Providing service of construction of a dwelling unit in a residential complex, bundled with services relating to the preferential location of the unit, which includes services of floor rise and directional advantage amounts to composite supply under GST.
Bengal Peerless Housing Development Company ltd. (“the Applicant”) is engaged in developing real estate projects in West Bengal. For the issue under consideration, it is providing service of construction of a dwelling unit in a residential complex, bundled with services relating to the preferential location of the unit, which includes services of floor rise and directional advantage. It is also availing abatement prescribed for construction service under Sl No. 3(i) read with Paragraph 2 of Notification No 11/2017 - CT (Rate) dated June 28, 2017 (“services rate notification”), as amended from time to time.
The Applicant has sought advance 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”.
Applicant’s interpretation of law:
The Applicant makes out a case for treating the supply of services of directional advantage and benefit of floor rise as integral to supply of construction service. The Applicant provides construction service to a recipient only after the Agreement is signed and other terms and conditions laid down in the Agreement are fulfilled. Supply of construction service is, therefore, naturally bundled with the supply of the services of directional advantage and benefit of floor rise, and all of them are being supplied in conjunction with one another in the ordinary course of business. It is, therefore, a composite supply with construction supply, being the dominant element, as the principal supply. The abatement, as prescribed for construction service in Paragraph 2 of the Rate Notification, should, therefore, be available on the value of the entire composite supply.
Observation and Findings:
Actual enjoyment of the construction service and the other services mentioned in the above bundle are separated by time. The other services can be enjoyed only after the supply of construction service is complete.
It notes that, though actual provisioning of the construction and other services are made at different points of time, they can be supplied in a bundle, because, supply as defined under section 7(1) of the GST Act includes ‘agreement to supply even if actual supply is to be made at a future date, provided and to the extent the recipient pays in advance’
Basis the above findings, the West Bengal AAR vide order no. 01/WBAAR/2019-20 dated May 02, 2019 opined that, the services being supplied by the Applicant 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.
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