Top Stories 1.5% GST Applicable to Service of Construction of Affordable Residential Apartment under REP: AAR [Read Order] The applicant is liable to pay GST at the rate of 1.5% [0.75% CGST + 0.75% SGST] in respect of the services of construction of affordable residential apartments under Real Estate Project (REP) as per entry at Item (ic) By Yogitha S. Yogesh – On December 2, 2024 10:40 am – 5 mins read

In a significant case, the Authority for Advance Ruling ( AAR ) has held that 1.5% Goods and Services Tax ( GST ) applicable to service of construction of affordable residential apartment under Real Estate Project (REP). Castle Realtors, the applicant is engaged in supplying services of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of affordable and other than affordable residential apartments. Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here The Applicant is supplying services of construction of affordable housing, non affordable housing and commercial apartments under REP. The applicant filled Advance ruling for applicability of notification and applicability of provision under GST Act, 2017. It was questioned whether the Applicant falls under the definition of Real Estate Project (REP) because it has carpet area for commercial apartments more than15 percent out of total carpet area of project.

It was viewed by the applicant that for Affordable residential apartments, the applicant falls under the heading serial no. (ic)of Notification No.03/2019 -Central tax (Rate) which states that construction of  affordable residential apartments by a promoter in REP other than RREP is GST @1.5 percent less 1/3d value of land as per Notification No. 11/2017 CT(rate) dated 28th June 2017 which is equivalent to GST @ 1% on the transaction value. Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here For Non-affordable residential apartments, the applicant falls under the heading serial no. (id) of Notification No.03/2019 -Central tax (Rate) which states that construction of residential apartments other than affordable residential apartments by a promoter in REP other than RREP is GST @7.5 percent less 1/3 rd value of land as per Notification no. 11/2017 CT(rate) dated 28th June 2017 which is equivalent to GST @ 5% on the transaction value. With regards to supply of Affordable housing and non-affordable housing under REP together, the applicant stated that the notification heading (ic) and (id)did not specify that promoter can only supply  affordable residential apartments or residential apartments because it bifurcated apartment by area of apartment, which means in single floor or in single wing affordable residential apartments and residential apartments both conjointly can be supplied.

The only thing which prescribes the differentiation between GST rate between them in REP is size of apartment. Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here It was submitted that the applicant constructing commercial apartment(shops, hall, office, godowns etc.) in REP other than RREP which is approved under RERA Act. The applicant clearly falls under the heading no. (if) of Notification No.03/2019 —CT (Rate) and for the Commercial apartment the GST rate is @ 18 percent less 1/3Vd value of land as per Notification no. 11/2017 CT(rate) dated 28th June 2017 which is equivalent to GST @ 12 percent of the transaction value. The concept of “construction” has been widened to include the activities of reconstruction, renovation, additions or alterations or repairs. The term ‘construction’ generally refers to the act of making or creating the immovable property for the first time. On the other hand, the activities of repair, renovation, alteration, etc. would involve carrying out the works on an existing immovable property. Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here

Therefore, the eligibility of ITC need not be decided with reference to the processes / treatment carried out but with reference to the purpose for which such processes / treatment is done. Further, in terms of explanation to section 17(5), ITC is not allowed in case of reconstruction, renovation, additions or alterations or repairs to the said immovable property, to the extent it is capitalized. As per section 17(5) (d) of the CGST Act one of the pre-conditions for denial of ITC on activity of repair, renovation, alteration, re-construction, etc. is that such expense should have been capitalized ih the books of accounts. If the expense is part of the revenue account for such activities, then ITC on the same cannot be denied under section 17(5)(d) of the CGST Act. The applicant should be eligible for Input Tax Credit of Input, Input Service and Capital goods which will be used in supply of Commercial Apartments in REP other than RREP for in the course of business and for furtherance of business.

The GST rate of Supply of Construction of Commercial apartments is 12 percent without any condition for eligibility of ITC for this rate as per Notification No. 03/2019- CT. Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here The authority observed that as per Section 17(5)(d) of the Central Goods and Services Tax Act, 2017 (“the CGST Act”) no input tax credit (“ITC”) is available in respect of any goods or services received by the taxpayer for construction of immovable property on its own account even if inputs and input services are used in course or furtherance of business. Further, Section 17 of the CGST Act talks about “Apportionment of credit and blocked credit”.

According to Section 17(5)(d) of the CGST Act, ITC shall not be available in respect of goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business. Further, the explanation stated in Section 17(5) of the CGST Act, the credit is also blocked with respect to reconstruction, renovation, addition, alterations or repairs which are capitalized in the books of accounts. Section 16 of CGST Act,2017 defines the eligibility and conditions for taking input tax credit wherein section 17 of CGST Act,2017 deals in apportionment of credit and blocked credits hence these sections must be treated simultaneously.

Thus, input tax credit is not  available for construction of immovable property on its own account even if inputs and input services are used in course or furtherance of business. Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here The authority comprising Mahipal Singh, Additional Commissioner ( Member (Central Tax)) and Mahesh Kumar Gowla, (Additional Commissioner, Member (State Tax)) held that services provided by the applicant falls under Notification No. 03/2019 CT (rate) dated 29thMarch, 2019.

The applicant is liable to pay GST at the rate of 1.5% [0.75% CGST + 0.75% SGST] in respect of the services of construction of affordable residential apartments under Real Estate Project (REP) as per entry at Item (ic) and at the rate of 7.5% [3.75% – CGST + 3.75% – SGST] in respect of the services of construction of residential apartments other than affordable residential apartments under REP as per entry at Item No. (id) of Notification No. 3/2019-Central Tax (Rate), dated 29-3-2019 subject to the conditions prescribed under the respective entries. It was held that the applicant is liable to pay GST at the rate of 18% [9% – CGST + 9% – SGST] in respect  of the services of construction of complex, building, civil structure or a part including commercial apartments (shops, offices, godowns etc.) as per entry at Item No. (if) Of Notification No. 3/2019-CentraI Tax (Rate), dated 29-3-2019 subject to the conditions prescribed under the said entry.