Mumbai: The West Bengal bench of the Appellate Authority of Advance Rulings (AAAR) has upheld an earlier ruling and said that sale or right to use a car park is not naturally bundled with construction services. Thus, it will not be treated as a composite supply and will attract goods and services tax (GST) at the higher rate of 18%. The AAAR’s ruling came in an appeal by Eden Real Estates, which is engaged in construction of residential apartments.
From April 1, 2019, GST is levied at 5% on non-affordable housing projects without input tax credit (ITC). For ongoing projects (as in this case), the builder has the option to pay GST at the old rate of 12% with ITC, which means taxes paid on inputs can be set off. Had the AAAR treated the transaction relating to the car park as a composite supply, the GST levy that would have been applicable would be that of primary supply of construction, which is lower.
According to Anita Rastogi, principal (indirect taxation) at Price Waterhouse-India, the impact of this ruling is that buying homes with parking spaces will be costlier. “While advance rulings are binding only on the parties in question, in respect of the transaction for which the ruling was sought, quite often tax authorities rely on rulings favourable to the department. If the taxpayer (say, builder) has taken a different approach, it results in litigation. Some builders, thus, may adopt a cautious approach and charge 18% GST in respect of the car parking space.”
In this case, the real estate developer submitted that the car parking space is only given to flat buyers and stamp duty is paid on the entire consideration charged to them (that is, price of the apartment and the car parking space). However, the AAAR bench observed that prospective flat buyers may or may not opt for a car parking space when booking their flat. Thus, the argument that the facility of the right to use open parking space is naturally bundled with construction services and is a composite supply fails. Further, the ‘right to use’ open car parking space means the ownership of the open space is not transferred to the flat buyer, hence it is a separate service altogether. The arguments largely related to open car parking space and the bench also pointed out that under RERA an open parking space is not included in the definition of a garage.
