Real Estate

Contractor, apart from builder, eligible for concessional GST on low-cost houses, rules AAR

Shishir Sinha New Delhi | Updated on May 09, 2019 Published on May 09, 2019

Not just developers, but contractors are also eligible for the concessional GST rate on affordable housing, Maharashtra’s Authority for Advance Rulings (AAR) has said.

Though the AAR’s rulings are binding on the petitioner and the jurisdictional officer only, it can be used for persuasion in similar cases. Also, in case the matter reaches the high court and gets it seal, it becomes a precedent.

The petitioner, Puranik Construction Pvt Ltd, made an application before the AAR over a proposed civil construction contract to be entered into with a developer, Puranik Builders Ltd, for the construction of a residential project at Nerul, Navi Mumbai.

About 98.5 per cent of the Floor Space Index (FSI) utilisation will be towards the construction of flats/units with a carpet area of 60 sq m or less, which classifies them as low-cost houses (LCH). The AAR had to decide on whether or not the contractor was eligible for concessional GST at the rate of 12 per cent (effective rate is 8 per cent after abatement of one-third for the land value).

It was submitted that since 50 per cent of the FSI is utilised for the construction of LCH, it would qualify as an affordable housing project (AHP). The petitioner also said that nowhere does the GST notification restrict the benefit of concessional duty to a developer. The benefit is available to any person/entity supplying works contract services for LCHs in an AHP, it said.

Jurisdictional tax officials acknowledged the project as an AHP as per a notification issued by the Department of Economic Affairs. They therefore supported the applicant’s contention in respect of concessional rate of GST on supply of works contract service for LCHs in the project. However, they made it clear that for the remaining commercial units, no concession should be given.

The ruling

After going through the facts of the case, documents on record and submissions made by both the applicant and the jurisdictional office, the Authority observed that the project falls under the definition of ‘affordable housing’.

Also, the benefit of reduced rate would be available to the applicant only in the cases of supplies made after January 25, 2018 (date of issuance of concerned notification).

“The benefit of this reduced rate would be applicable in case of only those flats which are of carpet area up to 60 sq m...In the case of the other flats...or commercial units, the applicant would be required to pay GST at the normal applicable rate,” said the AAR.

Language vs intent

According to Harpreet Singh, Partner at KPMG, there have been some instances in the past where tax authorities have restricted the benefits provided in the GST notification by adopting a strict interpretation of the language used rather than looking at the intent.

“This ruling has rightly appreciated the intent behind the notification by holding that the benefit of concessional rate of tax on affordable housing is qua the supply of service and not qua the person, and hence the benefit is available to the contractor,” he said.

Published on May 09, 2019
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