) (b), into a contract which was divisible into one for sale of goods and the other for supply of labour and services. Thus, it has become possible for the States to levy Sales Tax on the value of goods involved in a works contract in the same way in which the Sales Tax was leviable on the price of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cified construction services, Clause (iii) to Clause (X) refer to various specified composite supplies of works contract; clause (xi) refers to certain specified services by way of housekeeping; Clause (xii) is a residual clause referring to construction services other than those covered under earlier clauses. 2.7 The applicant has made reference to Clause (i), which covers construction of affordable residential apartments by a promoter in a Residential Real Estate Project, subject to certain conditions, 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 and stated that this clause is similar to Clause (b) of Paragraph 5 of Schedule II to the CGST Act. The next clauses, being Clause (ia), (ib), (ic), (id), (ie) and (if) are worded in similar manner. Similar is the case with residual Clause (xii), which also covers only construction services. In distinction to the aforesaid clauses, Clause (iii) refers to certain specified composite supplies of works contract, as defined in Section 2(119). The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant to their case. 2.9 The applicant has also submitted that Clause (i) to Clause (if) of Sl.No.3 of the Notification which refers to various construction services, wherein the Promoter/ Developer constructs apartments in a project, intended for sale to buyer. The requirement for construction of apartments intended for sale to buyer is inherent for classification under Clause (i) to Clause (if) of S. No. 3 of the notification. This is also evident from Clause (b) of Paragraph 5 of Schedule II, which also mandates that the construction of complex must be intended for sale to the buyer. Similarly, Clause (xii) refers to construction services, in contrast to composite supplies of works contract. They have also submitted that, in the instant case, the UDS has already been agreed to be transferred by them to the buyer. The construction undertaken by them thereafter, thus, is on the UDS agreed to be sold to the buyer. In such a case, though the applicant undertakes construction for the buyer, there is no question of construction of apartment being intended for sale to the buyer, m as much as the apartment belongs to the buyer only pursuant to sale of the UDS. For this reason, als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxes on the construction services rendered to customers in respect of the said phases. The Modus operandi they intend to follow in respect of Phase IV and V of the project for provisions of construction services to customers is as follows: They will enter into a tripartite IOU with all their prospective customers wherein the customer will agree to enter into an Agreement for purchase of Undivided interest/share in the land(UDS) from the landowner and the Applicant in their capacity of Power of Attorney(PAO) holder and a subsequent Construction Agreement will be executed with the Applicant Pursuant to IOU, UDS agreement will be executed between the Applicant, landowner and customer wherein the landowner will agree to sell UDS proportionate to the residential unit sought to be owned by the customer in the real estate project the customer will further agree to purchase such UDS from the land owner Further, the customer will also enter into a construction agreement with the applicant, appointing the applicant to construct the residential unit on the acquired UDS. The landowner will not be a party to this agreement The tripartite IOU, tripartite UDS Ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act and the Rate Notification distinctly recognize pure services of construction vis-a-vis composite works contracts. Therefore, once it is apparent that the activities proposed to be performed by them qualifies as a Works Contract and is not a contract for construction service simpliciter, clause (i) to (if) or (xii) against Sl.No. 3 of Heading 9954 are inapplicable, Further, since separate sale of Land and Construction agreements are entered, the transaction is not a Construction of building intended for sale and rather is a works contract of construction for the Customer. Thus, in summary, clauses(i) to (id) deals only with Construction and whereas the present case is one of the Works Contract and also the said clauses deal with Construction intended for sale whereas, the present transaction is a Construction for the Customer and consequently not applicable to the present case For clauses (ie) and (if) deals with again mere Construction and also it deals with ongoing projects which has commenced before 31.03.2019 and accordingly not applicable to the present case For clauses (iii) to (ix) deals with specific works contract transaction which do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing GST @ 9%. As the supplies for which the applicant has sought advance ruling is squarely covered under SL.No.3 of the said notification under heading 9954 which is further subdivided into different categories attracting different rates of GST depending upon the types of projects, the plea of the applicant to classify their service under Heading 9997 under SI.No.35 may not be acceded to. 5. The State jurisdictional authority has not furnished any comments and it is construed that there are no proceedings pending on the issue raised by the applicant. 6. We have carefully examined the statement of facts, supporting documents filed by the Applicant along with application, oral submissions made at the time of Virtual hearing, submissions subsequent to the hearing and the comments of the Jurisdictional Authority. The applicant is a real estate developer who has launched a senior-living gated community project called Ashiana Shubham in Maraimalai Nagar Chennai by acquiring development rights from Escapade Real Estate Pvt Ltd (Landowner) back in 2014. The project is divided in the 5 phases. Phase I was completed in pre-GST regime, Phase II completed in GST regime, Phase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al and the application for RREP in respect of Phase IV of the project is furnished before use to establish that they propose to undertake the said project and therefore, the ruling is restricted to Phase IV proposed to be launched by the applicant as no such documents are placed before us in respect of Phase V, which they had stated will be launched in future. On going through the proposed IOU, UDS agreement, Construction Agreement and sale deed, the following are seen: Agreement for sale: The Land Owner, The Developer and Buyer/s are the parties to the agreement Clause J- According to the prevailing laws in the State of Tamilnadu, any person desirous of owning a Unit in the Project is required to purchase undivided interest/share in the land and for the same purpose, such person requires to enter into an agreement for sale for purchase of un-divided share in land(UDS) along with a right to put up construction by entering into Construction Agreement with the Developer and the Land Owner Clause L- The Buyer herein is desirous of purchasing______of Undivided share in phase land and the Land Owner and the Confirming Party has agreed to sell to the Buyer of undiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yer in this Agreement and/or the Construction Agreement shall vest with the Developer and/or the Land Owner.. Article 4.1 The Land Owner and the Developer agree to execute this Agreement along with Construction Agreement with Buyer and Buyer is obliged to register both the agreements with the sub-registrar office as and when called upon by the Land Owner and/or the Developer to do so and shall be solely Article 4.7 - Upon complete compliance of all the terms and conditions of this Agreement including Construction Agreement, the Developer shall duly hand over physical and vacant possession of the Unit to the Buyer/s by way of separate letter of handing over of possession Article 6.2- The Buyer/ s shall simultaneously enter into a Construction Agreement with the Land Owner and the Conforming Party along with this Agreement for sale executed by the Conforming Party and the Land Owner. The Buyer shall have no right to enter into construction agreement with any person other than the Conforming Party Construction Agreement: The Developer and the Buyer are parties to the Agreement Clause K - The Developer have informed the Buyer that according to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when formed) and abide by the rules of the Association. If the Developer and/or the Land Owner decide not to form a new association for_____under such circumstances the Buyer shall become member of the existing ______ . In this regard the decision of the developer shall be final and binding. The Buyer agrees to pay any fees, subscription charges etc for membership of the association and to complete such documentation and formalities as may be required and deemed necessary by the Developer for this purpose Indenture of Understanding The Developer, Confirming Party and the Buyer are parties to the agreement Clause M The Developer has informed the Buyer that according to the market practice in Chennai, Tamilnadu and as per the prevailing laws in the State of Tamilnadu any person desirous of owning a Unit in the Project is required to enter into an Agreement for un-divided share in land (UDS) and a Construction Agreement separately with the Developer and/or Confirming party simultaneously with this IOU. Further the Buyer are also required to execute and get Construction Agreement and Sale Deed for Proportionate undivided share in land registered as and when call ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posed project along with the agreement for sale and IOU. Thus, the Construction agreement entered into by the applicant with the prospective buyer is not a stand-alone agreement under which the applicant makes the supply to the customer. The various clauses of the different agreements entered into with the prospective buyer of a Unit , mentioned supra establishes that the applicant constructs the Residential Real Estate Project (RREP); they enter into a construction agreement of a Unit of the said project with the prospective buyer of the said unit along with the agreement for sale, i.e., the construction agreement has been entered into for the Unit with the agreement to sell the same and therefore, there is no merit in the claim of the applicant that the construction of the Unit undertaken by them is not intended for sale . Having established that the construction of the Unit as per the agreements entered into by the applicant with the prospective customer, is to construct the unit , which is a part of the RREP developed by them and the construction is undertaken for intended sale before the issue of completion certificate, the activity is a supply taxable under GST. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Para 5(b) of Schedule II to the Act treats construction of complex as a supply of services while Para 6 refers to composite supplies and treats the same as supply of service, which establishes that the scope of Para 5 does not extend to cover composite supplies, i.e., any composite supply is not covered under Para 5 of Schedule II and the description of services against sl.no. 3 of Notification No. 11/2017-C.T.(Rate) as amended by Notification no. 3/2019, which describes the services covered under SAC 9954, does not cover the activity undertaken by them and therefore the services are classifiable under SAC 9997 and the applicable rate of tax is as per Sl. No. 35 of the Notfn ibid. 8.3 The relevant statutory provisions are examined as under: Section 2(119) of the GST Act 2017 defines Works Contract as works contract means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Para 6(a) of Schedule-II and that Para 5 of Schedule does not cover Composite supplies. It is pertinent to note that the 46 th amendment to the Constitution, which introduced 366(29A), created a legal fiction by which a contract was divisible into one for sale of goods and it was possible for the States to levy Sales Tax on the value of goods involved in a works contract. In the GST Law in order to avoid disputes, certain supplies were designated as supply either of goods or of service in Schedule-II of the Act, which initially included Works Contract and Supply of food... . To avoid any legal challenge, works contract and restaurant which were treated as deemed sale of goods under Article 366 (29A) of the Constitution, were decided to be considered as composite supply on which all provisions relating to services shall apply. This is clear from the following trail of decisions in the GST Council Meetings. Minutes of the 5th GST Council Meeting, extracted below: Section 3 (2) (Meaning and scope of supply): The Hon ble Minister from West Bengal suggested that under Article 366 (29A) of the Constitution, works contract and restaurant were treated as deemed sale of good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts were subjected to Sales Tax on the Value of Goods involved in the works and on the labour and Service portion of the same contract, service tax was levied in the Pre-GST Era. These very contracts are treated as supply of service in the GST Era. Going by the extracts of the Minutes of the council meetings above, it is evident that the carve out of Para 6 of Schedule II to the Act was only to avoid any legal challenge in view of the same types of contracts considered for taxation under the provisions of Laws under PRE-GST and under GST. This, in no way can be said to establish that Para 5 does not extend to cover composite supplies as claimed by the applicant and this contention holds no merit. For these reasons, the decisions relied upon by the applicant do not have relevance to the proceedings in hand. 8.5 In the case at hand, the applicant supplies the prospective buyer, the construction service of the Unit intended for purchase by the buyer in the RREP being developed/ constructed by the applicant and the contract, i.e., the construction agreement is entered into for construction of the said Unit of the project developed by them. Undoubtedly, construction involves good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Construction Services 4. Group 99541 Construction Services of building 5. 995411 Construction Services of single dwelling or multi dwelling or multi-storied residential building 6. 995412 Construction Services of other residential building such as old age homes, homeless shelters hostels and like The applicant contends that their activity is classifiable under SAC 9997, which is falling under Section 9 which constitutes activities relating to community, social and personal services and other miscellaneous services. SAC 9997 is as follows: 559 Section 9 Community, social and personal services and other miscellaneous services 700 Heading 9997 Other services 716 Group 99979 Other miscella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supply of Construction service and the classification of the service as per the Scheme of Classification of Service is Construction Service under SAC 9954 and it will not be classified under SAC 9997 as claimed by the applicant. 9.1 The rate of tax applicable for the SAC 9954 is given under SI.No.3 (i), (ia), (ib), (ic),(id),(ie), (if),(iii), (iv), (v), (va), (vi),(vii), (viii),(ix), (x),(xi) and (xii) of Notification No. 11/2017-C.T. Rate dated 28.06.2017 as amended by Notfn No. 03/2019 dated 29th March 2019. We find the applicant has stated to have considered the entries and concluded that their supply is not covered under 3 (i) to 3(if) or 3(xii) as the supply made by them to the intended buyer is a composite supply of works contract and not a construction simpliciter and the other entries which provides for Composite supply of works contract do not apply to them. 9.2 It has been established in Para 8 above, that the activity of the applicant based on the proposed Construction agreement entered into with the prospective buyer of the Unit of the proposed RREP developed by them is a Construction service of residential apartment in the said RREP. The applicant in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sells apartments or plots are different person, both of them shall be deemed to be the promoters and shall be jointly liable as such for the functions and responsibilities specified under this Act or the rules and regulations made thereunder; The applicant has stated that he is the developer of the proposed RREP and as per the above definition, the applicant is Promoter for the purposes of the said Notification . 9.3 The applicant has stated that the ruling is sought for the project which is yet to be commenced. Therefore, we hold that the rate for construction of Other than affordable residential apartments , i.e., Unit in the proposed RREP - Ashiana Shubam - Phase IV , by the applicant, promoter of the RREP, is as specified under SI.No. 3 (ia) which is 3.75% CGST and 3.75% SGST and the applicant has to satisfy the conditions stipulated in column (5) of the said entry. 10. In view of the foregoing, we Rule as under: RULING The Proposed Modus operandi for construction of Unit which is other than affordable residential apartments by the applicant in the RREP promoted by them, namely, Ashiana Shubam -Phase IV in Maraimalai Nagar Chennai is classifiab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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