9911796707
TMI Blog2020 (9) TMI 1249X X X X Extracts X X X X X X X X Extracts X X X X ..... ell as commercial properties. While selling such properties or providing the construction service they are also engaged in the recovery of various charges including Preferential Location Charges (PLC) from the Buyers. The Applicant had requested for Advance Ruling on the questions:- 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)?" 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?" 3. "Whether PLS collected along with consideration for sale of properties is outside the scope of supply where sale/transfer of constructed property is entered into by the Applicant after issuance CC/ OC?" 4. "If as per above, question, PLS attracts concessional rate of tax/exemption (whether 12% or 5% or nil as the case may be), whether, in facts and circumstances of the case, Applicant/or customers can claim adjustment/refu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buyers to effect sale; 3. Units of sale are Apartments in a Residential, and Shops in a Commercial property; 4. As a normal practice they enter into said agreements both before or after completion of construction; 5. Agreements entered into are to Total price of the unit which contains many components viz. Base Sale Price (BSP), Parking Charges, PLS and Other Charges. These charges are generally collected based on per Square Feet or per Square Meter or can also be on percentage or a lump sum price depending upon the project; 6. Based on location of property within a project, the lump-sum price can be different for different properties; 7. Where the Appellant enters into agreement with buyers before issue of OC/CC by the competent authority, it collects some consideration; 8. This being construction service, the same is taxable in GST @12% i.e. @18% less one-third as abatement towards undevided portion of land, as provided in Notification 11/2017-CT(R) dated 28th June 2017; 9. W.e.f. 1.04.2019, a new rate of 5%, i.e. less one-third abatement for undevided portion of land, has been prescribed for new projects commencing w.e.f. 1.04.2019 or old projects where the option ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice 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. ... 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. As stated earlier, service tax is a tax on value addition and charges for preferential location in one sense embody the value of the satisfaction derived by a customer from certain additional attributes of the property developed. Such charges cannot be traced directly to the value of any goods or value of land but are as a result of the development of the complex as a whole and the position of a particular unit in the context of the complex. 55. In view of the above, we negate the challenge to insertion of clause (zzzzu) in Sub-section 105 of Section 65 of the Act. However, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng opportunity by the Advance Ruling Authority (after they missed certain number of opportunities) and the delayed communication/ passing of the Order by the Advance Ruling Authority (AAR) as the Grounds for their Appeal. The following have been pleaded by the Appellant in their 'Grounds of Appeal':- 1. Order has been passed almost one year from the date of application:- * That, application has been rejected due to binding time-limitation; * That, it is their substantive right to receive the ruling in view of Kerala High Court's Order in the case of Government Wood Works vs. State of Kerala * That, an order made late is as good as not made in view of Supreme Court's order in State of Andhra Pradesh vs. m Ramakishtaiah and Co. * That, due to order issued after expiry of time limitation, the issue has been decided in favour of assessee by Kolkata Income Tax tribunal in Shri Subrata Roy vs. Income Tax Officer * That on this ground the AAR Order is liable to be set aside; 2. Lack of Opportunity of being heard:- * AAR grossly violated the principles of natural justice in passing the orders without granting personal hearing; * That, order so passed is l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no fresh points were made in furtherance of the already submitted facts or the grounds in appeal. The representation was thus limited to re-iteration of the earlier submissions and there arose no new arguments for consideration. IV. DISCUSSION AND FINDINGS We find that the following questions were raised for Advance Ruling thereupon:- 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)?" 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?" 3. "Whether PLS collected along with consideration for sale of properties is outside the scope of supply where sale/transfer of constructed property is entered into by the Applicant after issuance CC/OC?" 4. "If as per above, question, PLS attracts concessional rate of tax/exemption (whether 12% or 5% or nil as the case may be), whether, in facts and circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled for abatement of one-third from the value/ consideration of landed/ immovable property. Also, the Appellant has expressed the view that there has to be a uniform rate applicable to the construction service which should be 5% or 12% and since they have already paid the GST rate of 18% on construction service the same needs to be refunded to them. To understand the ground for this claim viz. 5%/ 12% GST, the scheme of taxation of construction service, and the GST rates as were applicable from time to time, need to understood, first. GST rates on Construction Service: The Rate of GST on Construction Service was uniformly 18% in the beginning i.e. w.e.f. 1.07.2017. The abstract of the Table of Notification 11/2017-CT(R) dated 28.06.2017 as relevant at that time, is reproduced below:- SI.No. Chapter, Section, Heading Description of Services Rate (Per cent.) Condition (1) (2) (3) (4) (5) 1 Chapter 99 All Services 2 Section 5 Construction Services 3 Heading 9954 (Construction services) (i) Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of transfer of land or undivided share of land, as the case may be, and the value of such transfer of land or undivided share of land, as the case may be, in such supply shall be deemed to be one third of the total amount charged for such supply. Explanation. -For the purposes of this paragraph, "total amount" means the sum total of- (a) consideration charged for aforesaid service; and (b) amount charged for transfer of land or undivided share of land, as the case may be including by way of lease or sublease.". Thus the earlier ambiguity was removed and no value of any Goods involved was made a component of the deemed values. Now the Value of the Land/ Undivided portion of the Land was deemed to be the one-third of the 'Total Amount' of the property, and consideration for the Construction Service deemed to be at two-third of the total amount charged for the immovable 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce appears not acceptable. Despite the preferential location coming into existence as a consequence of the construction activity undertaken by the Developer, the amount charged for the Preferential Location is a consideration paid by the prospective buyer for provisioning of an exclusive service viz. of providing a location which is more preferential to a buyer of a house or commercial property even after the issue of a completion certificate. 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 service 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xclusive/ separate services viz. Hotel Accommodation Service (Heading: 9963, Group: 99631); Demolition Service (Heading: 9954, Group: 99543); Warehousing Service (Heading: 9967, Group: 99672) etc. It may be pointed out here that even within a Warehouse, if provided in a portion of it, the service is Refrigerated Storage Service, it classifies under SAC 996721, if it is Bulk Liquid or Gas Storage Service, it classifies under SAC 996722 and if it is normal/ other Storage Service, it would classify under Heading: 9967, Group: 99672, SAC 996723. Similarly, Preferential Location Service is integrally linked to, and is provided through, an Immovable Property/ Real Estate/ Landed Property but it is identifiable as a separate and exclusive Service. Hon'ble High Court of Delhi, in 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 elem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices of buildings 12 Group 99542 General construction services of civil engineering works 22 Group 99543 Site preparation services 29 Group 99544 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 commission or on contract basis on retail trade 71 Heading 9963 Accommodation, food and beverage services 72 Group 99631 Accommodation services 76 Group 99632 Other accommodation services 80 Group 99633 Food, edible preparations, alcoholic and non-alcoholic beverages serving services 89 Heading 9964 Pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 232 Heading 9973 Leasing or rental services with or without operator 233 Group 99731 Leasing or rental services concerning machinery and equipment with or without operator 241 Group 99732 Leasing or rental services concerning other goods 250 Group 99733 Licensing services for the right to use intellectual property and similar products 260 Section 8 Business and Production Services 261 Heading 9981 Research and development services 262 Group 99811 Research and experimental development 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, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices on physical inputs (goods) owned by others 499 Group 99881 Food, beverage and tobacco manufacturing services 509 Group 99882 Textile, wearing apparel and leather manufacturing services 513 Group 99883 Wood and paper manufacturing services 516 Group 99884 Petroleum, chemical and pharmaceutical product manufacturing services 520 Group 99885 Rubber, plastic and other non-metallic mineral product manufacturing service 524 Group 99886 Basic metal manufacturing services 526 Group 99887 Fabricated metal product, machinery and equipment manufacturing services 534 Group 99888 Transport equipment manufacturing services 537 Group 99889 Other manufacturing services 546 Heading 9989 Other manufacturing services; publishing, printing and reproduction services; materials recovery services 547 Group 99891 Publishing, printing and reproduction services 550 Group 99892 Moulding, pressing, stamping, extruding and similar plastic manufacturing services 552 Group 99893 Casting, forging, stamping and similar metal manufacturing services 556 Group 99894 &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her live entertainment event presentation and promotion services 680 Group 99963 Services of performing and other artists 684 Group 99964 Museum and preservation services 687 Group 99965 Sports and recreational sports services 691 Group 99966 Services of athletes and related support services 694 Group 99969 Other amusement and recreational services 700 Heading 9997 Other services 701 Group 99971 Washing, cleaning and dyeing services 708 Group 99972 Beauty and physical well-being services 713 Group 99973 Funeral, cremation and undertaking services 716 Group 99979 Other miscellaneous services 723 Heading 9998 Domestic services 724 Group 99980 Domestic services 726 Heading 9999 Services provided by extraterritorial organisations and bodies 727 Group 99990 Services provided by extraterritorial organisations and bodies Accordingly, for classifying the Preferential Location Service (PLS), the competing entries are reproduced along with their Services Accounting Codes (SAC) and the Descriptions, for examination: - Construction Service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he completion/finishing works covered above From the descriptions it is clear that the Preferential Location Service cannot be classified under the above Group/ any of the above Accounting Codes. Real Estate Services (Heading 9972): 220 Heading 9972 Real estate services 221 Group 99721 Real estate services involving owned or leased property 222 997211 Rental or leasing services involving own or leased residential property' 223 997212 Rental or leasing services involving 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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). Provided that nothing contained in this entry shall apply to an amount charged for such lease and sub-lease in excess of one third of the total amount charged for the said composite supply. Total amount shall have the same meaning for the purpose of this proviso as given in paragraph 2 of this notification. Nil - (iii) Real estate services other than (i) and (ii) above. 9 - Further, the Hon'ble AAAR, West Bengal [in Appeal Case No. 09/WBAAAR/APPEAL/ 2019 - Bengal Peerless Housing Development Company. In re (2019) 110 taxmann.com - 34/76 GST 701 (AAAR-West Bengal)] decided on September 25, 2019, has held as under:- "Preferential Location Service is attributable to the choice of the purchaser in respect of floor rise and directional advantage. Hence, it is evident that Preferential Location Service cannot be treated as naturally bundled with construction service in the ordinary course of business. The abatement, which is allowed on the value of construction service, as the plot of land on which constr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of 18% where sale/transfer of constructed property has taken place before issuance of completion/Occupation certificate (CC/OC) under new projects which commence on or after 01.04.2019. QUESTION-3 "Whether PLS collected along with consideration for sale of properties is outside the scope of supply where sale/transfer of constructed property is entered into by the Applicant after issuance CC/OC?" RULING: No. The PLS collected along with consideration for sale of properties where sale/transfer of constructed property is entered into by the Applicant after issuance CC/OC, is not outside the scope of supply. QUESTION-4 "If as per above question, PLS attracts concessional rate of tax/exemption (whether 12% or 5% or nil as the case may be), whether, in facts and circumstances of the case, Applicant/or customers can claim adjustment/refund of the excess GST amount paid as (18% less 12%) or (18% less 5%) or (18% less Nil), as the case may be, on such charges?" RULING: No. The Applicant/or customers cannot claim adjustment/refund of the GST amount paid as there cannot be any excess GST) paid in respect of the SAC 99799 which attracts the GST rate of 18% (CGST 9% + SGST 9% ..... X X X X Extracts X X X X X X X X Extracts X X X X
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