2024 (7) TMI 354 - AAR - GST

Construction services for residential units under 60 square meters qualify for 12% concessional GST rate under Notification 11/2017

AAR Tamil Nadu ruled that construction services for residential units below 60 square meters qualify for concessional GST rate under Notification ... Advance ruling binding on applicant and jurisdictional officer - ongoing project - construction services - one-time option in Annexure IV to opt for old rates for ongoing projects - value of land/undivided share deemed to be one-third of total amount - concessional rate for affordable housing sub-item (da) of item (v)Ongoing project - construction services - Whether the applicant's project qualified as an 'ongoing project' and the supply constituted construction services within the meaning of the Notification. - HELD THAT: - The Authority examined the conditions for an 'ongoing project' as defined in Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 (as amended) and the documents submitted by the applicant. The plan approval certificate and the chartered engineer's certificate showing commencement and percentage of work completed as on 31.03.2019, together with ledger entries evidencing bookings prior to 31.03.2019, satisfy the stipulated conditions of commencement, non-issuance of completion certificate/first occupation by 31.03.2019, and partial or full booking by that date. On the facts and documents on record the project therefore qualifies as an 'ongoing project' and the supply in question falls within construction services of the relevant entry. [Paras 3, 6]The project qualifies as an 'ongoing project' and the activity is construction services within the Notification's scope.One-time option in Annexure IV to opt for old rates for ongoing projects - Whether the applicant exercised the option to continue with the pre-2019 (old) effective rates by submitting Annexure IV within the prescribed time. - HELD THAT: - The Notification requires a one-time option in Annexure IV to be exercised by the prescribed date for ongoing projects to avail the old effective rates. The applicant produced proof of submission of Annexure IV on 09.05.2019 and an extract of the delivery book evidencing submission to the Assistant Commissioner. The Authority found that the condition of exercising the option within the stipulated time is satisfied on the documents produced. [Paras 3, 6]The applicant validly exercised the one-time option in Annexure IV within the prescribed time.Concessional rate for affordable housing sub-item (da) of item (v) - value of land/undivided share deemed to be one-third of total amount - Whether the applicant's residential units fall under sub-item (da) of item (v) (affordable housing up to 60 sq. m.) and the applicable rate after accounting for deemed land value. - HELD THAT: - The Authority noted the definition of 'Affordable Housing' (at least 50% of FAR/FSI for dwelling units with carpet area not more than 60 sq. m.) and the Government clarification that builders/developers determine qualification per that definition without requirement of a separate certificate. The applicant's project plans and unit configurations show units below 60 sq. m., and commercial area is less than 15% of total, establishing applicability of sub-item (da) of item (v). The Notification prescribes rates for the applicable entry and provides that where the supply involves transfer of land or undivided share of land the value of such land shall be deemed to be one-third of the total amount charged, thereby reducing the effective tax burden. Applying these provisions, the Authority concluded that the declared rate for item (ie) applicable via sub-item (da) is 12% (CGST 6% + SGST 6%) and, after reducing the value by the deemed one-third for land, the effective rate becomes 8% (CGST 4% + SGST 4%). [Paras 3, 6]The project qualifies under sub-item (da) of item (v); the applicable rate is 12% (6% CGST + 6% SGST) and, where transfer of land/undivided share is involved, the value is reduced by one-third making the effective rate 8% (4% CGST + 4% SGST).Final Conclusion: The Authority ruled that the applicant's project qualifies as an ongoing project and falls under sub-item (da) of item (v) relevant to item (ie) of SI No. 3 of Notification No. 11/2017-Central Tax (Rate). The applicant validly exercised the one-time option in Annexure IV; the statutory rate applicable is 12% (6% CGST + 6% SGST) for the construction services, and where the supply involves transfer of land or undivided share of land the value of land is to be deemed one-third of total consideration, resulting in an effective rate of 8% (4% CGST + 4% SGST). Issues Involved:1. Applicability of GST rate on construction services provided by the applicant.2. Determination of whether the project qualifies as an 'ongoing project.'3. Compliance with the conditions specified in the relevant GST notifications.4. Calculation of effective GST rate considering the value of land.Detailed Analysis:1. Applicability of GST Rate on Construction Services:The applicant, a partnership firm engaged in construction services, converted into a Private Limited Company, sought an advance ruling on whether they can levy and discharge output tax at the effective rate of 8% (12% less 1/3rd value deducted on account of land) under entry number 3 (ie) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 as amended by Notification 03/2019-Central Tax (Rate) dated 29.03.2019. The applicant opted to continue with the old rate of paying output tax with the claim of input tax credit.2. Determination of Whether the Project Qualifies as an 'Ongoing Project':The project in question, Tower 'Block A7', commenced in February 2019 and included residential units measuring approximately 42 Sq. meters per unit, with commercial units constituting less than 15% of the total area, qualifying it as an RREP Project. The applicant provided evidence of the commencement certificate issued before 31st March 2019 and a Chartered Engineer's certificate dated 15.04.2019, confirming the project's initiation before the specified date. Additionally, the applicant submitted that the completion certificate had not been issued, and first occupation had not taken place before 31st March 2019, fulfilling the conditions of an ongoing project.3. Compliance with Conditions Specified in Relevant GST Notifications:The applicant exercised the option to pay tax at the specified rate by submitting Form Annexure IV on 09.05.2019, meeting the condition stipulated in the notification. The project also met the criteria of 'Affordable Housing' as defined by the Ministry of Finance, with all units below 60 square meters and the area of commercial units less than 15% of the total area.4. Calculation of Effective GST Rate Considering the Value of Land:The notification specified that in the case of supply of services involving the transfer of land, the value of supply shall be reduced by one-third. Therefore, the effective rate applicable to the applicant's project was determined to be 8% (CGST 4% and SGST 4%).Ruling:The sub-item 'da' of item 'v' mentioned in item 'ie' of SL No. 3 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 as amended is applicable to the applicant. The rates mentioned against the said item 'ie,' which is 12% (CGST 6% + SGST 6%), shall be applicable to the applicant for the supply of construction services of residential flats qualifying under the scheme mentioned in sub-item 'da' of item 'v.' Further, in the case of supply of services involving the transfer of land or undivided share of land, the value of supply shall be reduced by one-third, making the effective rate 8% (CGST 4% + SGST 4%).