GST Caselaw

#GSTCase-87- Preferential location and right to use car parking space and common areas and facilities is part of composite supply and construction service would be the principal supply-AAR West Bengal

#GSTCase-87- Preferential location and right to use car parking space and common areas and facilities is part of composite supply and construction service would be the principal supply-AAR West Bengal

                                                                                                                                                                CA Arpit Haldia

Bengal Peerless Housing Development Co. Ltd. [2019] 105 taxmann.com 58 (AAR-WEST BENGAL)

 

  1. Query

Whether supply of preferential location service, which includes services of floor rise and directional advantage 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.

 

  1. Facts

Applicant is building ‘Avidipta II’ on about 2.63 acres of land as a residential complex. Applicant is offering at a single consolidated price construction service based on Standard Built-up Area (SBUA) and the right to use the allotted car parking space. It also includes services associated with preferential location, which means charges, if any, for directional advantage and floor rise. Charges for the right to use the common areas and recreational facilities are also included in the above single consolidated price. Other charges, deposits and taxes are separately recovered.

 

  1. Observation by AAR

The Agreement refers to the sale of an immovable property. It is relevant so far as construction service (SAC 9954) is offered, assuring coming into being of the immovable property. The buyer also agrees to pay in advance for certain other services that he will enjoy after obtaining possession of the property. They include inter alia the service of preferential location (SAC 9985), right to use the car parking space and the common areas and facilities (SAC 9972). The buyer agrees to pay a single consolidated amount for all these supplies.

 Although actual provisioning of the construction and other services are made at different points of time, they can be supplied in a bundle because supply, as defined under section 7(1) of the GST Act, includes agreement to supply even if actual supply is to be made at a future date, provided and to the extent the recipient pays in advance. Aar Further emphasized on the following points before holding other services part of composite supply:

  • The recipient, while agreeing to buy construction as a bundle, cannot enjoy the other services unless he agrees to buy the service of constructing the allotted dwelling unit.
  • 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.

 

  1. Held

Applicant is providing service of construction of a dwelling unit in a residential complex, bundled with services relating to the preferential location of the unit and right to use car parking space and common areas and facilities. It is a composite supply, construction service being the principal supply. Entire value of the composite supply is, therefore, to be treated, for the purpose of taxation, as supply of construction service, taxable under Sl No. 3(i) read with Paragraph 2 of Notification No 11/2017 – CT (Rate) dated 28/06/2017 as amended from time to time.

 

  1. Comment

 The judgement lays down important characteristics for classification of Supply as Composite Supply. It follows the principle laid down by CBEC Educational Guide issued in June 2012. The factors emphasized by AAR in the judgement are:

  • The recipient, while agreeing to buy construction as a bundle, cannot enjoy the other services unless he agrees to buy the service of constructing the allotted dwelling unit.
  • The recipient has to buy these services only as a package, where the construction service remains the predominant element.
  • if large number of recipients reasonably expect such services to be provided as a package, such a package could be treated as naturally bundled in the ordinary course of business.
  • Similarly, if a majority of the suppliers in a particular area of business provide these services in a bundle, such packaging of services may be treated as the ordinary business practice.
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