TaxTMI 
TaxTMI 
2020 (9) TMI 1249
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....gaged in the construction of residential as well as commercial properties. While selling such properties or providing the construction service they are also engaged in the recovery of various charges including Preferential Location Charges (PLC) from the Buyers. The Applicant had requested for Advance Ruling on the questions:- 1. "Whether PLS collected along with consideration for sale of properties attracts GST rate of 12% or 18% where sale/transfer of constructed property has taken place before issuance of completion/Occupation certificate (CC/OC)?" 2. "Whether PLS collected along with consideration for sale of properties attracts GST rate of 5% or 18% where sale/transfer of constructed property has taken place before issuance of CC/OC under new projects which commence on or after 01.04.2019?" 3. "Whether PLS collected along with consideration for sale of properties is outside the scope of supply where sale/transfer of constructed property is entered into by the Applicant after issuance CC/ OC?" 4. "If as per above, question, PLS attracts concessional rate of tax/exemption (whether 12% or 5% or nil as the case may be), whether, in facts and ....
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.... 2. They are engaged in the construction of Residential and Commercial properties; They enter into agreements with buyers to effect sale; 3. Units of sale are Apartments in a Residential, and Shops in a Commercial property; 4. As a normal practice they enter into said agreements both before or after completion of construction; 5. Agreements entered into are to Total price of the unit which contains many components viz. Base Sale Price (BSP), Parking Charges, PLS and Other Charges. These charges are generally collected based on per Square Feet or per Square Meter or can also be on percentage or a lump sum price depending upon the project; 6. Based on location of property within a project, the lump-sum price can be different for different properties; 7. Where the Appellant enters into agreement with buyers before issue of OC/CC by the competent authority, it collects some consideration; 8. This being construction service, the same is taxable in GST @12% i.e. @18% less one-third as abatement towards undevided portion of land, as provided in Notification 11/2017-CT(R) dated 28th June 2017; 9. W.e.f. 1.04.2019, a new ra....
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....ract. 54. Insofar as the challenge to the levy of service tax on taxable services as defined under Section 65(105)(zzzzu) [Preferential Location Service] is concerned ...we do not find any merit in the contention that there is no element of service involved in the preferential location charges levied by a builder. We are unable to accept that such charges relate solely to the location of land. Thus preferential location charges are charged by the builder based on the preferences of its customers. ... are in one sense a measure of additional value that a customer derives from acquiring a particular unit. Such charges may be attributable to the preferences of a customer in relation to the directions in which a flat is constructed; the floor on which it is located; the views from the unit; accessibility to other facilities provide in the complex etc. As stated earlier, service tax is a tax on value addition and charges for preferential location in one sense embody the value of the satisfaction derived by a customer from certain additional attributes of the property developed. Such charges cannot be traced directly to the value of any goods or value of land but are as a result....
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....d of the excess paid tax. a. Differential Prices for Different units: The Appellant further submitted that different prices for different units within a project are recovered due to locational or other factors but there should be single/ same rate of GST. II. GROUNDS OF APPEAL: The Appellant has pleaded the denial of personal hearing opportunity by the Advance Ruling Authority (after they missed certain number of opportunities) and the delayed communication/ passing of the Order by the Advance Ruling Authority (AAR) as the Grounds for their Appeal. The following have been pleaded by the Appellant in their 'Grounds of Appeal':- 1. Order has been passed almost one year from the date of application:- • That, application has been rejected due to binding time-limitation; • That, it is their substantive right to receive the ruling in view of Kerala High Court's Order in the case of Government Wood Works vs. State of Kerala • That, an order made late is as good as not made in view of Supreme Court's order in State of Andhra Pradesh vs. m Ramakishtaiah and Co. • That, due to order issued after ex....
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.... of hearing has been given to the applicant: Provided also that where the application is rejected, the reasons for such rejection shall he specified in the order. .... .... (6) The Authority shall pronounce its advance ruling in writing within ninety days from the date of receipt of application.. III. Record of Personal Hearing Sh. Sujit Ghosh, Advocate attended the hearing on 25.08.2021 through webex on behalf of the Applicant and represented vehemently in favour of the view in the Appeal. However no fresh points were made in furtherance of the already submitted facts or the grounds in appeal. The representation was thus limited to re-iteration of the earlier submissions and there arose no new arguments for consideration. IV. DISCUSSION AND FINDINGS We find that the following questions were raised for Advance Ruling thereupon:- 1. "Whether PLS collected along with consideration for sale of properties attracts GST rate of 12% or 18% where sale/transfer of constructed property has taken place before issuance of completion/Occupation certificate (CC/OC)?" 2. "Whether PLS collected along with consideration for sale of p....
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....nits. Such lump sum price can be different for various properties/units on account of various commercial factors such as location of the property/unit. In such cases, applicant's opinion is that GST should be applicable at a single rate on lump sum prices charged even if differential prices are charged for different property/unit @ 12% or 5% or Nil as applicable on whole lump sum price. We are taking up the issues in the Appeal, on merits. Pleadings in Appeal Essentially, the Appellant's plea is that the providing of Preferential Location was a component of the Construction Service and was entitled for abatement of one-third from the value/ consideration of landed/ immovable property. Also, the Appellant has expressed the view that there has to be a uniform rate applicable to the construction service which should be 5% or 12% and since they have already paid the GST rate of 18% on construction service the same needs to be refunded to them. To understand the ground for this claim viz. 5%/ 12% GST, the scheme of taxation of construction service, and the GST rates as were applicable from time to time, need to understood, first. GST rates on Construction Servi....
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....-third of the total amount charged for the immovable property. However, the Paragraph 2 was amended w.e.f. 25.01.2018 vide Notification 1/2018 (dated 25.01.2018) as under:- "(ii) for paragraph 2, the following shall be substituted, namely: - 2. In case of supply of service specified in column (3), in item (i); sub-item (b), sub-item (c), sub-item (d), sub-item (da) and sub-item (db) of item (iv); sub-item (b), sub-item (c), sub-item (d) and sub-item (da) of item (v); and subitem (c) of item (vi), against serial number 3 of the Table above, involving transfer of land or undivided share of land, as the case may be, the value of such supply shall be equivalent to the total amount charged for such supply less the value of 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. Explanation. -For the purposes of this paragraph, "total amount" means the sum total of- (a) consideration charged for aforesaid service; and (b) amount charged for transfer of lan....
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....t pertains to the other than Affordable Residential Projects to commence w.e.f. 1.04.2019. Similarly 12% GST Rate, viz. two-third of (9+9) claimed by the Appellant pertains to other projects including commercial projects. PREFERENTIAL LOCATION SERVICE It is clear from the Appellant's pleas that they are claiming the rates of 5% or 12% for Preferential Location service and simultaneously claiming these services as Construction Service/ a component of Construction Service. It is also clear that the claim includes entitlement to abatement of one-third from the value/ consideration of landed/ immovable property. Whether Preferential Location Service (hereinafter PLS), is CONSTRUCTION SERVICE? The Applicant's plea that PLS is nothing but Construction Service appears not acceptable. Despite the preferential location coming into existence as a consequence of the construction activity undertaken by the Developer, the amount charged for the Preferential Location is a consideration paid by the prospective buyer for provisioning of an exclusive service viz. of providing a location which is more preferential to a buyer of a house or commercial property even after the iss....
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....in Trade', the same would qualify as a Supply under GST as any other trading service. Accordingly, the related services, including PLS, would also be taxable supplies. From the Explanatory note above also it is clear that the sales of 'Buildings and Associated Lands' as sales of trading stock is a service. The consideration charged for providing a preferential location is, thus, clearly for the service over and above the said sales, even if it is provided by a dealer of 'stock-in-trade' buildings. In fact while going through the Scheme of Classification of Services notified vide Notification 11/2017-CT(R) dated 28.06.2017, one can find several Services which are integrally linked to Real Estate/ Landed Property/ Building and can only be provided through a real estate/ landed property, but are clearly identifiable as exclusive/ separate services viz. Hotel Accommodation Service (Heading: 9963, Group: 99631); Demolition Service (Heading: 9954, Group: 99543); Warehousing Service (Heading: 9967, Group: 99672) etc. It may be pointed out here that even within a Warehouse, if provided in a portion of it, the service is Refrigerated Storage Service, it classifi....
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....ion, and vice-versa. CLASSIFICATION of PLS The Scheme of Classification of Services (classification scheme) notified vide Notification 11/2017-CT(R) dated 28.06.2017, wherein above mentioned Services of Construction, Accommodation and Warehousing are also comprised, doesn't exclusively mention/ classify the Preferential Location Service. However for the sake of providing a frame of reference, the Headings and the Groups and their descriptions in respect of competing/ relevant entries under the Notification, are being reproduced: - 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 buildings 12 Group 99542 General construction services of civil engineering works 22 Group 99543 Site preparation services 29 Group 99544 Assembly and erection of prefabricated constructions 35 Group 9....
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....courier services 165 Heading 9969 Electricity, gas, water and other distribution services 166 Group 99691 Electricity and gas distribution services 170 Group 99692 Water distribution and other services 174 Section 7 Financial and related services; real estate services; and rental and leasing services 175 Heading 9971 Financial and related services 176 Group 99711 Financial services (except investment banking, insurance services and pension services) 182 Group 99712 Investment banking services 184 Group 99713 Insurance and pension services (excluding reinsurance services) 193 Group 99714 Reinsurance services 201 Group 99715 Services auxiliary' to financial services (other than to insurance and pensions) 211 Group 99716 Services auxiliary to insurance and pensions 217 Group 99717 Services of holding financial assets 220 Heading 9972 Real estate services 221 Group 99721 Real estate services involving owned or leased pro....
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....ny and other telecommunications services 373 Group 99842 Internet telecommunications services 379 Group 99843 On-line content services 385 Group 99844 News agency services 389 Group 99845 Library and archive services 393 Group 99846 Broadcasting, programming and programme distribution services 400 Heading 9985 Support services 401 Group 99851 Employment services including personnel search, referral service and labour supply service 410 Group 99852 Investigation and security services 420 Group 99853 Cleaning services 430 Group 99854 Packaging services 435 Group 99855 Travel arrangement, tour operator and related services 444 Group 99859 Other support services 454 Heading 9986 Support services to agriculture, hunting, forestry, fishing, mining and utilities 455 Group 99861 Support services to agriculture, hunting, forestry and fishing 462 Group 99862 Support services to mining 465 Group 99863 &n....
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....social security schemes 581 Heading 9992 Education services 582 Group 99921 Pre-primary education services 584 Group 99922 Primary education services 586 Group 99923 Secondary Education Services 589 Group 99924 Higher education services 594 Group 99925 Specialised education services 596 Group 99929 Other education and training services and educational support services 603 Heading 9993 Human health and social care services 604 Group 99931 Human health services 613 Group 99932 Residential care services for the elderly and disabled 616 Group 99933 Other social services with accommodation 621 Group 99934 Social services without accommodation for the elderly and disabled 624 Group 99935 Other social services without accommodation 629 Heading 9994 Sewage and waste collection, treatment and disposal and other environmental protection services 630 Group 99941 Sewerage, sewage treatment and septic tank cleaning....
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....gs 6 995412 Construction services of other residential buildings such as old age homes, homeless shelters, hostels and the like 7 995413 Construction services of industrial buildings such as buildings used for production activities (used for assembly line activities), workshops, storage buildings and other similar industrial buildings 8 995414 Construction services of commercial buildings such as office buildings, exhibition and marriage halls, malls, hotels, restaurants, airports, rail or road terminals, parking garages, petrol and service stations, theatres and other similar buildings 9 995415 Construction services of other non-residential buildings such as educational institutions, hospitals, clinics including veterinary 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 remodelling of the buildings covered above As may be seen, the construction service is the construction simplicitor whether in respect of single....
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....r Group 99722 and the SAC 997222 or 997223 CLASSIFICATION; The most appropriate entry wherein the instant Service, viz. to be provided by M/s. DLF Ltd., is classifiable is Heading 9972, Group 99722 and Service Accounting Code (SAC) 997222 viz. "Building sales on a fee or commission basis or on contract basis". Where the sale of a piece of land is being made as a 'stock in trade' the preferential location service shall classify under SAC 997223 viz., "Land sales on a fee or commission basis or on contract basis". 220 Heading 9972 Real estate services 221 Group 99721 Real estate services involving owned or leased property 222 997211 Rental or leasing services involving own or leased residential property' 223 997212 Rental or leasing services involving own or leased non-residential property 224 997213 Trade services of buildings 225 997214 Trade services of time-share properties 226 997215 Trade services of vacant and subdivided land 227 Group 99722 Real estate services on a fee or commission basis or on contract basis 228 997221 Property management services on a fee or commission basis ....
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....rse of business. The abatement, which is allowed on the value of construction service, as the plot of land on which construction is done is not liable to GST and cannot be deemed to be applicable in respect of Preferential Location Service, which is altogether a separate service having no association with the land. It is clear from the categorization that Preferential Location Service should come under Serial No. 3(iii) of the Services Rate Notification No. 11/2017-Central tax (Rate) dated 28.06.2017 as the other two categories are clearly defined. Abatement to the extent of l/3rd of the total amount charged for supply of the service mentioned under Serial No. 3(i) of the Services Rate Notification has been allowed under Paragraph 2 of the said Notification. No abatement has been provided for service mentioned under Serial No. 3(iii) of the Rate Notification." Thus, the AAAR West Bengal has recognized the ibid PLS service as a service distinct from construction service and that no abatement is applicable on the value of PLS realized separately from the buyers. However we tend to differ as to the exact classification of the PLS Service and hold that the same ....