TaxTMI 
TaxTMI 
2020 (6) TMI 602
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....against the Advance Ruling No. GST-ARA-107/2018-19/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....
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....roperty" and hence not liable to GST? If not, what 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 depar....
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....ble. Accordingly, the AAR has held that the activity would be in the nature of "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....
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..... As already stated the appellant cannot effect transfer of the apartment by absolute sale, due to the restrictions on transfer of the land, both statutorily as well as in terms 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, norm....
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....ation where real estate services are classified under Section 72 (Page Nos. 98 to 100 of this appeal). It may be observed irrespective of the term of lease, leasing and rental services would fall under 9972 only. 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 ....
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....nary clinics, religious establishments, courts, prisons, museums and other similar buildings 10. 995416 Construction services of other buildings nowhere else classified 11. 995419 Services involving repair, alterations, additions, replacements, renovation, maintenance or re-modelling of the buildings 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 ....
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....ng out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract 17. It may be observed from the above definition that in order to constitute works contract, there should be a transfer of property in goods, whether as goods or in some other form. In a case 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.....
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....972, as the principal supply being lease, the benefit of Sr.No. 12 of Notification 12/2017, which also covers SAC 9972 can be claimed, as the leasing in this case is of residential unit. 20. The appellant also wish to submit that if the view of the AAR that the subject lease transaction is nothing but a sale of flat during construction and hence subjected to GST levy accordingly, the applicable GST shall also be equal to the GST applicable on sale of flat during construction. It 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 exemptio....
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.... Ltd., a company incorporated under the laws of Mauritius. 25. IJM, on behalf of NITPL has deposited through MADC and Chourangi a Onetime Settlement (OTS) amount to Mis Vijaya Bank towards the Settlement of loan amount, availed by Chourangi in respect of the development of the said Land. 26. In consideration of NITPL paying the OTS amount and agreed dues in respect of the development of the said Land, MADC had entered in for Development Agreement (DA) with NITPL on 8" December 2017 along with 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 rig....
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....tment is given to customer referred to as lessee. The lessee agrees to take on lease from Developer(Applicant) and Applicant agree to lease out to respective buyer the respective flat as mentioned specifically in the agreement. The lessee is not having any option to suggest any changes to the plan as approved. The prospective buyer would make an advance payment followed by instalments as prescribed. The buyer is liable to pay all applicable taxes including GST on the lease Consideration as applicable. The 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 agr....
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....proposed lease agreement, transaction between developer and prospective lessee covers the concept 'supply' as it is for supply of construction services for a consideration. Basically, it is a works contract service and as per judgment of Hon'ble Apex Court in case of Larsen & Toubro Vs. State of Karnataka (2014) 1 SCC 708 = 2013 (9) TMI 853 - SUPREME COURT. The term works contract is broad and includes all obligations and all types of contract. Works contract is a contract for undertaking or bringing into existence some works. Hence, lease agreement between applicants and prospective lessee is 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 th....
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....cate or prior to occupation GST will be applicable. 36. From the facts of the case entire construction service is provided to prospective lessees in compliance of agreement of lease hence it is squarely covered in the ambit of GST Law. Personal Hearing 37. A personal Hearing in the matter was conducted on 14.10.2019, which was attended by Shri G. Natarajan, Advocate, on behalf of the Appellant, as well as by Shri Manish Puliye, the Jurisdictional Officer in the instant matter, who reiterated their respective written submissions filed before us. Discussions and Findings 38. We have gone through the facts of the case, documents on record and submission made by the appellant as well as the jurisdictional officer. 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 ....
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....llowing arguments:- A) Generally flats taken on lease are fully constructed flats with Occupancy Certificate which is not the case herein. In the present case, the lease amount are received during construction. The Lessee keeps paying installments on completion of slabs and this type of payment is only made when person has entered into an agreement for purchase of flat in an ongoing project. B) The AAR called for details of lease amount charged to the customers towards the leasing of the flats in the proposed project. From the details submitted by the appellant, the AAR gave a finding that the lease amount payment over a certain time period is around 50% of the prices for right to move in flats. In respect of certain flats it was found that lease 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....
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.... completion of foundation-10% is to be given, after completion of third slab 15% is to be given and so on. As lease never comes under construction project, the above payment schedule is only seen when an agreement is entered into by a prospective buyer with a builder/developer for the construction of a building or complex. Therefore, it is seen that almost 95% of the amount comprising the lease consideration is paid before the possession of the apartment. It is difficult to believe that a Lessee will commit such amount before moving or enjoying the flat. All these leads us to believe that this is nothing but a sale transaction projected as a lease transaction. 45. As per clause 5.2 of the draft agreement, the prospective Lessee also has to pay advance maintenance charges for the 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 t....
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....ties, the project was to be completed and the possession of the apartments was to be handed over to the Respondents within a period of 24 months. However after a long delay, the parties approached RERA authorities and the question arose whether, the provisions of the RERA are applicable to the 'Agreement of Lease' executed between the parties. The High Court went through the clauses of the agreement and held that though the agreement is shown to be of lease, it is an agreement of sale. It observed the following:- ...."In this context, vis-a-vis, these definitions given in the RERA, it would be essential to go through the 'Agreements' executed between the parties. No doubt, it is true, that the 'Agreements' are titled as 'Agreements of Lease'. The word "Rent" is also defined therein to 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 t....
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....Agreement of Lease', but, in its real purport, it is an 'Agreement of Sale'. The very fact that more than 80% of the entire consideration amount is already paid by the Respondents to the Appellant and the lease premium agreed is only of Rs. 1/- per annum, including the clause relating to the period of lease of 999 years, are self-speaking to prove that, in reality, the transaction entered into by the parties is an 'Agreement of Sale' and not an 'Agreement of Lease'; though it is titled as such. The law is well settled that the nomenclature of the document cannot be a true test of its real intent and the document has to be read as a whole to ascertain the intention of the parties. 48. Similar clauses can be found in the present agreement. The Payment Schedule found in Schedule D also shows payment made as per the stages in the completion of the construction. (Clause 4.1) Clause 4.2 says that 'the lessee shall also be liable to bear and pay all stamp duty and registration charges. As per clause 4.6 the developer has also agreed to facilitate the process of obtaining loan from the financing agency. As per Clause 5.2 the lessee also has to pay advance maintenance charges for operati....