In re Palal Realty (GST AAR Kerala)
The rate of GST applicable on the construction of affordable residential apartments and sale of villas without the benefit of input tax credit.
1: The ruling clarifies that the rate of GST applicable to the applicant on the construction and sale of villas depends on whether the villas fall under the category of affordable residential apartments or other residential apartments. For affordable residential apartments, the rate of GST is 1.5% (0.75% – CGST + 0.75% – SGST). On the other hand, for residential apartments other than affordable ones, the rate of GST is 7.5% (3.75% – CGST + 3.75% – SGST). The ruling states that these rates apply subject to the conditions specified in the respective entries in the villa projects.
2: The taxable value of the construction of a villa by the applicant is determined based on the provisions of Paragraph 2 of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017, as amended by Notification No. 03/2019 Central Tax (Rate) dated 29.03.2019. According to this provision, the applicant is eligible to deduct one-third of the total amount charged for the supply when calculating the taxable value of the construction service. The ruling confirms that this deduction should be availed by the applicant.
3: The ruling addresses the amount charged by the applicant from villa buyers for certain structural changes, additional area, or interior works carried out before the completion of construction. The ruling states that these charges should be considered as part of the total amount charged for the supply, as defined in the explanation to Paragraph 2 of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017. Therefore, these charges are subject to the same GST rates specified in Item Nos. (i) and (ia) of the notification, without the benefit of input tax credit.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, KERALA
M/s. Palal Realty (hereinafter referred to as the applicant) is a partnership firm registered in Kerala and engaged in business as builders and developers.
1. At the outset, the provisions of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as CGST Act) and the Kerala State Goods and Services Tax Act, 2017 (hereinafter referred to as KSGST Act) are same except for certain provisions. Accordingly, a reference hereinafter to the provisions of the CGST Act, Rules and the notifications issued there under shall include a reference to the corresponding provisions of the KSGST Act, Rules and the notifications issued there under.
2. The Applicant requested advance ruling on the following:
2.1. Whether the rate of GST applicable on the applicant on the construction and sale of villas is 1.5% / 7.5% (effective tax rate 1%/5%) without benefit of Input Tax Credit?
2.2. How the taxable value of construction of villa is to be calculated by the applicant on the projects developed and promoted by the applicant on the arrangement of agreement with landlord, landlord selling the plots directly to various villa buyers identified by the applicant. Whether out of the total value of the villa including land value, 2/3rd of the total value shall be taken for payment of GST at the rate of 1.5% / 7.5% (effective rate of 1% /5% on the total value of villa)?
2.3. Whether the amount charged by the applicant from villa buyers for some structural changes, to add some additional area or undertake interior works etc carried out before the completion of the construction is also part of gross amount charged for construction and sale of villa and accordingly the effective tax rate of 1%/5% will also be applicable on such amount charged without input tax credit?
3. Contentions of the Applicant:
3.1. The applicant submits that they are presently engaged in development of a Villa Project (namely, The Mateo) for the prospective villa buyers and have started the construction activities in October 2020. They have entered into agreement with the landlords [2 landlords] for the purchase of the entire land area required for the project. The agreement so executed for purchase of the land is registered with the office of the Sub-Registrar of Thrikkakara. The copy of the agreements so executed with the landlords for purchase of the land is attached as Annexure A and B.
3.2. They are registered with the Kerala Real Estate Development Authority as a Promoter and the project “The Mateo” is registered as a Residential Real Estate Project under RERA. The copy of the RERA Registration Certificate of the project is attached as Annexure C.
3.3. They started the construction activities in October 2020 after getting Development Permit (for the entire land area) and Building Permits (based on the booking of villas) issued by the Thrikkakara Municipality. The copy of the Development Permit for development of the total land area and the Building Permit issued to some of the Villas are attached as Annexure D and E respectively.
3.4. After the approval from local authorities, they provide all amenities required for the gated communities. They do marketing activities such as digital, paper ads, media advertisement etc and identify suitable villa buyers for the projects.
3.5. They market the villa project and based on bookings by the villa buyers they enter into two agreements with the villa buyer. First, they along with the landlord enter into an agreement with the villa buyers for sale of land including the undivided portion of common area and also enter into an agreement to construct the villa with the villa buyer. A copy of the agreement for sale of land including the undivided portion of common area and agreement to construct the villa is attached as Annexure – F and G respectively.
3.6. The land including the undivided portion of common areas is registered by the landlord directly in the name of the villa buyers before starting or during the construction of the villa and the consideration for such sale is fixed between the applicant and the landlord. The landlord will receive the sale consideration of the plot from the villa buyers through the applicant. A copy of the draft sale deed to be entered into between landlord and villa buyers is attached as Annexure – H.
3.7. They receive the consideration from the villa buyers for the sale of land including the undivided portion of common areas and the consideration for construction of villa stage wise as per the agreed terms and conditions in the agreement for sale of land including the undivided portion of common area and agreement to construct the villa. On completion of the construction of the villa, the occupancy certificate is taken in the name of the villa buyer. After completion and handing over of the villas to the villa buyers they make necessary arrangements to form an association including all villa buyers in that project and then hand over all common amenities to them to take care.
3.8. They submitted that some of the villa buyers before completion of construction and handing over of the villa may request them to make some structural changes, to add some additional area or undertake interior works etc for which they charge extra amount based on a supplementary agreement or by endorsement on the construction agreement itself.
3.9. As per Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 03/2019 Central Tax (Rate) dated 29.03.2019 projects started on or after 01.04.2019 attract GST at the following rates subject to fulfilment of the conditions specified therein;
