GST treatment of residential unit arrangements: AAR taxes construction-linked lease structure as works contract service.

A transaction styled as a lease of residential units was held to be a taxable supply under GST because its substance was construction of developed units with consideration received during the construction period. The AAR rejected the claim that the arrangement was outside GST as a mere transaction in immovable property, noting that the form of the contract did not override its actual effect. It further classified the supply as a composite supply of construction services, taxable as works contract service, and declined to apply the exemption for renting of a residential dwelling. The ruling applied GST at 18%.

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Issues: (i) Whether the transaction between the applicant and lessee was outside the purview of GST as a transaction in immovable property; (ii) if not, what was the proper classification and rate of GST.

Issue (i): Whether the transaction between the applicant and lessee was outside the purview of GST as a transaction in immovable property.

Analysis: The arrangement involved construction of residential units, payment of consideration during the construction period, and transfer of the developed units to prospective customers under a lease format. A transaction falling within the GST scheme was not excluded merely because it was styled as a lease. The substance of the arrangement showed taxable supply, and the claim that it was a mere transaction in immovable property was not accepted.

Conclusion: The transaction was not outside the purview of GST and was taxable.

Issue (ii): If not, what was the proper classification and rate of GST.

Analysis: The supply was treated as a composite supply involving construction services in relation to an immovable property. The ruling applied the GST classification for works contract service and rejected the contention that the exemption for renting of residential dwelling applied. The consideration structure and the pre-completion payment schedule supported the view that the transaction was a taxable construction-related supply.

Conclusion: The transaction was classifiable as a works contract service under GST and attracted tax at 18%.

Final Conclusion: The advance ruling held that the arrangement was a taxable supply under GST and not an exempt lease transaction in immovable property.

Ratio Decidendi: Where consideration for purported lease of residential units is received during construction and the arrangement in substance involves construction and transfer of developed units, the transaction is taxable as a works contract service under GST rather than as an excluded sale of immovable property.

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