The Authority for Advance Rulings (AAR), West Bengal has held that the services such as preferential location and facilities like car parking in apartments should be treated as “composite construction service” and attract the same levy as construction.
The ruling will enable the builders to charge 5% GST on services bundled with affordable homes and 8% on others.
Several builders were charging 18% GST on these services, while the government had lowered the rate for under construction apartments. The government allows one-third abatement or rebate on the value of land, that results in the actual levy coming to 8% for non-affordable category residential units when the GST rate is 12%.
The applicant, Bengal Peerless Housing Development Company Limited, a joint venture of the West Bengal Housing Board and Peerless General Finance and Investment Company Limited, provides services like preferential location service, which includes services of floor rise and directional advantage. The applicant sought for an advance ruling on whether the supply of these services constitutes a composite supply with construction service as the principal supply, and if so, whether abatement is applicable on the entire value of the composite supply.
The AAR noted that the developers of residential complexes usually offer these services in a bundle. Although one has the option not to pay for the right to use car parking space, he cannot buy it, or for that matter any other service in the bundle, separately. The recipient has to buy these services only as a package, where the construction service remains the predominant element.
“The buyers of the service of constructing dwelling units in such upscale residential complexes like Avidipta II expect, apart from the preferential location of the dwelling unit, right to use car parking space and enjoyment of common areas and facilities like landscaped gardens, gym, conference hall, a club with swimming pool etc. They usually buy them as a bundle while booking a flat in such a complex. It is, therefore, reasonable to conclude that the services described in para 4.1 above are naturally bundled and offered in conjunction with one another in the ordinary course of business, and the other services of the bundle are ancillary to the supply of the construction service, which describes the essential character of the bundle of services being supplied. It appears that the concerned officer from the Revenue holds a similar view in the matter. 4.8 The Applicant, therefore, is providing a composite supply of the bundle of services described in para no. 3.1 above, construction service being the principal supply. Entire value of the composite supply is, therefore, to be treated, for the purpose of taxation, as the supply of construction service, taxable under Sl No. 3(i) read with Paragraph 2 of the Rate Notification,” the AAR said.
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