Real Estate

Preferential location service, space for car parking not part of construction services: West Bengal AAAR

Shishir Sinha New Delhi | Updated on October 03, 2019 Published on October 03, 2019

Preferential location service (PLS) in a real-estate project cannot be treated as a part of construction service, West Bengal Appellate Authority for Advance Ruling (AAAR-WB) has ruled. It also ruled that the same would hold good for the right to use of parking space.

PLS helps buyers get directional advantage or floor rise, and attracts a preferred location charge (PLC) that is levied for units that are better located than others in the same premises, such as the ones facing a park, open area or even corner flats.

Tax liability

This levy is over and above the basic sales price (BSP). The new ruling makes it clear that PLS cannot be associated with land. In other words, while the cost of the plot of land on which the construction is done is exempt from GST, PLS is not tax-free.

Unlike High Court and Supreme Court verdicts, AAAR rulings do not have precedence value, but have persuasive value. Also, many such rulings have become the basis for policy changes by the government and the GST Council.

Experts’ take

Experts feel that the AAAR-WB rulings will impact the claims of flat owners who have approached builders for refund of GST charged on PLC.

Harpreet Singh, Partner, KPMG, said, “While the earlier AAAR rulings seemed to have settled the issue by bundling PLC, car parking and other charges with the cost of construction, the reversal by the appellate authority will be a setback to property buyers.”

Similarly, Rajat Mohan, Senior Partner at AMRG, said that the ruling rightly held that 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, qualifies as a ‘composite supply’, which has now been reversed by WB-AAAR, denying the abatement on recovery of such additional charges.

The case

AAAR-WB heard an appeal by the State Tax Department against ruling by Authority for Advance Rulings (AAR) in the matter of Bengal Peerless Housing Development Company Limited. The key issue was taxability of services relating to preferential location and right to use of car parking space.

AAR, in its ruling, had said that the company 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 the 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,” the authority said in its ruling dated May 2.

After hearing both sides on appeal petition, the AAAR held that the very transaction mechanism of PLS is that the builder charges a separate consideration from the buyer for choosing a particular floor/location advantage. Thus, the abatement, which is allowed on construction service with respect to land on which construction is done, cannot be extended to PLS as it is altogether a separate service having no association with land.

Published on October 03, 2019
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