AAR West Bengal has passed Ruling in Bengal Peerless Housing Development Co. dt 02 May 2019 that service provided for construction of a dwelling unit bundled with additional facilities is a composite supply and entire value of the composite supply will be considered as supply of construction services for the purpose of taxation.
The Applicant 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.
The Applicant 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 right to use car parking space and common areas and facilities.
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, the Applicant provides services like preferential location service, which includes services of floor rise and directional advantage.
It seeks 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. ( The Applicant is enjoying abatement, prescribed for construction service under Sl No. 3(i) read with Paragraph 2 of Notification No 11/2017 – CT (Rate) dated 28/06/2017), as amended time to time .
Latest amendment - notification No. 03/2019-Central Tax (Rate) ,dt. 29-03-2019)
The Applicant draws attention to section 8(a) of the GST Act, which provides that a composite supply, for the purpose of taxation, shall be treated as supply of the principal one.
The question that needs to be examined is whether they are naturally bundled and are supplied in conjunction with one another in the ordinary course of business and whether the construction supply is the dominant element and all other services in the bundle are ancillary or incidental to the supply of the construction service.
Whether the services so bundled are provided in conjunction with one another in the ordinary course of business would depend upon the normal or frequent practices adopted in a business and can be ascertained from several indicators.
Section 2(30) of the GST Act draws upon these concepts to define composite supply as supply by a taxable person of a combination of taxable goods or services or both, which are naturally bundled and supplied in conjunction with one another in the ordinary course of business, where one of the supplies can be identified as the principal supply.
Section 2(90) of the GST Act defines principal supply as the predominant element of such a composite supply where all other supplies in the bundle are ancillary to the principal supply.
RULING by AAR West Bengal in Bengal Peerless Housing Development Co. Ltd.:-
The Applicant is providing construction service in respect of dwelling unit in a residential complex, bundled with additional services i.e. preferential location of the unit and right to use car parking space and common areas and facilities etc.
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 under Sl No. 3(i) read with Paragraph 2 of Notification No 11/2017 – CT (Rate) dated 28/06/2017 (amended from time to time)
Thus, builder cannot charge hire GST for additional services ie parking charges, preferential locations etc.