GST on PLS collected along with consideration for sale of properties

By Editor6 Goods and Services Tax Judiciary September 28, 2020

TaxGuru Citation: 2020 taxguru.in 3187
Case Name: In re DLF Limited (GST AAAR Haryana)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Courts: AAAR, AAR Haryana, Advance Rulings

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In re DLF Limited (GST AAAR Haryana)

Q1. 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)?

A1. PLS collected along with consideration for sale of properties attracts GST rate of 18% where sale/transfer of constructed property has taken place before issuance of completion/Occupation certificate (CC/OC).

Q2.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?

A2.PLS collected along with consideration for sale of properties attracts GST rate of 18% where sale/transfer of constructed property has taken place before issuance of completion/Occupation certificate (CC/OC) under new projects which commence on or after 01.04.2019.

Q3.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?

A3.No. The PLS collected along with consideration for sale of properties where sale/transfer of constructed property is entered into by the Applicant after issuance CC/OC, is not outside the scope of supply.

Q4.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 circumstances of the case, Applicant/or customers can claim adjustment/refund of the excess GST amount paid as (18% less 12%) or (18% less 5%) or (18% less Nil), as the case may be, on such charges?

A4.No. The Applicant/or customers cannot claim adjustment/refund of the GST amount paid as there cannot be any excess GST) paid in respect of the SAC 99799 which attracts the GST rate of 18% (CGST 9% + SGST 9%).

Q5.In case differential prices are charged for sale/transfer of different properties/units in a real estate project due to various commercial factors such a location of apartment etc., whether GST can be charged on whole price at the similar rate i.e.12% (in case of sale before issuance of CC/OC)/5% % (in case of sale before issuance of CC/OC under new projects which commence on or after 01.04.2019)/Nil % (in case of sale after issuance of CC/OC)?

A6.No. The Preferential Location Service is a separate service than Construction Service. Therefore for determining the Value of the same, the Paragraph-2 ibid to the Notification 11/2017-CT (R) dated 28.06.2017 which is applicable exclusively to the Construction Service, shall not be applicable.

Read AAR order : Section 98(6): AAR bound to dispose Application within 90 days of receipt

FULL TEXT OF THE ORDER OF APPELLATE AUTHORITY FOR ADVANCE RULING, HARYANA

The present appeal has been filed under Section 100 (1) of Central Goods and Service Tax Act, 2017 /Haryana Goods and Service Tax Act, 2017 (hereinafter referred to as CGST Act / HGST Act, respectively) by M/s DLF Limited against the Advance Ruling No. HAR/HAAR/R/2019-20/06 issued vide Memo No. 1046/AAR dated 28.08.2020 in Application No. 06/2019-20 dated 18.06.2019.

A copy of order of the Advance Ruling Authority issued on 28.08.2020 was received by the appellant on 31.08.2020 and the appeal has been filed on 28.09.2020 which is within time in terms of Section 100(2) of the CGST Act 2017.

I. BRIEF FACTS OF THE CASE:

M/s DLF Limited, Gurugram is a centrally administered taxpayer registered under GST in Gurugram. They are engaged 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 circumstances of the case, Applicant/or customers can claim adjustment/refund of the excess GST amount paid as (18% less 12%) or (18% less 5%) or (18% less Nil), as the case may be, on such charges?”

5. “In case differential prices are charged for sale/transfer of different properties/units in a real estate project due to various commercial factors such a location of apartment etc., whether GST can be charged on whole price at the similar rate i.e.12% (in case of sale before issuance of CC/OC)/5% (in case of sale before issuance of CC/OC under new projects which commence on or after 01.04.2019)/Nil % (in case of sale after issuance of CC/OC)?”

In the Appeal the applicant has submitted the following:-

i) The applicant has paid GST at 18% on the sale of properties in the GST law. The GST law is in infancy and concepts there under like the concepts of ‘composite supply’ are in a nascent stage, there is a certain ambiguity about the taxability of PLS collected by the Applicant. Therefore the applicant has filed this advance ruling for obtaining clarity on the same.

ii) In case of sale/transfer of constructed property before the issuance of CC/OC, the applicant is paying GST @18% on PLS since inception of the GST Law. As per applicant opinion that such charges should qualify as composite supply and should be taxable @12% or 5% or NIL as applicable. Therefore, applicant should be allowed/refund of the excess GST paid on PLS so that the benefit can be provided to the customers.

iii) In some cases, applicant recovers lump sum price for sale/transfer of properties/units. 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 opinion 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.

The Advance Ruling Authority rejected party request for advance ruling on the basis that the party failed to appear for personal hearing despite giving many opportunities.

Statement of Facts in Appeal

The Appellant has submitted the following in the ‘Statement of Facts’ adduced in the Appeal:-

1. They are a limited company with registered office in Gurugram;

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 rate of 5%, i.e. less one-third abatement for undevided portion of land, has been prescribed for new projects commencing w.e.f. 1.04.2019 or old projects where the option for availing earlier rate had not yet been exercised, vide notification 3/2019-CT(R) dated 29th March 2019 amending Notification 11/2017-CT(R) ibid;

10. Under the said agreements the Appellant recovers BSP and a PLS (Preferential Location Charges) based on location viz. garden facing, swimming pool facing etc.;

11. As submitted, the PLS can be collected as a percentage of BSP or as per square feet/ meter or as a lump-sum;

12. That, nature of the PLS is as under:-

a. PLS is a premium for a preferential location;

b. Standard Buyer’s Agreement contains definition of PLS (on the above lines);

c. A Delhi High Court decision in the Service Tax case Suresh Kumar Bansal vs. Union Of India (June 2016) has been relied upon by the Appellant.

In this case the petitioners had entered into agreements with the Builder for buying flats. They contested that agreements with builder being for purchase of immovable property, and also there being no machinery for computation of value of services if any involved in construction of a complex, there’s no legislative competence to levy service tax on such a transaction.

Hon’ble High Court further found/ held:-

“39. In the present case, we find that there is no machinery provision for ascertaining the service element involved in the composite contract. In order to sustain the levy of service tax on services, it is essential that the machinery provisions provide for a mechanism for ascertaining the measure.

45. Whilst Rule 2A of the Rules provides for mechanism to ascertain the value of services in a composite works contract involving services and goods, the said Rule does not cater to determination of value of services in case of a composite contract which also involves sale of land.

53. … neither the Act nor the Rules framed therein provide for a machinery provision for excluding all components other than service components for ascertaining the measure of service tax. The abatement to the extent of 75% by a notification or a circular cannot substitute the lack of statutory machinery provisions to ascertain the value of services involved in a composite contract.

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 of the development of the complex as a whole and the position of a particular unit in the context of the complex.

55. In view of the above, we negate the challenge to insertion of clause (zzzzu) in Sub-section 105 of Section 65 of the Act. However, we accept the Petitioners contention that no service tax under section 66 of the Act read with Section 65(105)(zzzh) of the Act could be charged in respect of composite contracts such as the ones entered into by the Petitioners with the builder. The impugned explanation to the extent that it seeks to include composite contracts for purchase of units in a complex within the scope of taxable service is set aside. “

d. The dominant intention of both the Customer and the Builder is to avail and provide construction service.

e. PLS recovered is directly linked with the BSP (Base Sale Price) of the Property.

f. There cannot be any separate recovery of PLS as it goes hand in hand with the Construction Service and follows as a consequence of supply of construction service.

g. Without there being a sale of the property there can be no question of recovery of PLS; there can be no standalone existence of PLS without construction activity.

13. That, according to them (Appellant) the taxability of PLS shall be as under: –

a. Preferential Location Charges (PLS) are liable to be included in the Construction Service charges and are subsumed within this single supply and would be chargeable at effective GST rate of 12%/ 5% and not at the residuary rate of 18%.

b. Without prejudice to the above, the supply of the said 2 services is a composite supply of service.

c. That, where buyer enters into agreement before issue of OC/CC (Occupation Certificate/ Completion Certificate) the PLS shall be chargeable to tax at the abated rate of 12%/ 5% in terms of Notification 11/2017-CT(R) dated 28.06.2017, viz. the rate applicable to Construction Service.

d. That, where buyer enters into agreement after issue of OC/CC (Occupation Certificate/ Completion Certificate) the PLS shall be outside the scope of a Supply.

e. That due to GST law being in infancy and there being ambiguities, the Appellant is paying the GST @18% on a conservative basis and has preferred Advance Ruling for clarity.

f. That Appellant should be allowed adjustment/ Refund of the excess paid tax.

g. 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.

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 expiry of time limitation, the issue has been decided in favour of assessee by Kolkata Income Tax tribunal in Shri Subrata Roy vs. Income Tax Officer

– That on this ground the AAR Order is liable to be set aside;

2. Lack of Opportunity of being heard:-

– AAR grossly violated the principles of natural justice in passing the orders without granting personal hearing;

– That, order so passed is liable to be quashed as did the Calcutta High Court in Kasturilal Haralal Ltd. vs. CCE which set aside and quashed the order passed without giving petitioner and opportunity of hearing;

– That, Supreme Court has also held that this rule of fair play must not be jettisoned, in Swadeshi cotton Mills Co. Ltd. vs. Union Of India;

– That, Supreme Court of India has further held, in R B Shreeram Durga Prasad vs. Settlement Commission that order passed in violation of principles of natural justice is of no value;

The Appellant has concluded the Grounds of Appeal in following words:

” 2.8 Therefore considering the above, the AAR has erred in passing the Order, in spite of the fact no reasonable opportunity of being heard was afforded to the Appellant. Considering the same, on this ground alone, the impugned AAR Order is liable to be set aside. “

ORDER of AAR

The Advance Ruling Authority (AAR) has rejected the Application for Advance Ruling holding that since it is bound to pronounce the Ruling within 90 days in terms of Section 98(6) and the Appellant is requesting for Hearing beyond that limit which cannot be granted, the Application is rejected under Section 98(2) of the CGST Act 2017.

Relevant provisions are reproduced below: –

“98. Procedure on receipt of application.-

………………

(2) The Authority may, after examining the application and the records called for and after hearing the applicant or his authorised representative and the concerned officer or his authorised representative, by order, either admit or reject the application:

Provided that the Authority shall not admit the application where the question raised in the application is already pending or decided in any proceedings in the case of an applicant under any of the provisions of this Act:

Provided further that no application shall be rejected under this sub-section unless an opportunity 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:-

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 circumstances of the case, Applicant/or customers can claim adjustment/ refund of the excess GST amount paid as (18% less 12%) or (18% less 5%) or (18% less Nil), as the case may be, on such charges?”

5. “In case differential prices are charged for sale/transfer of different properties/units in a real estate project due to various commercial factors such a location of apartment etc., whether GST can be charged on whole price at the similar rate i.e.12% (in case of sale before issuance of CC/OC)/5% % (in case of sale before issuance of CC/OC under new projects which commence on or after 01.04.2019)/Nil % (in case of sale after issuance of CC/OC)?”

The ground for Appeal are that rejecting of the application for Advance Ruling by the State Authority for Advance Ruling, is incorrect in law and needs to be set aside.

In the Appeal, the applicant has submitted the following also while requesting for the Rulings:-

iii) In some cases, applicant recovers lump sum price for sale/transfer of properties/units. 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 Service:

The Rate of GST on Construction Service was uniformly 18% in the beginning i.e. w.e.f. 1.07.2017. The abstract of the Table of Notification 11/2017-CT(R) dated 28.06.2017 as relevant at that time, is reproduced below:-