The West Bengal Authority for Advance Ruling (AAR) has in its very recent ruling adjudged that the concessional rate of tax prescribed under Entry No. 3(v)(da) of Notification 11/2017 Central Tax (Rate) dated 28/06/2017 applies to the works contract service received by the builder / promoter from the contractors.
Facts of the Case:
- The applicant is the promoter of residential real estate project, supplying construction service in developing a residential housing project (RREP) in Burdwan.
- The applicant submits that half of the total number of dwelling units being constructed measures less than 60 sqm of carpet area for each such unit. It is, therefore, an affordable housing project in terms of Notification No. 13/06/2009 INF dated 30/03/2017 of Department of Economic Affairs, Government of India.
- The applicant for the construction of the dwelling units is receiving works contract services from the contractors.
Question on which ruling was sought:
The applicant wants to know whether Entry No. 3(v)(da) of Notification 11/2017 Central Tax (Rate) dated 28/06/2017 (hereinafter the Rate Notification), as amended time to time, applies to the works contract service received from the contractors.
Contention of the applicant:
- Entry No. 3(v)(da) of the Rate Notification (prescribes rate of 6% ( 12% including SGST)) which applies to works contract service other than that covered by items (i), (ia), (ib), (ic), (id), (ie) and (if) of Entry No. 3 for original work pertaining to low-cost houses up to a carpet area of 60 sqm per house in an affordable housing project, which has been given infrastructure status vide Notification No. 13/06/2009 INF dated 30/03/2017 of Department of Economic Affairs, Government of India (hereinafter AHP Notification).
- The applicant refers to several rulings of the Maharashtra AAR, where the said authority has made no distinction between the promoter or the contractor while deciding the applicability of the above provisions of the Rate Notification.
- The works contract service provided provided by the contractors to the applicant for construction of the project is, therefore, taxable under Entry No. 3(v)(da) of the Rate Notification.
Order of West Bengal AAR: Deliberation and Ruling:
- This authority agrees with the principle followed by the Maharashtra AAR that the notification entry under discussion is qua the supply of service and not qua the person and, therefore, once a project qualifies as an affordable housing project (hereinafter AHP), the benefit of concessional rate of tax would be available in respect of the works contract service for the low cost houses, irrespective of being supplied by the promoter or the contractor ( Puranik Construction Pvt Ltd; Maharashtra AAR).
- The flats having a carpet area of 60 sqm or less per unit in the RREP qualify as affordable residential apartments, provided the gross amount charged per unit does not exceed Rs 45 lakh
and the promoter has not exercised the option to pay tax at the rate specified in (ie) or (if) of Entry No. 3.
- The built-up area for the affordable residential apartments, as identified by the architect, under the RREP is 7885 sqm. The relevant FAR, therefore, comes out to be 1.401, which is 50.96% of the FAR for the project. The RREP, therefore, is an affordable housing project in terms of the AHP Notification.
In view of above deliberations the AAR ruled that the works contract service for the construction of those dwelling units in the project are affordable residential apartments in terms of clause 4(xvi) of Notification 11/2017 Central Tax (Rate) dated 28/06/2017, as amended time to time, are taxable under Entry No. 3(v)(da) of the said notification, provided the applicant does not opt for paying tax at the rate specified in Entry No. 3(ie) or 3(if).
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
