TaxTMI 
TaxTMI 
2021 (6) TMI 481
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....plex, First Main Road, CIT Nagar, Chennai-600035 (hereinafter called the 'Applicant') is registered under the GST Vide GSTIN 33AADCA9093P1Z4.They have sought Advance Ruling on the following question: "Whether the activities of construction carried out by the applicant for its customer under the Construction Agreement, being composite supply of works contract are appropriately classifiable under Heading 9997, and chargeable to CGST E.1 9% under S.No.35 of Notification No.11/2017-CT (Rate) dated 28.06.2017". The Applicant has submitted the copy of application in Form GST ARA -01 and also submitted a copy of Challan evidencing payment of application fees of Rs. 5,000/- each under sub-rule (1) of Rule 104 of CGST rules 2017 and SGST Rules 2017. 2.1 The Applicant has stated that they are a company registered in India and are real estate developer. They have stated that the present application pertains to development of a residential project by them under a defined arrangement. In the said arrangement, they hold the development rights to develop a particular parcel of land. They enter into two agreements with their customer. The First agreement is an Agreement for Sale of ....
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....ction Agreement are subject-matter of the present application. 2.4 They have stated that in the above background, the question arises as to what is the nature of activities undertaken by the Applicant for the customer. In this regard, they have made reference to the definition of 'works contract' under Section 2 (119) of the CGST Act. They have stated that a contract for building or construction of any immovable property involving transfer of property in goods (whether as goods or in some other form) in the course of its execution, qualifies as 'works contract' under Section 2 (119) of the CGST Act. In the instant case, they undertake activity of construction of unit, being immovable property, for the customer, which involves transfer of property in goods such as cement, steel, mortar, etc. to the customer. Such activities of the Applicant answer the description of definition under Section 2 (119) of the CGST Act and thus, qualify as 'works contract'. They have placed reliance on the judgement of the Hon'ble Supreme Court in the case of State of Madras v. Gannon Dunkerley & Co.(Madras) Limited, 1955 SCR 379. 2.5 The applicant has referred to 46th Constitutional Amendment Act,....
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....opriate rate of GST payable thereon, they have referred to the Heading No. 9954, Sl. No. 3 of Notification No, 11/2017-CT(R), dated 28.05.2017 and stated that the description of service corresponding to this heading in Column 3 of table therein refers to services of different nature in various clauses from Clause (i) to (xii). They have stated that the Scheme of Heading No. 9954, SI. No. 3 clearly distinguishes supply of construction services from composite supply of works contract, Clause (i) to Clause (if) refer to various specified construction services, Clause (iii) to Clause (X) refer to various specified composite supplies of works contract; clause (xi) refers to certain specified services by way of housekeeping; Clause (xii) is a residual clause referring to construction services other than those covered under earlier clauses. 2.7 The applicant has made reference to Clause (i), which covers construction of affordable residential apartments by a promoter in a Residential Real Estate Project, subject to certain conditions, intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where r....
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....assified under Clause(i) to Clause(if) & Clause (xii) of Sl. No. 3 of the cited notification as it is limited to supply of specified construction services (not being composite in nature), while the coverage of clause (iii) to clause(x) extends to composite supplies of works contract, if at all their supplies are covered under Clause (iii) to (x), the scope of the clause is limited to works contract of specified nature, which does not cover the supplies made by them. Also Clause (xi) refers to housekeeping services, which is not relevant to their case. 2.9 The applicant has also submitted that Clause (i) to Clause (if) of Sl.No.3 of the Notification which refers to various construction services, wherein the Promoter/ Developer constructs apartments in a project, intended for sale to buyer. The requirement for construction of apartments intended for sale to buyer is inherent for classification under Clause (i) to Clause (if) of S. No. 3 of the notification. This is also evident from Clause (b) of Paragraph 5 of Schedule II, which also mandates that the construction of complex must be intended for sale to the buyer. Similarly, Clause (xii) refers to construction services, in contra....
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....d in the 5 phases. phase I was completed in pre-GST regime, Phase II completed in GST regime, Phase II commenced prior to 01.04.2019 and is scheduled to be completed in 2022. Phase IV is scheduled to be launched soon and Phase V will be launched in future. All the phases of Ashiana Shubham qualify as Residential Real Estate Project (RREP). • They are seeking Advance Ruling in respect of its future Phase IV and V of the project 'Ashiana Shubham'. As regards Phase I to Phase III they have been complying with legal requirements and remitting the applicable taxes on the construction services rendered to customers in respect of the said phases. • The Modus operandi they intend to follow in respect of Phase IV and V of the project for provisions of construction services to customers is as follows: • They will enter into a tripartite IOU with all their prospective customers wherein the customer will agree to enter into an Agreement for purchase of Undivided interest/share in the land(UDS) from the landowner and the Applicant in their capacity of Power of Attorney(PAO) holder and a subsequent Construction Agreement will be executed with the Applicant ....
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....e supplies of works contract and demonstrated how they do not apply to them. • There is no other entry in the Rate Notification which mentions works contract and, in such scenario, their supply would be classifiable under residual entry heading 9997 and chargeable to CGST @ 9% under Sl. No. 35 of the Rate Notification. • The composite supply of works contract is not classifiable under Heading 9954, clause (i) to (if) or (xii) against S.No.3 These entries are specific to construction services and do not intend to take within its scope those contracts involving composite supplies of both goods and services. It is for this reason that the GST Act and the Rate Notification distinctly recognize pure services of construction vis-a-vis composite works contracts. Therefore, once it is apparent that the activities proposed to be performed by them qualifies as a 'Works Contract' and is not a contract for construction service simpliciter, clause (i) to (if) or (xii) against Sl.No. 3 of Heading 9954 are inapplicable, • Further, since separate sale of Land and Construction agreements are entered, the transaction is not a "Construction of building intended ....
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....ategories is to be arrived at and as per which in case of supply of service specified in column (3) in item (i), (ia), (ib), (ic), (id), (ie) and (if) against Sl.No.3 of the above notification, involving transfer of land or undivided share of land, as the case may be and the value of such transfer of land or undivided share of land, as the case may be in such supply shall be deemed to be one third of the total amount charged for such supply. • Sl.No.35 of the aforementioned notification, under which the applicant sought to classify their services, covers the categories "Other services (washing, cleaning and dyeing services; beauty and physical well-being services; and other miscellaneous services including services nowhere else classified) attracting GST @ 9%. • As the supplies for which the applicant has sought advance ruling is squarely covered under SL.No.3 of the said notification under heading 9954 which is further subdivided into different categories attracting different rates of GST depending upon the types of projects, the plea of the applicant to classify their service under Heading 9997 under SI.No.35 may not be acceded to. 5. The State jurisd....
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....nit in the real estate project developed by them. Finally, a sale deed will be executed for the proportionate undivided share of land by the Landowner to the customer prior to handing over possession of the developed residential unit which will be registered on payment of appropriate stamp duty along with the construction agreement entered by the buyer with the applicant for construction of the Unit. The applicant has furnished the acknowledgement issued by TNRERA for their application under the RERA Act; letter of approval for Phase IV by the Town Planning authorities, sample copies of the proposed agreements and contracts (along with the application} and sample copy of the similar agreements entered with the customers for the earlier phases. 7.2 The letter of approval and the application for RREP in respect of Phase IV of the project is furnished before use to establish that they propose to undertake the said project and therefore, the ruling is restricted to Phase IV proposed to be launched by the applicant as no such documents are placed before us in respect of Phase V, which they had stated will be launched in future. On going through the proposed IOU, UDS agreement, Constr....
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.... before due date or as and when demanded by the Developer as the case may be and also to perform or observe all other obligation of the Buyer under this Agreement • Article 3.7- Cancellation/Termination of this Agreement for Sale of Undivided Share in the Phase____ land would automatically deem cancellation/Termination of Construction Agreement, to be entered into with the Developer and the Land Owner The Buyer/s shall not have any right to seek specific performance of this agreement alone, as it would affect the scheme of construction formulated by the Developer and on such on such cancellation/termination, the rights of the Buyer in this Agreement and/or the Construction Agreement shall vest with the Developer and/or the Land Owner.. • Article 4.1 The Land Owner and the Developer agree to execute this Agreement along with Construction Agreement with Buyer and Buyer is obliged to register both the agreements with the sub-registrar office as and when called upon by the Land Owner and/or the Developer to do so and shall be solely......... • Article 4.7 - Upon complete compliance of all the terms and conditions of this Agreement including Constr....
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....or organizing activities for the residents in_________ • Article 10.4 For the purpose as detailed in Para 10.1 and 10.3 above, the Buyer agrees to enter into a separate operation and management agreement with the Developer or it assignee which would clearly spell out scope and schedule of management works, operation of the services and charges for operation and management and charges towards capital repairs and replacements etc. • Article 11.1 The Buyer agrees to pay, at the time of possession, a reducible interest free management deposit to be determined or fixed by the Developer from time to time, to the Developer or its assignee............. • Article 13.1 The Buyer agrees to become a member of the _________Owners' Association (as and when formed) and abide by the rules of the Association. If the Developer and/or the Land Owner decide not to form a new association for_____under such circumstances the Buyer shall become member of the existing "______". In this regard the decision of the developer shall be final and binding. The Buyer agrees to pay any fees, subscription charges etc for membership of the association and to complete such docum....
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....d Owner enters into 'Agreement for Sale' and 'Indenture of Understanding" with the prospective buyer of a Unit of the developed Project and enters into a 'Construction Agreement' with such buyer exclusively. By the clauses of the Construction agreement, it is evident that the prospective buyer does not have a choice to enter into a construction agreement with anyone other than the applicant, i.e., the developer of the project, who undertakes the Construction of the 'Units' and the infrastructure proposed for the project. Thus, it is clear and evident on all fours that the activity of the applicant is construction of a Residential Real Estate Project with the infrastructure as approved by the Tamilnadu RERA and the District Town Planning authorities. The applicant enters into construction agreement with the buyers for their 'Units' in the proposed project along with the agreement for sale and IOU. Thus, the Construction agreement entered into by the applicant with the prospective buyer is not a stand-alone agreement under which the applicant makes the supply to the customer. The various clauses of the different agreements entered into with the prospective buyer of a 'Unit', mentione....
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....eceiver is based on more than one agreement, all such agreements are to be considered in a wholesome way to understand the intention of the supply made to the receiver and each agreement cannot be lineated and considered, as handed down by various Juris prudence. As stated by the applicant, in the case at hand, the Modus proposed to be followed is to enter into an agreement for sale and a construction agreement, both covered under an IOU all executed simultaneously, followed by registration of 'sale deed' executed for the UDS and 'construction agreement' for construction of the 'Unit'. The contention of the applicant is that • they are providing 'Composite supply of Works Contract' which is a 'composite supply treated as service' under GST as per Para 6(a) of Schedule-II of the Act and not a 'construction Simpliciter' to the 'Unit' buyer • Para 5(b) of Schedule II to the Act treats construction of complex as a supply of services while Para 6 refers to composite supplies and treats the same as supply of service, which establishes that the scope of Para 5 does not extend to cover composite supplies, i.e., any composite supply is not covered under Para 5 of S....
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....g a complex or building intended for sale to a buyer wholly or partly where the entire consideration is not received by the service provider after issuance of completion certificate for such building is stated as a supply of service as per Para 5(b) above.; Composite supply which involves supply consisting of two or more taxable supplies of goods or services or both or any combination thereof which are naturally bundled and when such supply is a 'Works contract' as defined in clause (119) of Section 2, it is to be treated as 'Supply of Service' as per Para 6 (a) above. 8.4 The applicant relying on the decisions of the Hon'ble Supreme Court based on the taxation provisions that existed in the Pre-GST Era, has contended that any building contract is a works contract as held by the Courts and claim that the supply made by them to the 'Unit' buyer is a 'Composite Supply of Works Contract' as identified at Para 6(a) of Schedule-II and that Para 5 of Schedule does not cover Composite supplies. It is pertinent to note that the 46^th amendment to the Constitution, which introduced 366(29A), created a legal fiction by which a contract was divisible into one for sale of goods and it was p....
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....hedule. Minutes of the 10th GST Council Meeting, extracted below: (ii) To amend Section 3(2)(b) of the Model GST Law by adding a new Clause 6 in Schedule II (as indicated below in underlined portion in italics) and to delete the existing sub-clauses 5(f) and 5(h) of Schedule II of the Model GST Law: 6. The following composite supplies shall be treated as a supply of services- (a) works contract including transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; and (b) supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article (or human consumption or any drink (other than alcoholic liquor (or human consumption), where such supply or service is or cash, deferred payment or other valuable consideration. From the above, it may be seen that 'Works Contracts' were subjected to Sales Tax on the Value of Goods involved in the works and on the labour and Service portion of the same contract, service tax was levied in the Pre-GST Era. These very contracts are treated as supply of service in the GST Era. Going by the extrac....
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....e. Classification of Service is to be done based on the Scheme of Classification and we find no reason to agree to the contention of the applicant that the service provided by them is not classifiable under SAC 9954. Heading 9954 covers all construction services and the same is as follows: Annexure: Scheme of Classification of Services S.No. Chapter Section, Heading or Group Service Code (Tariff) Service Description (1) (2) (3) (4) 1. Chapter 99 All Services 2. Section 5 Construction Services 3. Heading 9954 Construction Services 4. Group 99541 Construction Services of building 5. 995411 Construction Services of single dwelling or multi dwelling or multi-storied residential building 6. 995412 Construction Services of other residential building such as old age homes, homeless shelters hostels and like The applicant contends that their activity is classifiable under SAC 9997, which is falling under Section 9 which constitutes activities relating to community, social and personal services and other miscellaneous services. SAC 9997 is as ....
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....vice under SAC 9954' and it will not be classified under SAC 9997 as claimed by the applicant. 9.1 The rate of tax applicable for the SAC 9954 is given under SI.No.3 (i), (ia), (ib), (ic),(id),(ie), (if),(iii), (iv), (v), (va), (vi),(vii), (viii),(ix), (x),(xi) and (xii) of Notification No. 11/2017-C.T. Rate dated 28.06.2017 as amended by Notfn No. 03/2019 dated 29th March 2019. We find the applicant has stated to have considered the entries and concluded that their supply is not covered under 3 (i) to 3(if) or 3(xii) as the supply made by them to the intended buyer is a composite supply of works contract and not a construction simpliciter and the other entries which provides for 'Composite supply of works contract' do not apply to them. 9.2 It has been established in Para 8 above, that the activity of the applicant based on the proposed 'Construction agreement' entered into with the prospective buyer of the 'Unit' of the proposed RREP developed by them is a Construction service of residential apartment in the said RREP. The applicant in their submissions, has further stated that the apartments being proposed to be constructed by them in the project do not satisfy the conditi....