TaxTMI 
TaxTMI 
2020 (6) TMI 602
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....7/2018-19/B-35 dated 02.04.2019 = 2019 (7) TMI 39 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA. Brief Facts of the Case A. M/s. Nagpur Integrated Township Pvt Ltd., the Appellant, herein are registered under GST law, with Registration No. 27AAFCN5825Q1ZS under the jurisdiction of Nagpur. The appellant wish to submit that since the provisions of CGST Act, 2017 and the rules and notifications issued there under are in parametria to corresponding provisions in the Maharashtra SGST Act, 2017 and the rules and notifications issued there under, the provisions of CGST law alone are referred to in this appeal, which would imply reference to corresponding provisions under the SGST law also, unless specified otherwise. B. Maharashtra Airport Development Authority (hereinafter referred to as MADC), a company registered under the Companies Act, 1956 and having its registered office at 8th Floor, World Trade Centre, Cuffe Parade, Mumbai 400 005 is a special planning authority under the Maharashtra Regional and Town Planning Act, 1966, for the Multimodal International Hub Airport, Nagpur Project (MIHAN) which includes development of Nagpur Airport as an international hub, development of a Spec....
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....is the appropriate classification and applicable GST rate for the said activity? The appellant pleaded that the activity would amount to transfer of immovable property and hence not liable to GST levy at all. In the alternative, it was also claimed by the appellant that the activity is classifiable under Service Accounting Code 997211, as "Rental and leasing services involving own or leased residential property" and as per S.No. 12 of Notification 12/2017 Central Tax (Rate) Dt. 28.06.2017, "Services by way of renting of residential dwelling for use as residence" is exempted from payment of GST. During the hearing, the AAR required the appellant to produce the details of normal sale value of apartments in the area near to the appellant's project and the lease amounts charged by the appellant, which was also furnished by the appellant. Copy of the application filed by the appellant before the AAR and various written submissions filed before the authority are placed at Page Nos. 89 to 97 of this appeal. E. The department was also represented before the AAR and written and oral submissions were made by the department also. The department claimed that the activity of the appellant is i....
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....works contract" as defined under Section 2 (119) of the Act and fall under SAC 9954 and attract GST @ 18%. The AAR has not at all examined the claim of the appellant that the activity is classifiable under SAC 997211 and entitled for exemption. The AAR has also held that the appellant's first claim that the activity is not at all liable to levy of GST being a transaction in immovable property is also not sustainable. I. Aggrieved by the above decision of the AAR, in so far as holding that the activity is classifiable under Service Accounting Code 9954 and attract 18 % GST and not dealing with the appellant's claim for classification under SAC 997211 and consequent exemption from payment of GST, the appellant is filing the present appeal before the Hon'ble Appellate Authority for Advance Ruling, Maharashtra, under Section 100 of the CGST Act, 2017 and Section 100 of the Maharashtra SGST Act, 2017, on the following grounds. GROUNDS OF APPEAL 1. The Appellant submit that the impugned order passed by the Maharashtra Authority for Advance Ruling (AAR) is not in accordance with correct interpretation of law and/or facts involved in this case and hence liable to set aside for the follo....
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.... of the Development Agreement between the appellant and MADC (the owner of the land). Further, grant of such long-term lease is a normal practice in the industry wherever there are restrictions on absolute transfers. Further, entering into lease agreements during the stage of construction itself is also a common commercial phenomenon. For example, in case of commercial buildings, once lease agreements are entered into during the construction stage, according to the requirements of the lessee, suitable changes and additional works would be carried out by the builders. As the lease is for a considerably long period of 99 years, the lease premium payable would be comparable with the sale price of similar apartments in the vicinity and this cannot deny the fact that the transaction remains only as a lease and not a sale. The mode of lease consideration, whether it is monthly or lump sum are determined by the parties, based on various parameters. When a house owner gives his flat on lease / rent to a tenant, normally the lease rental is payable on monthly basis and a returnable deposit would also be required to be paid by the tenant. But in long term lease transactions, the consideratio....
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..... The AAR has not given any finding in the impugned order, as to why the activity of the appellant, in pursuance of the "Agreement for Lease" being entered into by them with their customers could not get classified under SAC 997211 above. 8. S.No.12 of Notification 12/2017 is reproduced below. 12 Heading 9963 or Heading 9972 Services by way of renting of residential dwelling for use as residence Nil Nil 9. The term "renting in relation to immovable property" is also defined in para 2 (zz) of the notification as, (zz) "renting in relation to immovable property" means allowing, permitting or granting access, entry, occupation, use or any such facility, wholly or partly, in an immovable property, with or without the transfer of possession or control of the said immovable property and includes letting, leasing, licensing or other similar arrangements in respect of immovable property; 10. It may be observed from the above that the term renting is given a very wider meaning, which covers, leasing, licensing, etc. without any reference to the period for which such agreement is entered into. The intention of the legislature is not to subject renting or leasing of residential d....
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....ldings covered above 13. A careful perusal of the "Agreement for Lease" between the appellant and their lessees would reveal that the agreement is not at all for providing any construction service, as envisaged above. The agreement is purely for long term lease of an identified apartment as mentioned in Schedule C. The specifications of the apartment being constructed are mentioned in Schedule E of the agreement, which would be leased to the lessee, upon completion of construction. 14. Further, reference is also invited to the following entries under Schedule II of the CGST Act, 2017, which lays down as to whether certain activities would be treated as supply of goods or as supply of services. SCHEDULE II [See Section 7] ACTIVITIES [OR TRANSACTIONS] TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES 5. Supply of services The following shall be treated as supply of services, namely: - (a) renting of immovable property; (b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificat....
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....e where an apartment is constructed for a buyer, there is an element of transfer of property in various goods such as cement, steel, wood, etc. during the course of such construction and handing over. In the instant case, the apartment is only leased out to the lessee, along with the proportionate share of undivided share of land and at the end of the lease period, the lessee is required hand over the property back to the lessor in as is where is condition. Thus there is no transfer of property in goods in the transaction between the appellant and the lessees. Hence, the AAR's conclusion that the subject activity is "works contract" is patently illegal and contrary to the statutory provisions. 18. Further, the appellant also wish to refer to S.No. 16 (ii) of Notification 11/2017 Central Tax (Rate), as introduced vide Notification 1/2018 Central Tax (Rate) Dt. 25.01.2018, which is reproduced below: (1) (2) (3) (4) (5) "16 Heading 9972 (i) Services by the Central Government, State Government, Union territory or local authority to governmental authority or government entity, by way of lease of land. Nil - (ii) Supply of land or undivided share of land by....
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....t may be noted that with effect from 01.04.2019, as per S.No.3 of Notification 11/2019, sale of apartments during construction attracts, 1.5 % GST on two thirds value (effective rate being 1 % on total value) in case of affordable residential apartments or 7.5 %GST on two thirds value (effective rate being 5 % on total value) in case of apartments other than affordable ones. But, as per the ruling of the AAR, the appellant would be liable to charge 18% GST on the whole amount, contrary to 5 % on the whole amount, which is liable in similar cases where the apartments are sold during construction. If the allegation of the AAR that the appellant has camouflaged the activity as a leasing only to claim exemption and if such camouflage is lifted, the appellant should be liable to pay same GST as other builders would be paying in case of sale of apartments during construction. But the AAR's ruling leads to a disastrous result, whereby the appellant is saddled with 18 % GST liability as against 5 % payable by typical builders. 21. For all the above reasons, the AAR's decision, classifying the activity undertaken by the appellant under SAC 9954 attracting 18% GST is not at all sustainable ....
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....th a Power of Attorney (POA) dated 8' December 2017 and thereby entrusted to NITPL the rights to design, finance and develop a township project, on the said Land comprising apartment units, commercial space and allied infrastructure thereof and to lease the same to the prospective lessees (hereinafter referred to as "Township Project/ First City Project") and by virtue of the said DA and POA the Developer named herein above is now therefore entitled to complete the said Township Project and to lease, assign and transfer the various residential and nonresidential units proposed to be constructed therein to the prospective lessees. Therefore, the Developer alone has the sole and exclusive right to allot on lease the residential and residential-cum commercial apartment (service apartments) units (hereinafter referred to as "Flats"), commercial space and allied infrastructure thereof in the said buildings to be constructed in the Township Project and to enter into agreement/s with the prospective lessee/s of the Flats in the said buildings and to receive the lease consideration in respect thereof. 27. The Developer is desirous of developing the entire Township Project in a phased mann....
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....e buyer is also liable to pay stamp duty and registration charges as applicable. The lease of property shall be registered in the name of buyer on full payment of consideration as scheduled. The deed is registered with right of inheritance of lease for the remaining period of lease as-is dependent on the situation. The payments from the buyers are described as lease Consideration. Authenticated copies of certificates showing nature of title of MADC and Developer is made available to the prospective buyer. Copy of sanctioned plan on basis of which construction is undertaken is also made available to the buyer. 31. From the abovementioned facts and paras of sample copy of lease agreement, it is revealed that developer is going to construct the said property for prospective lessee, which will be leased out as per agreement of lease. This entire transaction is verified in the light of provisions of Goods and Service Tax Act 2017 as under:- As per statutory provisions of GST ACT -2017 Section 7 (1) (a) which is reproduced as under- Supply includes- All forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease, or disposal made o....
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....a works contract. 34. A perusal of the above authorities leads us to the conclusion that "Works" means the carrying out of construction activities involving labor along with the supply of materials. Further, there appears to be a close nexus between "works contract' and construction activities. 1. "Works" is largely interpreted as a building or a structure which has emerged as a result of labor; 2. Works contract is a contract for executing of any works along with the right to sue for breach; 3. There should be a transfer of property in goods involved in the execution of works contract. 35. From the final definition of "works contract", it becomes clear that to qualify as a "works contract", a contract shall not be a contract for mere supply of goods or supply of services; that is to say, the nature of contract executed shall be a composite supply involving supply of both goods and services which results in the creation or repair/ maintenance/ renovation / improvement etc. of an immovable property as a whole. The answer to the above lies in the Schedule ll appended to the CGST Act. This schedule categorically specifies whether a particular supply is a supply of goods or se....
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....The MADC i.e. Maharashtra Airport Development Authority is a Special Planning Authority under the MRTP Act for the Multi Model International Hub Airport, Nagpur, Mihan which includes development of Nagpur Airport as an International Hub Development of SEZ etc.. It is seen that M/s. Chaurangi Builders and Developers have formed a Special Purpose Vehicle (SPV), along with M/s IJM Realty (Mauritius) Ltd., under the name and style of M/s Nagpur Integrated Township Pvt. Ltd., who is the appellant in the present case. Then agreement between MADC and the appellant dated 08.12.2017, the appellant is granted the right to design, finance and develop a township project comprising of residential apartments, commercial complexes, etc. on the land owned by MADC. As per the agreement, according to the appellant, they are permitted to grant long term lease of the residential apartments and commercial buildings and the same cannot be sold outright in favour of the buyers. The land on which construction is undertaken is a leasehold land. The appellant has submitted a draft "Agreement for Lease" which is proposed to be entered with prospective lessees. The have drawn attention to the fact that the id....
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.... amount payment over a certain time period without having possession of the flats is an excess of 60% of the flat. This lease amount are going to be paid without using the flat and therefore it was concluded that the said transaction are given a colour of a lease transaction. C) The Lessee have to pay the maintenance charges. Normally in lease transaction it is the flat owner who pay maintenance charges. 41. In view of the above, the AAR has concluded that the said supply is a taxable supply in the form of construction of complex/building/civil structure or a part thereof including a complexes or buildings for which consideration is received by the appellant in installments and therefore it is a composite supply of Works Contract covered u/s.2(119) of the CGST Act, 2017. 42. We agree with the findings of the AAR. Though the appellant in the draft agreement has projected the said transaction as a lease transaction of residential unit in an apartment/building and has also drafted agreement in such a way to project it as a lease transaction, the said transaction cannot be a lease transaction but it is an agreement for construction of residential flats. We say so because the clause....
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....e operation and maintenance of the common facilities in the township project. 46. As per clause 9.1 of the Agreement, it is stated that the developer shall facilitate formation of Society/Association of the prospective lessee of the flat. As per the said clause, all prospective lessee of the flats shall be entitled to join the said Association or Co-operative Society. This clause also goes on to prove that the appellant has built a complex or residential unit and the same is to be given on outright supply and not as a lease. We say so because it is only in the case of transfer of ownership where the flat owner is entitled to form an association or a Co-operative Society. 47. A similar case was decided by the Bombay High Court in the case (9717 OF 2018) with civil application no .683 OF 2018) of Lavasa Corporation Limited = 2018 (8) TMI 632 - BOMBAY HIGH COURT, The appeals were preferred, under Section 58 of the Real Estate (Regulation and Development) Act, 2016, (for short, "RERA"), by Lavasa Corporation, which is developing a Township Project to construct 'Lake Views' and which is registered under the RERA.. These Appeals are raising the common questions of law as to 'whether th....
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.... mean the yearly rent amount payable by the customer to Lavasa, once the lease is actually granted in respect of the apartment'. The term 'Annual Rent' is defined to be Rs. 1/- and the 'period of lease' is stated to be "999 years". Clause No,4(xi) of the 'Agreement' is relevant in that respect. It says that, 'under its Township Development Scheme, Lavasa proposes to construct 'Lake Views' on the 'Lots' identified by it and grant on lease, the apartments constructed therein for a period of 999 years on the notionally divided pieces of land termed as "Lots": 43. Clause No.5.1 of the 'Agreement' further provides that, in consideration of the customer having expressly agreed to pay to Lavasa the lease premium, which is in the range of Rs. 32 to 40 lakhs, as the case may be, and which is more than 80% of the total consideration amount Lavasa.doc and the annual lease rent of Rs. 1/- for the said apartment, Lavasa agrees to grant to the customer a lease for a period of 999 years for the said apartment. 44. Clause No.5.2 of the 'Agreement' provides that, the 'Lease Deed' was to be executed only after the development and construction of the said apartment has been fully completed and al....