Builder's ancillary services like JDA charges and club membership taxed separately at 18% GST, not composite supply

The AAR Rajasthan held that ancillary services charged by builders (JDA lease charges, electrification charges, sewage treatment plant charges, non-refundable IFMS, and club membership) are not naturally bundled with construction services and constitute separate independent supplies. These ancillary services attract GST at 18% under their respective SAC codes rather than the concessional rate applicable to construction services. The authority rejected the applicant's claim for composite supply treatment, ruling that ancillary services are taxable separately as they are not supplied in conjunction with construction services in ordinary business course. Input tax credit is available on expenses for providing ancillary services.

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Issues Involved:
1. Whether recovery of charges for 'the ancillary services' by builders would be considered as a 'composite supply' naturally bundled with 'Construction Services' under Section 8 of CGST and RGST Act, 2017.
2. If yes, whether the charges for 'the ancillary services' would attract GST at the rate specified for 'Construction Services' (principal supply), i.e., 1% or 5%.
3. If yes, whether recovery of the charges for 'the ancillary services' by builders, after completion certificate, would not attract GST liability considering them to be composite supply naturally bundled with Construction Services which does not attract GST once completion certificate is issued.
4. If no, and GST is levied on charges for 'the ancillary services' as individual respective service (considering 18% GST rate), then whether Input Tax Credit can be claimed in respect of GST paid on expenses incurred to provide the said ancillary services.

Detailed Analysis:

Issue 1: Composite Supply
The applicant argued that the ancillary services provided (JDA Lease Charges, Electrification Charges, Sewage Treatment Plant Charges, Non-refundable IFMS, Club Membership) are naturally bundled and supplied in conjunction with construction services in the ordinary course of business. Therefore, they should be treated as a composite supply with construction services as the principal supply under Section 8 of the CGST Act. However, upon examining the agreement for sale, it was found that the charges for construction and ancillary services are mentioned separately. The "composite supply" under Section 2(30) of the CGST Act requires that the supplies be naturally bundled and supplied together in the ordinary course of business, which was not the case here. Therefore, it was concluded that the ancillary services are independent supplies and not naturally bundled with construction services.

Issue 2: GST Rate on Ancillary Services
Since the ancillary services are not considered a composite supply with construction services, the applicable GST rate on ancillary services would be as per their respective SAC codes under Notification No. 11/2017 CT (R) dated 28.6.2017. The ancillary services fall under different SAC codes and attract GST at the rate of 18%.

Issue 3: GST Liability Post Completion Certificate
As the ancillary services are not considered a composite supply with construction services, the question of whether they would attract GST liability post-completion certificate does not arise. The ancillary services are treated as independent supplies and would attract GST at the rate of 18% regardless of the issuance of the completion certificate.

Issue 4: Input Tax Credit (ITC)
Since the ancillary services are subject to outward tax liability at the rate of 18%, the applicant is eligible to take Input Tax Credit (ITC) of the GST paid on goods or services used or intended to be used in the course or furtherance of providing the ancillary services. This is subject to the conditions prescribed under Section 16 and the provisions of sub-section 5 of Section 17 of the CGST and RGST Act, 2017.

Ruling:
1. Question 1: No, the ancillary services would not be considered a composite supply naturally bundled with construction services under Section 8 of CGST and RGST Act, 2017. The applicable rate of GST on the ancillary services would be as per the SAC prescribed under Notification No. 11/2017 CT (R) dated 28.6.2017 and are liable to GST @ 18%.
2. Question 2: Not applicable as per the answer to Question 1.
3. Question 3: Not applicable as per the answer to Question 1.
4. Question 4: As per Section 16 of the CGST and RGST Act, the applicant is eligible to take Input Tax Credit (ITC) of the GST paid on goods or services used or intended to be used in the course or furtherance of providing the ancillary services, subject to the conditions prescribed and the provisions of sub-section 5 of Section 17 of the CGST and RGST Act, 2017.

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