AAAR modifies AAR to hold that no abatement available on preferential location services/ car parking charges realised separately from buyers

Categories: Advance Ruling
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Synopsis: In the matter of M/s Bengal Peerless Housing Development Company Limited, the Hon’ble AAAR of West Bengal modified AAR decision to held that the service of construction of a dwelling unit in a residential complex, bundled with services relating to the preferential location of the unit (PLS) and right to use car-parking space and common areas and facilities, do not qualify as a ‘composite supply’. The AAAR said that it cannot be said to be a naturally bundled supply. Further, clarified that PLS comes under Category (iii) of Notification No. 11/2017-CT (Rate) dated June 28, 2017 (“Services Rate Notification”).

Facts:

Assistant Commissioner (“the Appellant” appealed against Advance Ruling No. 01/WBAAR/2019-20 dated May 2, 2019 pronounced by the West Bengal Authority for Advance Ruling in the matter of M/s. Bengal Peerless Housing Development Company Limited (“BPHDCL” or “the Respondent”).

BPHDCL is a joint venture of the West Bengal Housing Board and the Peerless General Finance and Investment Company Limited for developing real estate projects in West Bengal. It is developing a residential housing project named ‘Avidipta II’ and supplying construction service to the recipients for possession of dwelling units in the year 2023. In addition to the construction service, BPHDCL provides services like PLS, which includes services of floor rise and directional advantage.

Issues involved:

  • Whether the supply of these services of PLS including floor rise, directional advantage constitutes a composite supply with construction service as the principal supply?
  • Whether abatement prescribed for construction service under Serial No. 3(i) read with Paragraph 2 of Services Rate Notification is applicable on the entire value of such composite supply?

Held:

The Hon’ble AAAR, West Bengal in Appeal Case No. 09/WBAAAR/APPEAL/2019 decided on September 25, 2019 held as under:

  • PLS is attributable to the choice of the purchaser in respect of floor rise and directional advantage. Hence, it is evident that PLS cannot be treated as naturally bundled with construction service in the ordinary course of business.
  • The abatement, which is allowed on the value of construction service, as the plot of land on which construction is done is not liable to GST and cannot be deemed to be applicable in respect of PLS, which is altogether a separate service having no association with the land.
  • It is clear from the categorization that PLS should come under Serial No. 3(iii) of the Services Rate Notification as the other two categories are clearly defined. Abatement to the extent of 1/3rd of the total amount charged for supply of the service mentioned under Serial No. 3(i) of the Services Rate Notification has been allowed under Paragraph 2 of the said Notification. No abatement has been provided for service mentioned under Serial No. 3(iii) of the Rate Notification.
  • Thus, no abatement prescribed for construction service under Serial No. 3(i) read with Paragraph 2 of the Services Rate Notification is applicable on the value of PLS realised separately from the buyers.
  • Decision as above in respect of PLS will also hold for right to use car parking space.