7.5% GST Rate is Liable to Pay on Service of Construction of Residential Apartments: AAR [Read Order]

The Kerala Authority for Advance Ruling (KAAR) has held that a 7.5 % Good and Services Tax rate is liable to pay on service of construction of residential apartments.

Prime Property Developers,  the applicant is a partnership firm registered under the Indian Partnership Act and engaged in the business of construction d sale of real estate projects, including villa projects.

The Central Goods and Services Tax Act, 2017 (CGST Act) and the Kerala State Goods and Services Tax Act, 2017 (KSGST Act) are the same except for cen provisions. According, to a reference the notifications issued there shall include a reference to the corresponding provisions of the KSGST Act, Rules and the notifications issued.

The applicant submitted that for villa projects they identify the project and either buy the land outright or enter into an agreement for sale with the Landowners. The agreement for sale is to purchase the property in their name or the name of their nominees in one or more deeds.

A combination of outright purchase of a part of the property and agreement for sale for the remaining area may so be followed. Then they prepare a layout plan and get it approved by the local authority.          

After obtaining layout approval they start the project, they initially do development work of common amenities like compound walls for the entire project area, internal roads, electrification, plumbing and sanitary works, recreational facilities etc. Then, they obtain registration for the project with Kerala Real Estate Regulatory Authority and carry out marketing activities and identify purchasers.        

Once a purchaser confirms his interest to purchase a plot together with a villa, an agreement for the sale of the plot together with an undivided share in common land is entered into between the purchaser and Landowners. The plot together with an undivided share in common land is transferred to the purchaser, once the purchaser makes full payments for the land, through execution of a sale deed.

On a plain reading of the entries at Item (i) and (ii) of Sl. No. 3 of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 as extracted above, it was evident that the rate of GST prescribed under the entry at Item (i) applies to the construction of affordable residential apartments and under the entry at Item (ia) applies to the construction of residential apartments other than affordable residential in a residential real estate project intended for sale to a buyer except where the entire consideration is received after issuance of completion certificate. 

From the definition of the term "apartment"; "residential apartment" "real estate project" and "promoter" as above it is clear that the residential villas being constructed by the applicant fall within the definition of residential apartment and the projects undertaken by the applicant fall within the definition of real estate project and the applicant falls within the definition of "promoter".

The Authority comprising of Dr.S.L. Sreeparvathy, IRS &Shri. Abraham Renn S, IRS held that “the applicant is liable to pay GST at the rate of 7.5% [3.75% - CGST + 3.75% - SGST] in respect of the services of construction of residential apartments other than affordable residential apartments as per entry an Item No. (a) of Sl. No. 3 of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 subject to the conditions prescribed under the entry in the villa project irrespective of whether the agreement for construction is entered into with a purchaser before the execution of the sale deed for land in favour of the purchaser or after the execution of sale deed for land.”

To Read the full text of the Order CLICK HERE

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