Real estate construction GST must follow concessional residential entries, with mandatory one-third land deduction for valuation.

Construction of residential houses in a real estate project commencing after 01-04-2019 was treated as a composite supply of service under Schedule II, and the amended real estate rate entries applied to the project. The applicant was therefore liable only under the concessional entries for residential apartments, at 1.5% for affordable units and 7.5% for other residential units, subject to the prescribed conditions; the claim for 18% GST only on the construction component was rejected. For valuation, the special notification required land to be deemed at one-third of the total amount charged, and that mandatory abatement could not be replaced by the actual land value shown in the sale deed.

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Issues: (i) Whether the applicant, in respect of construction of residential houses under a real estate project commencing after 01-04-2019, is liable to pay GST at the concessional rates under entries 3(i) and 3(ia) of the relevant notification, or can instead be taxed at 18% only on the construction component with separate exclusion of land value as per the sale deed; (ii) whether, for valuation of the construction service, the actual land value stated in the sale deed can be deducted instead of the deemed one-third value prescribed in the notification.

Issue (i): Whether the applicant, in respect of construction of residential houses under a real estate project commencing after 01-04-2019, is liable to pay GST at the concessional rates under entries 3(i) and 3(ia) of the relevant notification, or can instead be taxed at 18% only on the construction component with separate exclusion of land value as per the sale deed.

Analysis: The activity was held to be a supply of service under paragraph 5(b) of Schedule II to the Central Goods and Services Tax Act, 2017, because the applicant entered into an arrangement for sale of land together with construction of residential houses as one composite transaction. The project was treated as a residential real estate project undertaken by a promoter, and the construction commencing after 01-04-2019 attracted the amended rate entries under Notification No. 11/2017-CT (Rate), as amended by Notification No. 03/2019-CT (Rate) and the corresponding State notification. The valuation and rate framework for such construction services was therefore governed by the specific concessional entries applicable to residential apartments, subject to their conditions.

Conclusion: The applicant is entitled only to the concessional treatment under entries 3(i) and 3(ia) and is liable to pay GST at 1.5% for affordable residential apartments and 7.5% for other than affordable residential apartments, subject to the prescribed conditions. The alternative claim for 18% GST only on the construction component is rejected.

Issue (ii): Whether, for valuation of the construction service, the actual land value stated in the sale deed can be deducted instead of the deemed one-third value prescribed in the notification.

Analysis: Paragraph 2 of Notification No. 11/2017-CT (Rate) specifically prescribes the valuation mechanism for construction services involving transfer of land or undivided share of land by deeming the land value to be one-third of the total amount charged. The order held that this special valuation rule applies notwithstanding the actual land value reflected in the sale deed, and that the legislative intent was to provide a uniform abatement mechanism rather than permit case-specific deduction of actual land value. The applicant could therefore not substitute actual land value for the deemed value under the notification.

Conclusion: The taxable value must be computed only by deducting one-third of the total amount charged, and the actual land value in the sale deed cannot be deducted instead.

Final Conclusion: The ruling settles that the applicant's construction activity is taxable under the concessional real estate entries, and valuation must follow the statutory one-third land abatement mechanism without recourse to actual land value.

Ratio Decidendi: Where a construction service involving transfer of land falls within the specific real estate valuation entry, the notification's deemed one-third deduction for land is mandatory and overrides any actual land value disclosed in private agreements or sale deeds.

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