Residential flats with parking, other facilities will attract lower GST, rules West Bengal AAR

When paying for your dream home, don’t pay the differential Goods & Services Tax (GST) — lower GST for the dwelling unit and higher GST for various other services such as preferential location charge (PLC), car parking etc.

The West Bengal Authority for Advance Ruling (AAR-WB) has made it clear 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, 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,” it said.

Prior to this ruling, there was confusion in the industry on tax to be applied on such ancillary services. Under pre-April rate structure, many builders (adopting a conservative approach) were charging tax at the full rate of 18 per cent on PLC, parking charges, transfer charges etc. instead of charging the lower rate of 12 per cent as applicable to construction services (post abatement). Though the rates have been lowered, but practice of differential rate still continues.

Experts feel that though the AAR ruling does not have precedent value, it has persuasive value. It means buyers can use the ruling of this matter in their petitions before jurisdictional officer. Harpreet Singh, Partner at KPMG, said the ruling has rightly appreciated what qualifies as a composite supply and amongst the supplies being made for a single price, what is to be construed as the principal supply.

“The ruling is likely to provide respite to home buyers as hopefully now builders would adopt consistent position of levying lower rate (as applicable to construction) on ancillary charges such as PLC, parking charges etc,” he said adding that this is one of the rare rulings where the assessee, the revenue authorities and the adjudicating authority were all in agreement.

A joint venture of The West Bengal Housing Board and The Peerless General Finance and Investment Company Ltd — Bengal Peerless Housing Development Company — is developing a residential housing project and supplying construction service to the recipients for possession of dwelling units in the year 2023. The applicant is enjoying abatement, prescribed for construction service. In addition to the construction service, it provides services like preferential location service, which includes services of floor rise and directional advantage.

It sought a ruling on whether the supply of these services 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. It may be noted that there is abatement and it is calculated as one third value of the project as the value of land.

The petition also brought the concept of composite and mixed supply into limelight. According to the GST law, composite supply means supply of two or more goods or services or both together. Also, here goods or services or both are usually provided together in the normal course of business. Here, one goods and service will be treated as principal and the other as incidental. GST rate for principal will be on the entire supply. Similarly, mixed supply means bouquets of various goods or services. Highest rate among such goods or services will be the rate for the entire supply.

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