In re Richwell Enterprises Private Limited (GST AAR Rajasthan)
‘Construction services’ and the ‘ancillary services’ provided by the applicant are not naturally bundled and are not supplied in conjunction with each other in the ordinary course of business with main supply. These are the facilities/amenities provided by the applicant to its customers for the limited period because, for these facilities created the customers have not been given perpetual rights. The amount or consideration is charged separately for different services. Therefore, the other charges for the ancillary services provided is not covered under the scope of ‘Composite supply of services’. Therefore, the contention of the applicant is found not acceptable.
In view of above, the other charges to be charged for ancillary services’ mentioned as above are held taxable as per their SAC under the GST Act, at 18% in terms of the respective and appropriate entries (against the SAC mentioned in the Table at Para No. 17 above) in notification No. 11/2017-CT(R) dated 28.06.2017 as they are covered under services, other than construction services.
Therefore, in our view, the consideration for providing the construction services by way of construction of residential unit and the consideration for the ancillary services (i.e. other charges collected) are considerations against separate independent services being provided by the applicant. Considering the nature of supplies in question, the services for each of the service head/description are covered under notification No. 11/2017-CT(R) dated 28.06.2017 mentioned above and therefore, the Other Charges would attract GST @18%. Thus, the l/3rd deduction from total value as per Sr. No. 2 of the Notification (as claimed by the applicant) cannot be allowed as deduction from the Other Charges. A plain reading of the items or the list of other charges itself shows that ancillary services supplied against the said charges have no connection with land and therefore, question of considering the 1 /3rd deduction or rebate towards land cost does not arise, particularly, as the entries applicable to both of the above services are different.
As tar as availability of Input Tax Credit (ITC) on goods & services received for supply of the ‘ancillary services’ is concerned, we are of the view that as ‘ancillary services’ are subject to outward tax liability at the rate of 18% (without any abetment) therefore, as per Section 16 of the CGST and RGST Act, the applicant shall be eligible to take ITC of the GST paid on goods or services used or intended to be used in the course or furtherance of business subject to the conditions as prescribed and the provisions of sub section 5 of the Section 17 of the GST Act.
FULL TEXT OF THE ORDER OF AUTHORITY OF ADVANCE RULING, RAJASTHAN
Note: Under Section 100 of the CGST/RGST Act, 2017, an appeal against this ruling lies before the Appellate Authority for Advance Ruling constituted under section 99 of CGST/RGST Act, 2017, within a period of 30 days from the date of service of this order.
At the outset, we would like to make it clear that the provisions of both the CGST Act and the RGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the RGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / RGST Act would be mentioned as being under the “GST Act”.
The issue raised by M/s Richwell Enterprises Private Limited, S 21, G 1, Western Heights, Shyam Nagar, Sodala, Jaipur-302019, RAJASTHAN -(hereinafter the applicant) is fit to pronounce advance ruling as it falls under the ambit of the Section 97(2) (b),(d) (e) & (g) given as under:-
(a) applicability of a notification issued under the provisions of this Act;
(b) admissibility of input tax credit of tax paid or deemed to have been paid;
(c) determination of the liability to pay tax on any goods or services or both;
(d) whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term.
A. SUBMISSION AND INTERPRETATION OF THE APPLICANT:
1. Brief facts of the case :
> Richwell Enterprises Private Limited is the company is engaged in the business of construction of residential complex.
> Currently, as per Notification No. 03/2019-Central Tax (Rate) dated 29th March, 2019, the applicant is paying outward tax liability on Construction Services at the rate of 1% or 5%, as the case maybe.
> Further, the applicant does not pay GST in respect of flats/units sold after the issuance of Completion Certificate or its first occupation, whichever is earlier.
> Furthermore, the assessee recovers charges for the following ancillary services from the residents:-
a) JDA Lease Charges
b) Electrification Charges
c) Sewage Treatment Plant Charges
d) Non-refundable IFMS (Interest Free Maintenance Security)
e) Club Membership
Cumulatively, hereinafter called as ‘the ancillary services’.
> To provide ‘the ancillary services’, broadly the applicant makes the following inward supplies:-
a) Civil expenses related to club formation, interior furnishing, air conditioning and equipment expenses
b) Electrification Transformer, Vacuum Circuit Breaker, Ring Main Unit, Variable Renewal Energy, Main Panel, Active/Automatic Power Factor Correction/Control (Panel), Panel Distribution Channel, High Tension Low Tension Cable, CTPT Combined Metering Panel, Solar Panel, Inverter and Net Metering Expenses
c) Sewage Treatment Plant related equipment as well as civil expenses
> It has come to notice of applicant in some conferences that some builders paying GST for that outward supply of the ancillary services at 1% / 5%.
> The applicant is law abiding person and does not want to default and to pay less/ excess GST. Hence, the applicant is hereby seeking advance ruling on treatment/taxability of ‘the ancillary services’ and eligibility of Input Tax Credit thereon.
Applicant’s interpretation / view on the case:
Question No 1. Whether recovery of charges for ‘the ancillary charges’ by builders would be considered as a ‘composite supply’ naturally bundled with ‘Construction Services’ under Section 8 of CGST and RGST Act, 2017?
> Firstly, the applicant is reproducing definition of composite supply as mentioned under Section 2(30) of the CGST Act as follows:-
“composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.
> Further, as per Section 8 of the CGST Act –
i. “a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply. “
> Furthermore, the meaning of Composite Supply has been clarified in a Flyer issued by CBIC and relevant extract has been produced below for ready reference:-
i. The concept of composite supply under GST is identical to the concept of naturally bundled services prevailing in the existing service tax regime. This concept has been explained in the Education Guide issued by CBEC in the year 2012 as under-
‘Bundled service’ means a bundle of provision of various services where in an element of provision of one service is combined with an element or elements of provision of any other service or services. Each service involves differential treatment as a manner of determination of value of two services for the purpose of charging service tax is different. “
ii. The rule is – ‘If various elements of a bundled service are naturally bundled in the ordinary course of business, it shall be treated as provision of a single service which gives such bundle its essential character’. “
> In view of, it is submitted that the primary business of the applicant is construction of Residential Complex. In addition to construction services, the applicant also provides ‘the ancillary services ‘to the residents of the complex.
> It is submitted that the said ancillary services are provided in conjunction to the construction services in the ordinary course of business and are naturally bundled. It should be treated as provision of composite service which gives such bundle its essential character. Also, the applicant is not providing ‘the ancillary services’ separately to parties other than buying the flat / unit from the company. Hence ‘the ancillary services’ shall be treated as composite supply with construction while charging GST on the same.
> Further, we submit that through FAQ No. 354/32/2019-TRU dated 14 May,2019 issued by Ministry of Finance, Government of India, following has been clarified:
