GST Caselaw

#GSTCase-88- Sub-Contractor of Affordable Housing Project can charge Tax Rate at 12% on Invoice raised to the Developer (AAR – MAHARASHTRA)

#GSTCase-88- Sub-Contractor of Affordable Housing Project can charge Tax Rate at 12% on Invoice raised to the Developer (AAR – MAHARASHTRA)

 

Puranik Construction (P.) Ltd [2019] 105 taxmann.com 91

 Query

Whether benefit of 12% Tax Rate is available to any person who is supplying works contract services pertaining to Low Cost Houses in an Affordable Housing Project or is available only to the developer of the project?

 

  1. Facts

Applicant is engaged in the business of civil construction of residential premises as a Contractor. Applicant proposes to enter into a Civil Construction Contracts with a Developer for construction of ‘Affordable Housing Project’ (AHP). There would be two contracts and the detail of the contracts was as follows:

Contract -1-: Applicant will be awarded a Construction contract of 109 buildings wherein all the flats/units will have residential carpet area of 60 Sq. Mts. or less and there will be no commercial construction.

Contract -2-: Applicant will be awarded a Construction contract of 26 buildings wherein all the flats/units will have residential carpet area of 60 Sq. Mts. or less and there will be commercial construction of units on the ground floor. They have stated that in this scenario it is also possible that they will get one contract for Construction of residential portion in the 26 buildings and another contract for construction of commercial portion in the said 26 buildings.

 

  1. Contention of the Applicant
  • Whether Project qualifies as Affordable Housing Project

Applicant contended relying upon the ruling of Maharashtra AAR in case of Prajapati Developers and CBEC clarification F. No. 354/52/2018-TRU that once condition of more than 50% FSI being used for construction of units less than 60 Sq. Mts. is fulfilled, project would be considered as an AHP having Infrastructure status as per the DEA Notification and no other Certificate for any authority is required for the same.

 

  • Whether benefit of 12% Tax Rate is available to Sub-Contractor of Affordable Housing Project

Applicant further contended that Entry 3(v)(da) of Notification No. 11/2017-Dated 28th June 2017 nowhere restricts benefit of 12% Tax Rate only to developers. The benefit is available to any person who is supplying the works contract services pertaining to Low Cost Houses in an Affordable Housing Project. Notification entry is qua the supply of service and not qua the person and therefore once a project qualifies as an AHP, the benefit of concessional rate of tax would be available in respect of works contract services pertaining to Low Cost Houses, irrespective of it being supplied by the Developer or the Contractor.

Applicant cited decision of Maharashtra AAR in Shree Construction wherein it was held that benefit of 12% rate was also available to sub-contractor supplying services to the main contractor who in turn is providing works contract services for original works pertaining to Railways and have contended that the ratio laid down in the above Ruling squarely also applies in their case.

 

  • Whether benefit of 12% Tax Rate is available in case wherein both Commercial and Residential Apartments would be built

In respect of the contract for construction of residential and commercial units in the project, Applicant submitted that since Principal Supply i.e. pre-dominant supply is of works contract service in respect of construction of Low Cost Housing in an Affordable Housing Project, such Contract should be taxed as per rate and provisions applicable to the Principal Supply and since the principal supply is of the construction of Low Cost Housing, entire Contract would be eligible for the concessional rate of tax i.e. 12%.

 

  1. Observation by AAR
  • Whether Project qualifies as Affordable Housing Project

In response to a request for clarification to enable availing 8% GST on Affordable Housing made by the builders association namely, CREDAI vide their letter no. CREDAI/ MoF/ 2018/14 dated 19th March, 2018, Government vide F.No. 354/52/2018-TRU, Government of India Ministry of Finance Department of Revenue (TRU) dated 7th May, 2018 has clarified that “Low cost houses up to a carpet area of 60 square metres per house in an affordable housing project, which has been given infrastructure status under notification F. No. 13/6/2009-INF, dated the 30th March, 2017 of MOF (DEA), attract concessional GST of 8% (the value of the undivided share of land is included in the price of the house)

 

Applicant’s case is covered under tax rate of 12%, under Heading 9954 (Construction Services), (v) (da) of above-mentioned Notification No. 11/2017, as amended since the project undertaken by them ‘is under definition of “Affordable Housing”.

 

  • Whether benefit of 12% Tax Rate is available to Sub-Contractor of Affordable Housing Project

Benefit of reduced rate would be available to applicant only in cases of supply effected after 25.01.2018 i.e. the date on which Notification 1/2018-Central Tax (Rate) was issued and the benefit of this reduced rate would be applicable in case of only those flats which are of carpet area upto 60 sq. mtrs, in this scheme, which is covered in the category of affordable housing. In case of other flats which have carpet area more than 60 sq.mtrs. or commercial units, the applicant would be required to pay GST at normal applicable rate, since the benefit of reduced rate is only for residential units of carpet area less that 60 sq.mts.

 

Notification entry is qua supply of service and not qua person and therefore once a project qualifies as an Affordable Housing Project, benefit of concessional rate of tax would be available in respect of works contract services pertaining to Low Cost Houses, irrespective of it being supplied by the Developer or the Contractor. In the subject case the project qualifies as an Affordable Housing Project, and the benefit of concessional rate of tax would thus be available to the applicant.

 

  • Whether benefit of 12% Tax Rate is available in case wherein both Commercial and Residential Apartments would be built

The concessional rate will be applicable only for residential units of upto 60 sq mts., in their project and not for commercial units.

 

  1. Held

The applicant will be eligible for concessional rate @ 12% in the project as per the facts as seen above. The concessional rate will be applicable only for residential units of upto 60 sq mts., in their project and not for commercial units.

 

  1. Comment

The judgement is a welcome judgement which clarifies that the sub-contractor of a Affordable Housing Project is also eligible for the tax rate of 12% as provided by Entry 3(v)(da) of Notification No. 11/2017-Dated 28th June 2017 as amended from time to time.

 

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