AAAR affirms car park sale as separate from construction services, subject to 18% GST

The Appellate Authority of Advance Rulings (AAAR) in West Bengal has affirmed a previous decision that the sale or usage rights of a car park are not automatically packaged with construction services. This means that the item will not be considered a combination of goods and services but instead will be subject to a higher rate of GST at 18 percent. Eden Real Estates, a company that builds residential apartments, appealed to the AAAR for a ruling, and their appeal was successful.

Effective April 1, 2019, non-affordable housing projects are subject to a 5 percent GST rate without the provision of an input tax credit (ITC). Builders can choose to pay GST at the old rate of 12 percent with ITC for projects that are still in progress. This allows them to offset taxes paid on inputs. If the AAAR had considered the car park transaction as a composite supply, the applicable GST rate would have been lower as compared to the rate for a standalone construction activity.

Anita Rastogi, Price Waterhouse India's principal for indirect taxation, has stated that the recent decision will result in higher costs for purchasing homes that include parking facilities. Although advance rulings are legally binding solely between the concerned parties and only pertain to the specific transaction for which they were sought, the tax authorities frequently use rulings that favour their department. Litigation may arise if the builder, who is the taxpayer, chooses to adopt an alternative strategy. As a result, some builders may take a prudent stance and levy a GST of 18 percent for the provision of car parking areas.

The developer of the property contended that exclusive parking privileges are solely granted to individuals who purchase flats and that the complete amount charged for the apartment and parking space is subject to stamp duty. The bench of AAAR noted that customers who intend to purchase a flat may have the choice to either take or decline a car parking area during the booking process. The idea that access to open parking is inherently included with construction services and constitutes a combined offering is invalid.

Furthermore, the entitlement to utilize an open car parking space insinuates that the flat purchaser is not given complete ownership of the open area, thereby classifying it as an independent service. The disputes mainly revolved around uncovered parking areas, and the judges highlighted that according to RERA's guidelines, such areas are not considered garages.

The Authority for Advance Ruling (AAR) in West Bengal issued a previous verdict specifying that facilities such as car parking, swimming pools, clubs, and gymnasiums could be classified as composite construction services and would be subject to either a 12 percent or 5 percent GST. The decision was overruled by the Appellate Authority.

A composite supply is a set of goods or services that cannot be sold individually, with the principal supply being the main product or service desired by the buyer. Additional elements in the supply enhance its value. A mixed supply combines independent products or services as a bundle, but they can also be sold separately. The item or service with the highest GST rate is considered the principal supply.

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AAAR affirms car park sale as separate from construction services, subject to 18% GST

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