Prajapati Magnum project qualifies for 12% GST rate under Heading 9954 for affordable housing units up to 60 sq meters carpet area

AAR Maharashtra ruled that construction services under the Prajapati Magnum project qualify for reduced GST rate of 12% under Heading 9954 (Construction Services) as it falls under Affordable Housing definition. The reduced rate applies only to supplies after 25.01.2018 and flats with carpet area up to 60 sq. meters. Flats exceeding 60 sq. meters carpet area attract normal GST rates.

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Issues Involved:
1. Eligibility of reduced CGST rate for construction services under the project "Prajapati Magnum" as per Notification No. 01/2018-CT (Rate) dated 25.01.2018.

Detailed Analysis:

1. Facts and Contentions by the Applicant:
- Applicant's Background: M/s. Prajapati Developers, engaged in constructing residential and commercial complexes, is developing a project called "Prajapati Magnum" in Navi Mumbai.
- Project Details: The project began in December 2013 and is expected to complete by December 2022, consisting of five wings with 19 floors each, totaling 352 flats. The flats range in cost from Rs. 41,00,000 to Rs. 87,00,000.
- Tax Compliance: The applicant has been paying Service Tax and later GST at 12% after deducting one-third towards land value as per Notification No. 11/2017-Central Tax (Rate).
- Architect's Certification: The project uses 73% of the total FSI for flats with carpet areas below 60 sq. meters, qualifying it as an affordable housing project as per the Government of India notification dated 30th March 2017.

2. Applicant’s Interpretation of Law:
- Notification No. 11/2017-Central Tax (Rate): Initially provided an 18% GST rate on construction services, with a deduction for land value.
- Amendments via Notification No. 01/2018-CT (Rate): Reduced the GST rate to 12% for specified construction services, including low-cost houses in affordable housing projects with infrastructure status.
- Definition and Criteria: Affordable housing projects must use at least 50% of the FSI for units with carpet areas not exceeding 60 sq. meters. The applicant claims their project meets this criterion.

3. Contentions by the Concerned Officer:
- Eligibility Concerns: The officer argues that the concessional rate applies only to low-cost houses and not to mixed projects. The project has been ongoing since 2013, and many units may have been sold to various buyers, not necessarily low-income groups.
- Cost of Flats: The cost ranges from Rs. 41 Lacs to Rs. 87 Lacs, which raises questions about the project's eligibility as a low-cost housing project.
- Potential Anti-Profiteering Issues: Concerns about flats being sold to promoters or investors and then resold without GST, leading to potential revenue loss and undermining social welfare objectives.

4. Hearing:
- Preliminary Hearing: Held on 15.05.2018, where the applicant was requested to provide detailed information about all flats and buyers.
- Final Hearing: Held on 26.06.2018, with references made to Circular No. 354 dated 07.05.2018.

5. Observations:
- Key Issue: Whether the construction services under "Prajapati Magnum" qualify for the reduced CGST rate of 6% as per Notification No. 01/2018-CT (Rate).
- Project Details and Compliance: The project uses 73% of the FSI for flats with carpet areas below 60 sq. meters, meeting the definition of affordable housing.
- Relevant Notifications and Amendments: Notification No. 11/2017 and its amendments, including Notification No. 01/2018-CT (Rate), were analyzed to determine eligibility.
- Government Clarifications: The Government clarified that low-cost houses in affordable housing projects with infrastructure status qualify for the reduced GST rate.

6. Conclusion:
- Eligibility for Reduced Rate: The project "Prajapati Magnum" qualifies for the reduced CGST rate of 6% for flats with carpet areas up to 60 sq. meters, effective from 25.01.2018. The reduced rate applies only to these specific flats, while other flats will attract the normal GST rate.

Order:
- Question: Whether the construction services provided by the applicant under the project "Prajapati Magnum" qualify for the reduced CGST rate of 6% as per Notification No. 01/2018-CT (Rate) dated 25.01.2018Rs.
- Answer: Affirmative, as discussed above.

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