Residential construction activities classified under SAC 9954 subject to 3.75% CGST and 3.75% SGST.

The construction activities for residential units in a real estate project were classified under SAC 9954 as 'Construction Services'. The applicable GST rate for these activities was determined to be 3.75% CGST and 3.75% SGST under Entry S.No. 3(ia) of Notification No. 11/2017-CT (Rate) dated 28.06.2017.

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Issues Involved:
1. Classification of construction activities under the GST regime.
2. Determination of applicable GST rate for the construction activities.

Issue-wise Detailed Analysis:

1. Classification of Construction Activities under GST:
The applicant, a real estate developer, sought a ruling on whether their construction activities for a residential project under a Construction Agreement are classifiable under Heading 9997 and chargeable to CGST @ 9% under S.No.35 of Notification No.11/2017-CT (Rate) dated 28.06.2017.

Applicant's Argument:
- The applicant argued that their activities should be classified under Heading 9997 as a composite supply of works contract, involving the transfer of goods (cement, steel, mortar, etc.) and services.
- They referred to the definition of ‘works contract’ under Section 2(119) of the CGST Act and various judicial precedents to substantiate their claim.
- They contended that their activities do not fall under the specific entries of Heading 9954 (Construction Services) and should therefore be classified under the residual Heading 9997.

Authority's Analysis:
- The authority examined the agreements (Agreement for Sale, Construction Agreement, Indenture of Understanding, and Sale Deed) and concluded that the applicant is involved in the construction of a Residential Real Estate Project (RREP).
- It was established that the construction agreement is not a stand-alone agreement but part of a composite supply intended for sale.
- The authority referred to Schedule II of the CGST Act, which treats construction intended for sale as a supply of services.
- The classification of services under GST is based on the Scheme of Classification of Services, and the authority found that the applicant's activities fall under Heading 9954 (Construction Services).

2. Determination of Applicable GST Rate:
The applicant sought clarity on the applicable GST rate for their construction activities under the Construction Agreement.

Applicant's Argument:
- The applicant argued that their construction activities should be taxed under the residual entry (Heading 9997) at 9% CGST as they believe their activities do not fit into the specific entries under Heading 9954.

Authority's Analysis:
- The authority established that the construction of residential units in the RREP by the applicant is a construction service under SAC 9954.
- The applicable GST rate for construction services is provided under Notification No. 11/2017-CT (Rate) as amended by Notification No. 03/2019.
- The authority concluded that the construction of residential apartments other than affordable residential apartments by a promoter in an RREP is covered under S.No. 3(ia) of the Notification, attracting a GST rate of 3.75% CGST and 3.75% SGST.

Conclusion:
The proposed construction activities by the applicant for residential units in the RREP are classifiable under SAC 9954 as 'Construction Services'. The applicable GST rate for these activities is 3.75% CGST and 3.75% SGST as per Entry S.No. 3(ia) of Notification No. 11/2017-CT (Rate) dated 28.06.2017, subject to the conditions specified in the notification.

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