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TMI Blog2022 (3) TMI 1297X X X X Extracts X X X X X X X X Extracts X X X X ..... unregistered dealer under the Goods and Services Act and is a Service recipient of Construction service. They have sought Advance Ruling on the following questions: "What should be the taxable value in respect of the supply of construction services provided by the developer to the applicant as per Clause (b) of the notification No.4/2018?" 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 Rs. 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 she, along with her sisters have inherited the property from her late father at Plot No 480, 19th Street, 4th Sector, K K Nagar, Chennai - 600 078, being a land admeasuring 3440 Sq.ft. They have entered into a Joint Development agreement with the developer, M/s Nu Tech Associates dated 10.04.2019. As per the Joint Development agreement, the developer should develop 6 Nos of Flats and the applicant was entitled to 1255 sq.ft of Super Built-up area in the Second Floor of the premises and another 1255 Sq.ft by virtue of her being guardian to another Sister. The developer is en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case under question, M/s. Nu Tech Associates. is a registered person under GST, having a valid and active GSTIN 33AAEPN4673Q1Z5 and hence the transaction by the landowner with the developer is covered under this category for the supply of construction services rendered in the property at Plot No 480, 19th Street, 4th Sector, K K Nagar, Chennai - 600 078. 2.2 The rate of GST for General Construction Services of Multi Storied Residential Building other than affordable building under Chapter 99 Service Account Code 995411 and under entry No 3 (ia) R is 5% without Input Credit, as per notification No.07/2019 - Central Tax (Rate) dated 29.03.2019, effective from 01.04.2019. The Builder / Developer is liable to pay GST even on the share of the landowner, as per Notification No 4/2018 dated 25.01.2018 only in respect of the Supply of Construction Service. In the case under question the applicant has consented to pay the GST on her share as per Clause No.11 of the agreement. The developed has demanded a sum of Rs. 5,69,230/- per flat towards GST and in respect of 2 Nos of Flats has demanded a sum of Rs. 11,38,460/-. The working for the construction cost and the demand thereof @5o/0 tow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use 2 of the Joint Development Agreement, the profit earned by the developer at the cost of evasion of Stamp Duty is (9% On Rs. 5,240.70 Per Sq.ft i.e, Rs. 471.663/- Per Sq.ft for the developer portion of 2510 Sq.ft) Rs. 11,83,874/-. The developer having earned at the cost of Government revenue is not contended, but rather would like to earn much more by placing a demand on GST on landowners share on an illegitimate value of supply of construction service. In nutshell, the developer would like to earn at the cost of Government by way of interpreting provisions of the GST rules as per their whims and fancies. Nevertheless, the landowner is not a party to the transaction in view of the joint development agreement and it is purely between the buyer and the developer. The problem arises only when the landowner is affected on account of registering the property much below the market value and increasing the cost of construction in the construction agreement entered into with the buyer by the developer and based on the illegitimate value reported in the construction agreement, demand GST on the constructed value reported in the construction agreement, without any basis. Moreover, as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt is known at the time of supply.- In the case under question, the value of supply of service is the value of undivided share of the land relinquished by the landowner in favour of the developer to enable him to register the undivided share of land belonging to the developer portion. In that case, the area of the land surrendered by the landowner is 1146.66 Sq.ft in favour of the developer based on the 2 Nos of registration agreement No.327/2021 dated 3.2.2021 and 1397/2021 dated 29.4.2021 works out to Rs. 57,33,300/- (@Rs. 28,66,650/- Per agreement) which can be considered as the open market value of the supply of construction service and the GST @5% on the above is Rs. 2,86,665/- for 4 Nos of Flats and Rs. 1,43,333/-, for 2 Nos of Flats, as against the demand of Rs. 11,38,460/- by the developer. The Cost of Construction as per the above with regard to the land owner portion works out to Rs. 1,142/- Per Sq.ft. Considering the fact, that all the materials included in the project are not subjected to GST, the above cost of construction may also be considered as reasonable for the purpose of GST. (c) If the value of supply is not determinable under clause (a) or clause (b), be th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wner relinquishes an undivided share in the land of area 1146.66 sq.ft and retain an area of 2293.33 Sq.ft. In lieu of the relinquishment, the land owner is entitled to a super built-up area of 5,020 Sq.ft and the developer is entitled to a super built-up area of 2510 sq.ft on a total super built -up area of 7,530 sq.ft. The first sale of flat was executed in favour of P M Sriram, vide Document No 326/2021 for a consideration of Rs. 90,87,080/- towards Construction agreement and vide Document 328/2021 for a consideration of Rs. 28,66,650/-towards undivided share of Land, by means of which a super built-up area of 1,255 Sq.ft was sold together with 573.33 sq.ft of undivided share of the land. The total cost of the flat is Rs. 1,19,53,730/- @Rs. 9,524.88 Per Sq.ft. This price of Rs. 9,524.88 per sq.ft comprises of both the market value of the Land and Building. The market value of the project based on the first sale is 7,530 Sq.ft @Rs. 9,524.88 Per Sq.ft, works out to Rs. 7,17,22,380/-. The computation is as follows; Let x be the market value of the Undivided Share of Land and y be the market value of Supply of Construction Service. For the first sale executed by the Developer the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n has, thus, been availed and as such, on the foot of it, having withstood without having dismissed at the limine, this matter requires to be ruled under this proviso. 2. The applicant in question is a recipient of Construction Service from a Registered Applicant, having valid GSTIN 33AAEPN4673Q1Z5 with Jurisdiction-Center Commissionerate, Chennai - South Division - Thyagaraya Nagar, Range IV. The Joint Development Agreement entered in to by the applicant with the Registered applicant dated 10.04.2019 Provides for payment of GST by the applicant with regard to the share of the landowner. The applicant is the payee of GST in to the GSTIN 33AAEPN4673Q1Z5 on the portion of the construction services received from the Registered applicant and thus step into the shoes of the Registered applicant and is obligated to pay GST. It is in this regard the department has granted a temporary registration with GSTIN/User id : 332100000490ARD. The fact that the applicant is the payee of GST in respect of the issue under question, a Temporary User Id has been granted, the prescribed fees has been paid by the applicant and that the application for advance ruling was not rejected in limine, make him/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o pay tax on any goods or services or both; f) Whether applicant is required to be registered; g) Whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term. Thus, even as per the information provided by the FAQ in the website, the applicant in question is eligible to seek advance ruling and has sought advance ruling to determine the liability to pay tax on services as per Q No 4 (e). 6. The Department having stood over and collected the prescribed fees, has taken the jurisdiction and no prejudice whatsoever shall happen, if advance ruling is provided on the subject matter. 7. On the contrary, if an order of rejection is give, it shall run against the interest of justice in the absence of genuine construction in the light of the contextual matter holistically. 4.1 The State Jurisdictional Authority, Assistant Commissioner (ST) K K Nagar Assessment Circle, vide letter RC. No. 686/2021/A-1, dated: 30.12.2021 has stated that: * The Applicant is a service recipient of construction service under a Joint Venture Agreement. In this connection, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted from their expired father. The applicant has entered into a Joint Development agreement with the developer M/s Nu Tech Associates. As per the Joint Development agreement, the developer should develop 6 Nos. of Flats and the applicant was entitled to 1255 sq.ft. of Super Built-up area in the second Floor of the premises and another 1255 Sq.ft. by virtue of her being guardian to another Sister. The developer was entitled to 2 nos. of Flats of 6nos of flats. The completion certificate for the Construction of the Flat was obtained in March 2021 and the construction is almost completed, but the flat is yet to be handed over. The issue raised is on the value to be adopted for the construction service on which the developer builder has to pay GST. i.e., what should be the taxable value in respect of the supply of the construction services provided by the developer to the applicant as per Clause (b) of the notification No.4/2018? 6.1 In the case on hand the applicant herself admits in the question raised by her that the services are provided by the developer to the applicant. The applicant is the recipient of the construction service of the flat for which an agreement was also entered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipt of the application, the authority should examine its admissibility after extending an opportunity of hearing to the applicant. The relevant provision is extracted as under; (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: 6.5 Further, the provisions of 5.103 categorically states that the ruling pronounced is binding only on the appellant. The section reads as under: 5.103 (1) The advance ruling pronounced by the Authority or the Appellate Authority under this Chapter shall be binding only- (a) on the applicant who had sought it in respect of any matter referred to in sub section (2) of section 97 for advance ruling; (b) on the concerned officer or the jurisdictional officer in respect of the applicant. From the, above, it flows that if a recipient obtains a ruling on the value to be adopted of his inward supply of goods or services, the supplier of such goods or services is not bound by that ruling and he is free to assess the supply according to his own determ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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