The West Bengal bench of the Appellate Authority of Advance Rulings (AAAR) has upheld a previous ruling, stating that the sale or right to use a car park is not naturally bundled with construction services. As a result, it will not be considered a composite supply and will be subject to the higher goods and services tax (GST) rate of 18%.
This ruling came in response to an appeal by Eden Real Estates, a company involved in the construction of residential apartments.
Since April 1, 2019, GST has been levied at 5% on non-affordable housing projects without input tax credit (ITC). For ongoing projects, builders have the option to pay GST at the old rate of 12% with ITC, allowing them to set off the taxes paid on inputs. If the AAAR had treated the transaction related to the car park as a composite supply, the applicable GST levy would have been that of the primary supply of construction, which is lower.
Anita Rastogi, Principal (Indirect Taxation) at Price Waterhouse-India, explained that this ruling will result in higher costs for purchasing homes with parking spaces.
“While advance rulings are only binding on the parties involved in the specific transaction, tax authorities often rely on rulings favorable to the department. If a taxpayer, such as a builder, takes a different approach, it can lead to litigation. Therefore, some builders may adopt a cautious approach and charge 18% GST for the car parking space,” Rastogi said.
In this particular case, the real estate developer argued that the car parking space is provided exclusively to flat buyers, and stamp duty is paid on the total consideration charged to them, which includes the price of the apartment and the car parking space.
However, the AAAR bench noted that prospective flat buyers may or may not choose to opt for a car parking space when booking their flat. Consequently, the argument that the right to use the open parking space is naturally bundled with construction services and constitutes a composite supply was deemed invalid.
Furthermore, the “right to use” the open car parking space implies that the ownership of the open space is not transferred to the flat buyer, making it a separate service altogether.
The arguments primarily revolved around open car parking spaces, and the bench also highlighted that under the Real Estate (Regulation and Development) Act (RERA), an open parking space is not included in the definition of a garage.
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