In re Ashiana Housing Limited (GST AAR Tamilnadu)
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 @ 9% under S. No. 35 of Notification No.11/2017- CT(Rate) dated 28.06.2017.
The Proposed Modus operandi for construction of ‘Unit’ which is ‘other than affordable residential apartments’ by the applicant in the RREP promoted by them, namely, Ashiana Shubam -Phase IV’ in Maraimalai Nagar Chennai is classifiable under SAC 9954 as ‘Construction Service’ and the applicable rate of tax is CGST @ 3.75% and SGST @ 3.75% as per Entry SI.No. 3(ia) of the Notification 11/2017-Central Tax (Rate) dt 28.06.2017 as amended.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, TAMILNADU
Ashiana Housing Limited, First Floor, Door No.10, G Complex, First Main Road, CIT Nagar, Chennai-600035(hereinafter called the ‘Applicant’) is registered under the GST Vide GST1N 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 @. 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 undivided share in land (for short ‘UDS–) to the customer (for short ‘UDS Agreement’). The Second agreement is an Agreement for Construction (for short ‘Construction Agreement”), whereby the customer appoints the Applicant for construction of units on the said UDS. Such arrangement is under an umbrella `Indenture of undertaking’ (for short IOU) recording the understanding of both the UDS Agreement and Construction Agreement. On completion of the construction, a Sale Deed will be executed for sale of UDS to the customer, on which appropriate Stamp Duty will be paid. The Construction Agreement is registered separately on payment of appropriate Stamp Duty.
2.2 On interpretation of law, the applicant has stated that the activities of construction carried out by them for their customer under the Construction Agreement on UDS agreed to be sold to the customer are classifiable as works contract service falling under Heading 9997, and chargeable to COST ( 9% under S. No. 35 of Notification No. 11/2017-CT (Rate), dated 28,06.2017. The applicant has made references to Section 9, Section 7 and Schedule II of COST Act 2017. They have stated that Notification No. 11/2017-Central Tax (Rate), dated 28.06.2017 prescribes the rate of COST payable on intra-state supply of services. Si. No. 3 of this notification covers Heading 9954 (Construction Services) comprising of various activities. S. No. 35 of this notification covers Heading 9997 (being the residual heading) comprising, inter-alia, of services nowhere else specified.
2.3 The applicant has submitted that under the arrangement, they enter into UDS Agreement with customer for purposes of sale of UgstDS. As a result of UDS Agreement, there is a transfer of title in UDS to the customer, i.e. transfer of title in immovable property. Such transfer of title in immovable property is not chargeable to GST and is not a subject-matter of the present application. Vide the Construction Agreement, the customer appoints the Applicant for purposes of undertaking construction of the specified unit on the UDS agreed to be sold to the customer. They accordingly undertake construction activities for the customer. In the course of such construction activities, there is a transfer of title in goods (whether as goods or in some other form) from the Applicant to the customer. The activities carried out by the Applicant under the Construction 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 COST 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 COST 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, wherein a new clause (29A) was introduced in Article 366 of the Constitution. After the 46th Amendment, the works contract, which was an indivisible one, was altered, by a legal fiction created in Article 366(29A) (b), into a contract which was divisible into one for sale of goods and the other for supply of labour and services. Thus, it has become possible for the States to levy Sales Tax on the value of goods involved in a works contract in the same way in which the Sales Tax was leviable on the price of the goods and materials supplied in a building contract which had been entered into in two distinct and separate parts. They have also referred to the following case laws
> Hon’ble Supreme Court in K Raheja Development Corporation v. State of Karnataka, 2005 (5) SCC 162 wherein the apex court held that such building contracts are works contract by nature
> Hon’ble Supreme Court in Larsen & Toubro Limited v. State of Karnataka, 2014 (303) ELT 3 (SC) held that works contracts also include building contracts and therefore without any fear of contradiction it can be stated that building contract are species of works contract.
> Hon’ble Punjab & Haryana High Court in CHD Developers Limited v. State of Haryana, 2015 (81) VST 344 (P&H) held that the activities of construction have all attributes, elements and characteristics of works contracts though essentially it may be a transaction of sale of flat.
2.6 They have stated that it is evident from the above case laws that there is a transfer of property in goods (whether as goods or in some other form) from the applicant to the customer in the course of execution of construction activities by the applicant. Such activities of the applicant qualify as ‘works contract”, as defined in Section 2(119) of the CGST Act. The activity of works contract is, by nature, a composite supply comprising of transfer of property in goods and provision of services in the form of construction, building etc. By virtue of deeming fiction under Clause (a) of Paragraph 6 of Schedule II, the composite supply of works contract is treated as a supply of service. In other words, while works contract, by nature. is a composite supply, it is treated as supply of services for purposes of the CGST Act. Further, in respect of the appropriate classification of the said supply so as to determine the appropriate rate of GST payable thereon, they have referred to the Heading No. 9954, Si. No. 3 of Notification No 11/2017-CT(R), dated 28.06.2017 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, Sl. 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 (1), 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 required, by the competent authority or after its first occupation. whichever is earlier and stated that this clause is similar to Clause (b) of Paragraph 5 of Schedule II to the CGST Act. The next clauses, being Clause (ia), (ib), (icl, (id), (ie) and (if) are worded in similar manner. Similar is the case with residual Clause (xii), which also covers only construction services. In distinction to the aforesaid clauses. Clause (iii) refers to certain specified composite supplies of works contract, as defined in Section 2(119). The next clauses, being Clause (iv), (v), (va), (vi), (vii), (viii), (ix) and (x) are worded in similar manner. The difference in the aforesaid clauses, i.e. [a] from Clause (i) to Clause (if) Es Clause (xii) and (b] from Clause (iii) to Clause (x), thus lies in the nature of supplies covered therein. While the first category covers plain supplies of construction (not being composite in nature), the second category covers only composite supplies of works contracts. This is particularly evident from Clause (va), which covers composite supply of works contract supplied by way of construction etc. of affordable residential apartments. As noted, Clause (i) to Clause (if) ez, Clause (xii) also refer to construction of affordable residential apartments; however, reference to affordable residential apartments in Clause (va) is limited in its scope to composite supply of works contract. The evident conclusion from the above discussion, thus, is that the coverage of Clause (i) to Clause (if) & Clause (xii) is limited to plain 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. To substantiate above, they have referred to Schedule-II to the CGST Act, which specifies activities, which will be treated as supply of either goods or services. Clause (b) Paragraph 5 of Schedule II treats construction of complex as a supply of services. The purpose of this is to avoid any kind of confusion, which had been prevailing jurisprudentially. Further, Paragraph 6 refers to certain composite supplies; it establishes that the scope of Paragraph 5 does not extend to cover composite supplies.
2.8 In view of the above, the applicant has submitted that the supplies made by them are composite supplies of works contract. The said supplies cannot be classified under Clause(i) to Clause(if) & Clause (xii) of SI. 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 contrast to composite supplies of works contract. They have also submitted that, in the instant case, the UDS has already been agreed to be transferred by them to the buyer. The construction undertaken by them thereafter, thus, is on the UDS agreed to be sold to the buyer. In such a case, though the applicant undertakes construction for the buyer, there is no question of construction of apartment being intended for sale to the buyer, in as much as the apartment belongs to the buyer only pursuant to sale of the UDS. For this reason, also the activities of construction by the Applicant cannot be covered under Clause (i) to Clause (if) & Clause (xii) of SI. No. 3 of the notification.
2.10 In view of the aforesaid submissions, they have submitted that the supplies made by them under the Construction Agreement are classifiable under Heading 9997, Si. No. 35 of Notification No. 11/2017-CT (Rate), dated 28.06.2017, which covers other miscellaneous services nowhere else specified and the applicable rate of CGST being 9%.
3.1 Due to the prevailing PANDEMIC situation and in order not to delay the proceedings, the appellant was addressed through the Email Address mentioned in the application to seek their willingness to participate in a virtual Personal Hearing in Digital media. The applicant consented and the hearing for admission of the application was held on 10.12.2020. The authorised representative participated in the hearing and stated that the project is yet to be undertaken. He stated that the activity is a construction service and it is a works contract. They undertook to furnish a synopsis on the submissions made. They were asked to furnish the details of:
i. Specific residential project for which ruling is sought.
ii. When the service supplied is one of ‘Construction’ as a ‘Works contract’ a write-up on as to how they interpret their services not falling under SAC 9954.
iii. Sample copies of live agreements from similar projects.
3.2 The applicant vide their letter dated 14.12.2020 furnished the following documents:
