M/S. AJAY KUMAR DABRAL

Classification of services – Permission to extract accessory minerals (sand, gravel boulders) on payament of fees – service provided by Garhwal Mandal Vikas Nigam (GMVN) – Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 – whether classified under Service Code (Tariff) 9973, specifically under 997337 as licensing services for the right to use minerals including its exploration and evaluation or as any other service under the said chapter? – Rate of GST for the period 01.07.2017 to 31.12.2018.

Classification of service provided by GMVN – HELD THAT:- Government of Uttarakhand had allotted specified areas to GMVN to extract accessory minerals (sand, gravel boulders) from the same and are required to pay prescribed fees to the Government of Uttarakhand for the said allotted work. GMVN further allotted the said work in particular specified area to the applicant and for that GMVN charging & collecting consideration in the form of money from the applicant and GMVN is paying prescribed fees as royalty to the Uttarakhand Government from the said consideration – the services rendered by GMVN is covered under serial no. 257 of Annexure appended to Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 as “Licensing services for the right to use minerals including its exploration and evaluation” having service code (tariff) 997337.

Whether the said service classified under Service Code (Tariff 9973, specifically under 997337 as licensing services for the right to use minerals including its exploration and evaluation or as any other service under the said chapter? – HELD THAT:- The services rendered by GMVN is covered under serial no. 257 of Annexure appended to Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 as “Licensing services for the right to use minerals including its exploration and evaluation” having service code (tariff) 997337.

Rate of GST for the period 01.07.2017 to 31.12.2018 on services provided by M/s. Garhwal Vikas Nigam to Shri Ajay Kumar Dabral for which royalty is being paid – HELD THAT:- The description of service i.e. “Licensing services for the right to use minerals including its exploration and evaluation”, undertaken by the GMVN does not cover under serial no. 17 (i) to 17 (viia) of the said notification, therefore the service in question falls at residual entry (viii) of serial no. 17 of said Notification – the said entry was amended vide Notification No. 27/2018-Central Tax (Rate) dated 31.12.2018 (applicable w.e.f 01.01.2019) which implies that the service in question provided during the period 01.07.2017 to 31.12.2018 attract GST at the same rate of central tax as on supply of like goods involving transfer of title in goods and w.e.f. 01.01.2019 the said service attract GST @ 18%.

In the instant case goods involved are sand, gravel & boulders and thus their classification and applicable rate of GST are as under:-

Sand – Chapter 2505 of Tariff Act – rate of GST @ 5%.

Gravel – Chapter 2517 of Tariff Act – rate of GST @ 5%.

Sonte Boulder – Chapter 25169020 of Tariff Act – rate of GST @ 5%.

Since the transfer of title in goods attract GST @ 5%, therefore the supply of service in question also attract GST @ 5% during the period 01.07.2017 to 31.12.2018.

No.- Ruling No. 08/2019-20 in Application No. 08/2019-20

Dated.- January 6, 2020

SHRI VIPIN CHANDRA AND SHRI AMIT GUPTA, MEMBER

Present for the Applicant: Shri Himanshu Sharma (CA) Shri Amrit Ashwal (CA)

Present for the Jurisdictional Officer: None

Note : Under Section 100(1) of the Uttarakhand Goods and Services Tax Act, 2017, an appeal against this ruling lies before the appellate authority for advance ruling constituted under section- 99 of the Uttarakhand Goods and Services Tax Act, 2017, within a period of 30 days from the date of service of this order.

RULING

  1. This is an application under Sub-Section (1) of Section 97 of the CGST/SGST Act, 2017 (herein after referred to as Act) and the rules made thereunder filed by Shri Ajay Kumar Dabral, Village-Rampur, Selaqui, Dehradun-Uttarakhand seeking an advance ruling on following issue:

(a) Classification of service provided by Garhwal Mandal Vikas Nigam (herein after referred to as GMVN) to Shri Ajay Kumar Dabral in terms of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017;

(b) Whether the said service classified under Service Code (Tariff) 9973, specifically under 997337 as licensing services for the right to use minerals including its exploration and evaluation or as any other service under the said chapter;

(c) Rate of GST for the period 01.07.2017 to 31.12.2018 on services provided by M/s. Garhwal Vikas Nigarn to Shri Ajay Kumar Dabral for which royalty is being paid.

  1. Advance Ruling under GST means a decision provided by the authority or the appellate authority to an applicant on matters or on questions specified in sub section (2) of section 97 or sub section (1) of section 100 in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant.
  2. As per the said subsection (2) of Section 97 of the CGST/SGST Act, 2017 advance ruling can be sought by an applicant in respect of :

(a) Classification of any goods or services or both

(b) Applicability of a notification issued under the provisions of this Act,

(c) Determination of time and value of supply of goods or services or both,

(d) Admissibility of input tax credit of tax paid or deemed to have been paid

(e) Determination of the liability to pay tax on any goods or services or both

(f) Whether the applicant is required to be registered

(g) Whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both within the meaning of that term

  1. In the presentcase applicant has sought advance ruling on applicability of GST rate on supply of services & its classification. Therefore, in terms of said Section & (e) of CGST/SGST Act, 2017, the present application is hereby admitted.
  2. Accordingly opportunity of personal hearing was granted to the applicant on 19.12.2019. Shri Himanshu Sharma (CA) and Amrit Ashwal (CA), on behalf of the applicant appeared for personal hearing on the said date and submitted that the written submissions to be taken on record. Shri Manish Mishra, Deputy Commissioner, SGST-Dehradun, concerned officer appointed by the State Authority, also present during the hearing proceedings.
  3. From the record submitted by the applicant we find that applicant is registered in Uttarakhand with GSTIN bearing no. 05AINPD6537A1ZM. Before proceeding in the presentcase, we would first go through the submissions filed by the applicant and the same is summarized as under:

(i) the services rendered by M/s. GMVN to the applicant is classified under service code (Tariff) 997337 as “right to use minerals including its exploration and evaluation” and the said services rendered by M/s. GMVN to the applicant attract GST @ 5% during the period 01.07.2017 to 31.12.2018 in as much as the minerals extracted by the applicant attract GST @ 5%.

(ii) the applicant prefers an advance ruling regarding classification and rate of GST applicable on the said service for the period from 01.07.2017 to 31.12.2018.

  1. Before deciding the issues in hand, we first go through the agreements/contracts submitted by the applicant in this regard. On perusal of MOUs dated 06.11.2017 & 15.11.2017, the relevant portions are summarized as under:

(a) Both MOUs were signed between GMVN & the applicant;

(b) The applicant had been permitted to extract accessory minerals (sand, gravel, boulder) from the Khasra nos specified therein;

(c) Extraction of accessory minerals will be done manually only;

(d) Monthly installment shall be paid by the applicant by 5th of said month;

(e) The royalty shall be paid to Mineral Department from the monthly installments received from the applicant

(f) The vehicles registered with Mineral Department shall only be allowed to transport accessory minerals (sand, gravel, boulder)

(g) GST, Income Tax TCS and other fees shall be paid by the applicant

(h) Validity of both the agreements/ contracts is upto 30.06.2018.

  1. In the presentcase we are not deciding any wider question but restricting our conclusion to the facts and circumstances which were filed for our consideration in the application. Now we proceed by taking the issue one by one:

(A) Classification of service provided by GMVN to Shri Ajay Kumar Dabral in terms of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017.

A.1 On perusal of “Uttarakhand Chugan Niti”, 2016, we find that GMVN has been allotted mineral areas in revenue rivers of Garhwal region to extract accessory minerals (sand, gravel, boulders) after payment of application fees and fulfillment of administrative/ legal formalities. After allotment of said area, GMVN issue tender for extraction of accessory boulders) from specified areas. In case of minerals (sand, gravel unsuccessful bid for first and second press release, GMVN shall extract accessory minerals from such specified areas. On the clearances of accessory minerals, GMVN or a personal allottee, shall pay same fees pertaining to royalty, stamp fee, development fee etc.

A.2 From above we find that the Government of Uttarakhand had allotted specified areas to GMVN to extract accessory minerals (sand, gravel boulders) from the same and are required to pay prescribed fees to the Government of Uttarakhand for the said allotted work. GMVN further allotted the said work in particular specified area to the applicant and for that GMVN charging & collecting consideration in the form of money from the applicant and GMVN is paying prescribed fees as royalty to the Uttarakhand Government from the said consideration.

A.3 In this context relevant legal provisions are extracted below:

Annexure appended to Notification No. 11/2017-CentraI Tax (Rate) dated 28.06.2017

S.No. Chapter, Section, Heading or Group Service Code (Tariff) Service Description
1 2 3 4
232 Heading 9973 Leasing or rental Services with or without operator
233 Group 99731 Leasing or rental services concerning machinery and equipment with or without operator
241 Group 99732 Leasing or rental services concerning other goods
250 Group 99733 Licensing services for the right to use intellectual property and similar products
257 997337 Licensing services for the right to use minerals including its exploration and evaluation
462 Group 99862 Support services to mining
463 998621 Support services to oil and gas extraction
464 998622 Support services to other mining nowhere else classified

A.3 On perusal of aforesaid table, we find that the services rendered by GMVN is covered under serial no. 257 of Annexure appended to Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 as “Licensing services for the right to use minerals including its exploration and evaluation” having service code (tariff) 997337.

(B) Whether the said service classified under Service Code (Tariff 9973, specifically under 997337 as licensing services for the right to use minerals including its exploration and evaluation or as any other service under the said chapter

B.1 Discussed in para (A) supra.

(C) Rate of GST for the period 01.07.2017 to 31.12.2018 on services provided by M/s. Garhwal Vikas Nigam to Shri Ajay Kumar Dabral for which royalty is being paid.

C.1 In this context Notification 11/2017-CentraI Tax (Rate) dated 28.06.2017 (as amended from time to time) is reproduced below:

Notification No. 11/2017-central Tax (Rate) 28th June, 2017

G.S.R……(E).-In exercise of the powers conferred by sub-section (1) of section 9, subsection (1) of section 11, sub-section (5) of section 15 and sub-section (1) of section 16 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on the recommendations of the Council, and on being satisfied that it is necessary in the public interest so to do, hereby notifies that the central tax, on the intra-State supply of services or description as specified in column (3) of the Table below, falling under Chapter, Section or Heading of scheme of classification of services as specified in column (2), shall be levied at the rate as specified in the corresponding entry in column (4), subject to the conditions as specified in the corresponding entry in column (5) of the said Table:-

S.No Chapter, Section or Heading Description of Service Rate (per cent.) Condition
1 2 3 4 5
17 Heading 9973 (Leasing or rental services, with or without operator) (i) Temporary or permanent transfer or permitting the use or enjoyment of Intellectual Property (IP) right in respect of goods other than Information Technology software. 6
(ii) Temporary or permanent transfer or permitting the use or enjoyment of Intellectual Property (IP) right in respect of Information Technology software. 9
(iii) Transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration. Same rate of central tax as on supply of like goods involving transfer of title in goods
(iv) Any transfer of right in goods or of undivided share in goods without the transfer of title thereof. Same rate of central tax as on supply of like goods involving transfer of title in goods
(v) Leasing of aircrafts by an operator for operating scheduled air transport service or scheduled air cargo service by way of transaction covered by clause (f) paragraph 5 of Schedule II of the Central Goods and Services Act, 2017.

Explanation.-

(a) “operator” means a person, organization or enterprise engaged in or offering to engage in aircraft operations;

(b) “scheduled air transport service” means an air transport service undertaken between the same two or more places operated according to a published time table or with flights so regular or frequent that they constitute a recognisable systematic series, each flight being open to use by members of the public;

(c) “scheduled air cargo service” means air transportation of cargo or mail on a scheduled basis according to a published time table or with flights so regular or frequent that they constitute a recognisably systematic series, not open to use by passengers

2.5 Provided that credit of input tax charged on goods used in supplying the service has not been taken
“(vi) Leasing of motor vehicles purchased and leased prior to 1st July 2017 65 per cent. of the rate of central tax as applicable on supply of like goods involving transfer of title in goods.

Note:- Nothing contained in this entry shall apply on or after 1st July 2020.

(vii) Time charter of vessels for transport of goods 2.5 Provided that credit of input tax charged on goods (other than on ships, vessels including bulk carriers and tankers) has not been taken
(viii) Leasing or rental services, with or without operator, other than (i), (ii), (iii), (iv), (v), (vi) and (vii) above Same rate of central tax as on supply of like goods involving transfer of title in goods

C.2 The serial no. 17 of the said notification was amended vide Notification No. 27 / 2018-Central Tax (Rate) dated 31.12.2018 (applicable w.e.f. 01.01.2019) by introducing following entries:

S.No Chapter, Section or Heading Description of Service Rate (per cent.) Condition
1 2 3 4 5
(viia) Leasing or renting of goods Same rate of central tax as applicable on supply of like goods involving transfer of title in goods
(viii) Leasing or rental services, with or without operator, other than (i), (ii), (iii), (iv), (v), (vi), (vii) and (viia) above 9

C.3 On perusal of aforesaid tables, we find that description of service i.e. “Licensing services for the right to use minerals including its exploration and evaluation”, undertaken by the GMVN does not cover under serial no. 17 (i) to 17 (viia) of the said notification, therefore the service in question falls at residual entry (viii) of serial no. 17 of said Notification.

C.4 We find that the said entry was amended vide Notification No. 27/2018-Central Tax (Rate) dated 31.12.2018 (applicable w.e.f 01.01.2019) which implies that the service in question provided during the period 01.07.2017 to 31.12.2018 attract GST at the same rate of central tax as on supply of like goods involving transfer of title in goods and w.e.f. 01.01.2019 the said service attract GST @ 18%.

C.5 In the instant case goods involved are sand, gravel & boulders and thus their classification and applicable rate of GST are given below:

S.No. Description of goods Chapter of Tariff Act Rate of GST
1. Sand 2505 5%
2. Gravel 2517 5%
3. Stone Boulder 25169020 5%

Since the transfer of title in goods attract GST @ 5%, therefore the supply of service in question also attract GST @ 5% during the period 01.07.2017 to 31.12.2018.

ORDER

In view of the above discussion & findings we hold as under:

(i) The services rendered by GMVN is covered under serial no. 257 of Annexure appended to Notification No. 11/2017-CentraI Tax (Rate) dated 28.06.2017 (amended from time to time) as “Licensing services for the right to use minerals including its exploration and evaluation”.

(ii) The service namely “Licensing services for the right to use minerals including its exploration and evaluation” is classified under Service Code (Tariff) 997337.

(iii) The services rendered by M/S GMVN to the applicant during the period 01.07.2017 to 31.12.2018 attract GST at the same rate of central tax as on supply of like goods involving transfer of title in goods i.e 5%.

M/S. VIDIT BUILDERS

Classification of services – business of real estate developer and is developing a colony by executing joint development agreement with the land owner M/s. Star Construction – works contract or not – Valuation – applicability of Residual Rules i.e. Rule 30/31 provided under GST Valuation Rules.

HELD THAT:- The service provided by the applicant is regarding development of the site which includes civil construction and amenities regarding the site in order to make it for the purpose of residence. The services provided by the applicant are based on an agreement signed between the land owner and the applicant which comes under works contract.

The agreement provides that the applicant gets 40% of the amount at which each of the plots is sold. This shows that the consideration that the applicant receives is in the form of money and not in the form of land. The only peculiar feature of this arrangement is that the landowners do not arrange any cash amount on their own to pay to the applicant for their services. They do not have to invest any personal amount in this manner and as and when a plot is sold the amount is shared and the applicant receives a part of their consideration. In this manner the applicant gets paid his consideration progressively. Therefore in terms of the provisions of Section 15 the applicant receives the value of taxable supply made by them.

Consideration for a service is the total value that the service provider gets in the deal and not what the service provider expends for the provisioning of the service. The total gain to the applicant or the total amount accruing to the applicant for the services is 40% of the amount at which the plots are sold. It has already been emphasized and held that the applicant has no right in the title of the land and therefore the applicant cannot be considered as the sellers of the plots. Their role is limited to aiding and assisting the landowners in the sale of the plots. They are only service providers in the whole process, be it development of the raw land into residential plots or their sale after the development. Therefore the entire amount received by them is liable to be taxed.

Thus, the activities performed/to be performed by the applicant cannot be classified under Para 5 of schedule Ill. It amounts to supply of services under works contract and is liable to be taxed under GST Act – Rule 31 applies in the instant case and the value of supply is equal to the amount received/receivable by the applicant which is equal to 40% of the amount on which the plots are sold.

No.- Order No. 02/2020 Case No. 19/2019

Dated.- January 6, 2020

MANOJ KUMAR CHOUBEY AND SHRI VIRENDRA KUMAR JAIN MEMBER

Present on behalf of applicant: Shri Vishal Jaseja CA

PROCEEDINGS

(Under sub-section (4) of Section 98 of Central Goods and Service Tax Act, 2017 and the Madhya Pradesh Goods & Service Tax Act, 2017)

1. The present application has been filed u/s 97 of the Central Goods and Services Act, 2017 and MP Goods and services Act, 2017 (hereinafter also referred to CGST Act and SGST Act respectively) by M/s. Vidit Builders (hereinafter referred to as the Applicant), registered under the Goods & Services Tax.

2. The provisions of the CGST Act and MPGST Act are identical, except for certain provisions. Therefore, unless a specific mention of the dissimilar provision is made, a reference to the CGST Act would also mean a reference to the same provision under the MPGST Act. Further, henceforth, for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST or MPGST Act would be mentioned as being under the GST Act.

3. BRIEF FACTS OF THE CASE:

3.1 The applicant is partnership firm and engaged in the business of real estate developer and is developing a colony by executing joint development agreement on 14.03.2019 with the land owner M/s. Star Construction. In this project developer will develop and provide the following common facilities in the colony.

1. Construction of concrete roads and compound walls.

2. Development of garden.

3. Construction of drain and water supply system.

4. Erection of electric poles and transformers etc.

3.2 With due permission from the local municipal corporation. Developer will sale vacant plots to individual buyers and will not do any construction activities on these plots. No common facilities developed like road, garden, electric poles, water drainage etc. will be transferred / sold to buyers.

3.3 After development of all the above-mentioned common facilities, local municipal corporation will review and provide completion certificate to the developer and developer will hand over the colony to the municipal corporation for further maintenance.

4. QUESTIONS RAISED BEFORE THE AUTHORITHY: –

In view of the above, the applicant has sought in respect of the following question.

4.1. Whether it is covered in para 5 of Schedule III (Sale of Land) or classified under works contract.

4.2. If it is covered under works contract, how the valuation would be done.

4.3. Residual Rules i.e. Rule 30/31 provided under GST Valuation Rules can be considered or not.

5. CONCERNED OFFICER’S VIEW POINT:

The concerned officer is his view submitted that the work undertaken by the applicant doesn’t fall under Para 5 of schedule Ill. And rule 31 applies for the valuation.

06. RECORD OF PERSONAL HEARING: Shree Vishal Jasgia CA authorized representative of the applicant appeared and reiterated the submission given in the application. He also gave a copy of the agreement executed between the applicant and the land owner M/s. Star construction.

7. DISCUSSIONS AND FINDINGS:

7.1 We have carefully gone through the submission made by the applicant in their application, as well as the submission made at the time of personal hearing and copy of agreement between the applicant and the land owner.

7.2 The applicant has entered into joint development agreement with the land owners in terms of the agreement the applicant undertakes the development of plots which also concludes construction of concrete roads and compound walls, development of garden, construction of drain and water supply system and erection of electric poles and transformer etc. The revenue accruing from the sale of the plots is shared as per the agreement. After developing the land and formation of developed plots, the amenities like roads, etc. are handed over to the Authorities as per the Statutory requirement. The salient provisions contained in the agreement and having a bearing on the questions raised by the applicant are discussed in the following paragraphs.

7.3 The agreement deed clearly states that as the land is under mortgage of the State Bank of India, Jabalpur, therefore permission was taken from State Bank of India, Jabalpur of entering into the agreement. Init it has been clearly stated that the applicant would enter into an agreement with the land owner only for the development of the land.

7.4 “Para (1)” of the agreement says that applicant would follow all rules and regulations for development of colony.

7.5 In “Para (2), (3), (5), (6), (7), (14), (15) and (16)” deals with the works and duties to be carried out by the applicant.

7.6 In Para (4)” says that it is land owner who has got diversification of land use to residential purpose.

7.7 The agreement further provides that once the project has been developed the applicant will ensure the sale of the plots. For selling any expenses incurred by the applicant will be recovered by the applicant from the purchaser and would be shared between land owner and applicant in a fixed ratio.

7.8 “Para (8)” of the agreement provides for the revenue sharing arrangement. The applicant is entitled to a revenue share equal to 40% of the sale value of each plot. The agreement also states that the security deposited by the applicant will be refundable within a stipulated time and if not it will be refunded with 18% percent per annum interest.

7.9 “Para (11)” of the agreement obliges the applicant to complete the work in a stipulated time.

7.10 In “Para (10)” it is the land owner who gives the right to the applicant to develop the land.

7.11 “Para (13) and (14)” entrust upon the land owner to pay any tax/rent and to settle any legal dispute regarding land.

7.12 “Para (15)”: says that the land owner authorizes the applicant would get the approval of design, layout and other permission from the concerned authorities.

7.13 The above are salient features of the agreement. The main argument of the applicant is that they are primarily engaged in the sale of land and the said activity is not liable to be taxed in terms of the provisions contained in serial number 5 of Schedule III of the GST Act, 2017. Therefore nearly by developing common facilities like drainage, electricity, road facilities, garden development etc should not attract GST.

7.14 The applicant further contempt that mentioned development activities should not be covered under the ambit of GST. Since the dominancy in the transaction / activities is in respect of land/plots, whole transaction / activities would be covered in sale of plots/ land though the ancillary services (Common facilities) has been provided.

7.15 Now we examine the contention of applicant in light of the salient features of the agreement discussed in the preceding paragraph.

7.16 The core contention of the applicant is that they are engaged in the sale of land. The sine qua non for any sale of land is the ownership of the land sold. The seller can claim that he is engaged in the supply of land by way of sale only if he himself enjoys the title of the land. Anyone who does not possess any title of the land cannot be considered as the seller. Such a person may have a role in the activity of sale but he cannot claim himself to be the seller. In the instant case the applicant understands that they have a right to 40 % of the total number of plots developed and the sale of these plots, as well as those of the landowners share, is covered under serial number 5 of Schedule III. We do not agree with this interpretation of the agreement by the applicant. We deconstruct the understanding and the arguments professed by the applicant in the following discussion.

7.17 The first and foremost point to understand is the actual nature of the activities required to be performed by the applicant in terms of the agreement. One of the important point in the agreement is that as the land is under mortgage of State Bank of India, Jabalpur, permission was taken by the bank for the development of the Iand and in that permission it was clearly stated that the applicant would enter into an agreement with the land owner only for the development of the land the agreement also clearly defines the scope of work to be undertaken by the applicant the main work to be carried out by the applicant the development of plots which also concludes construction of concrete roads and compound walls, development of garden, construction of drain and water supply system and erection of electric poles and transformer etc. Therefore it is very much clear that the activities to be undertaken by the applicant are in nature of development of land into residential layout. The agreement provides that the applicant can enter into sale agreements. However this activity is incidental to the main activity of development of land. The sale is entrusted to the applicant as the applicant has invested huge sums in the development of the land and it is a measure to protect his financial exposure in the matter. Here it becomes evident that the core competence and the activity actually carried out by the applicant is that of development of land and not the sale of land. The land owner still remains the land owner till the property is transferred in the name of purchaser.

7.18 The agreement also states that the land owner authorizes the applicant to prepare the necessary plans drawing designs and get it approved by the concern authority. The authorization clause clearly shows that the activities are to be done by the applicant is on behalf of the land owner. The applicant doesn’t become the land owner himself.

7.19 There are many other provisions in the agreement that applicant has no right over the land and consequently the applicant cannot claim to be engaged in the activity of sale of land as envisaged in the provisions of entry at Serial number 5 of said Schedule III. The provisions of this entry will apply only to those persons who are the owners of the land and not to persons who are incidental to the sale of land.

7.20 According to the agreement the primary role of the applicant is development of the land into residential plots. The other activities to be done by the applicant are ancillary to the above prime activity. The applicant doesn’t get the right himself to deal with many government agencies but he has been authorized by land owner to do so. He doesn’t himself become the land owner.

7.21 The agreement also provides that the cost of development shall be borne by the applicant. It is agreed upon by the applicant and the landowners that all the cost of the execution of the project subsequent to the receipt of the Sanctioned plan, including costs like fee payable to architects, engineers, workmen etc shall be borne by the applicant. The applicant is entitled to recover these costs from the purchasers of the plots.

7.22 The revenue sharing agreement in “Para 8” of the agreement indicates that the applicant gets an amount on the sale of each individual plot. This shows that there are no fixed earmarked plots to which the applicant can claim an entitlement. Further the amount received on the sale of the plots is credited to an escrow account and then only the same is divided. This further shows that the applicant is not the owner of the plots and consequently cannot claim sale of the plots as his supply.

7.23 On the basis of the aforementioned provisions of the agreement it would be in order to conclude that activities undertaken by the applicant are not qualified to be covered under entry number 5 of Schedule III of the said Act. Thus the activities to be performed by the applicant amount to a supply of service.

7.24 The service provided by the applicant is regarding development of the site which includes civil construction and amenities regarding the site in order to make it for the purpose of residence. The services provided by the applicant are based on an agreement signed between the land owner and the applicant which comes under works contract.

7.25 The applicant has also raised that if the activity to be performed comes under works contract how the valuation would be done. GST Rule 30/31 will be considered or not.

7.26 The terms of the agreement provide that the cost of execution of the development of the land including the cost of fee payable to the architects, contractors, staff , workmen etc shall be borne by the applicant. Further it provides that the applicant recovers the cost from the purchasers of the plots. In this regard the provisions of Para 8 dealing with revenue sharing are worth noting. Para 8.1 provides that as and when any plot is sold, the proceeds shall be divided between the applicant and the landowners in the given ratio. This shows that the charges that the applicant receives for the services provided by them to the landowners for the development of the land are equal to their revenue share when the plots are sold. Now we look at the definition of ‘Consideration’ as enumerated in Section 2(31) of the Act. It is stated therein that “consideration” in relation to supply of goods or services or both includes any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, supply of goods or services or both, whether by the recipient or by any other person.

7.27 In this context we see that the applicant receives consideration equal to 40% of the value at which each of the plots is sold. This amount constitutes the consideration for the services provided by the applicant. Section 15 of the CGST Act, 2017 provides that the value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply where the supplier and the recipient are not related and the price is the sole consideration. It is seen here that the applicant does not get any physical possession of 40% of the plots as understood by the applicant. The agreement provides that the applicant gets 40% of the amount at which each of the plots is sold. This shows that the consideration that the applicant receives is in the form of money and not in the form of land. The only peculiar feature of this arrangement is that the landowners do not arrange any cash amount on their own to pay to the applicant for their services. They do not have to invest any personal amount in this manner and as and when a plot is sold the amount is shared and the applicant receives a part of their consideration. In this manner the applicant gets paid his consideration progressively. Therefore in terms of the provisions of Section 15 the applicant receives the value of taxable supply made by them.

7.28 Rule 27 deals with the determination of Value of supply of goods or services where the consideration is not wholly in money. In the present case the entire consideration is received in money form. Therefore this Rule does not apply to the present case. Rule 28 is applicable for determination of value of supply of goods or services or both between distinct or related persons, other than through an agent. The distinct persons are as defined in sub section (4) and (5) of Section 25. In the present transaction there are no distinct persons as defined in sub section (4) and (5) of Section 25 are involved. Therefore Rule 28 also does not apply. Rule 29 and 30 also do not apply in the case. Consequently Rule 31 comes into play in the instant case Rule 31 provides that where the value of supply of goods or services or both cannot be determined under rules 27 to 30, the same shall be determined using reasonable means consistent with the principles and the general provisions of section 15.

7.29 Section 15, as already discussed in para 7.27 above, provides that the value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply where the supplier and the recipient are not related and the price is the sole consideration. In the instant case what the applicant receives as their remuneration for the provision of the services of development of the land and their subsequent activities related to the sale of the plots is an amount equal to 40% of the open market value of each plot. The arrangement is that the applicant shall get the amount only as and when the plots are sold. As already discussed earlier this arrangement, where the applicant gets paid for their services only upon the sale of the plots, enables the landowners to not to spend their financial resources to pay the applicant for their services. The applicant gets 40% of the amount collected from the plot purchasers. This amount constitutes their consideration for their services rendered to the landowners. Consideration for a service is the total value that the service provider gets in the deal and not what the service provider expends for the provisioning of the service. The total gain to the applicant or the total amount accruing to the applicant for the services is 40% of the amount at which the plots are sold. It has already been emphasized and held that the applicant has no right in the title of the land and therefore the applicant cannot be considered as the sellers of the plots. Their role is limited to aiding and assisting the landowners in the sale of the plots. They are only service providers in the whole process, be it development of the raw land into residential plots or their sale after the development. Therefore the entire amount received by them is liable to be taxed.

8. RULING

 (Under section 98 of Central Goods and Services Tax Act, 2017 and the Madhya Pradesh Goods and Services Tax Act, 2017)

8.1 The activities performed/to be performed by the applicant cannot be classified under Para 5 of schedule Ill. It amounts to supply of services under works contract and is liable to be taxed under GST Act.

8.2 Rule 31 applies in the instant case and the value of supply is equal to the amount received/receivable by the applicant which is equal to 40% of the amount on which the plots are sold.

8.3 This ruling is valid subject to the provisions under section 103(2) until and unless declared void under Section 104(1) of the GST Act.

M/S. LAXMI TRADERS

Maintainability of Advance Ruling application – Classification of goods – rate of GST – Job work of printing and colouring of Textile fabrics provided by manufacturer of textile fabric – applicability of N/N. 11/2017-Central Tax(Rate) dated 28.06.2017 – HELD THAT:- The question asked by the applicant before the advance ruling authority has already been decided by the jurisdictional authority. Further, vide aforesaid letter dated 03.01.2020, the jurisdictional SGST authority has informed that the applicant has not preferred an appeal against the said refund rejection order.

The application shall not be admitted in terms of the provisions of Section 98(2) of CGST Act, 2017, as the question raised in the application has already been decided by the SGST authorities, Sikandrabad.

No.- Order No. 48

Dated.- January 6, 2020

AJAY KUMAR MISRA AND DINESH KUMAR VERMA

PROCEEDING OF THE AUTHORITY FOR ADVANCE RULING U/S. 98 OF THE GOODS AND SERVICES TAX ACT, 2017

Sub:- GST ACT, 2017 – Advance Ruling U/ s 98 – liability to tax under GST Act in respect to application dated 13.09.2019 of M/s. Laxmi Traders (Pramod Kumar), C-9, Industrial Area, Sikandrabad, Bulandshahar, Uttar Pradesh – Order- Reg.

1) M/s. Laxmi Traders (Pramod Kumar), C-9, Industrial Area, Sikandrabad, Bulandshahar, Uttar Pradesh (here in after called the applicant) is a registered assessee under GST having GSTIN: 09APPPK6139J1ZA.

2) The applicant is a proprietorship firm engaged in the business of printing and dyeing of textiles fabrics, provided by manufacturer, as per their requirement. In this process the applicant uses colours, dyes & chemicals and the job of printing/ dyeing is done through printing machines. Some process also required manual printing. Further, after completion of work, the textile fabrics is send back to the manufacturer.

3). Accordingly, following questions have been posted by the applicant, in his application dated 13.09.2019 (application completed in all aspect received by the Authority on 10.10.2019), before the Authority: –

i. What is GST Rate on Job work of printing and colouring of Textile fabrics provided by manufacturer of textile fabric.

4). The applicant further submitted that in 16th meeting of the GST Council, it has been decided that job work service in relation to textile yarns and fabrics may be taxed at the rate of 5%. Stating this, the applicant further submitted that in terms of GST Council decision and Notification Number 11/2017-Central Tax(Rate) dated 28.06.2017, the GST rate in respect of Job work on textile fabrics would be 2.5% SGST and 2.5% CGST.

5). The application for advance ruling was forwarded to the Jurisdictional GST Officer to offer his comments/ views/ verification report in the matter, which was received in this office vide letter no- 580/D.C./Com. Tax. SKD dated 23.11.2019, wherein it has been reported that:

i. Applicant is engaged in dyeing and printing service on job work basis wherein he is using colour, chemical and tinplate of his own, thus making a composite supply.

ii. Presently applicant owes liability on service part only and not on the material transfer of his own, while he is claiming the refund of ITC on material transfer of his own.

iii. Applicant is doing the job work of dyeing and printing of textile cloth which does not fall under the category of manufacturing services as there is no new thing or textile product comes into emergence.

iv. GST Council has notified the dyeing and colouring services under the HSN heading 9997 chargeable @9%.

6). The applicant was granted a personal hearing on 06.01.2020. Shri Rajesh Kumar Singhal, Advocate, Authorized representatives of the applicant and Sh. Pramod Kumar, proprietor, appeared for hearing on the given date. During the personal hearing, they reiterated the submissions already made vide advance ruling application and also submitted additional written submissions, gist of which is as under:

i. The textiles fabric is provided by the manufacturer and as per their requirement, the work of printing, design and colour is done by the applicant.

ii. In this process, the applicant uses colour, dyes and chemicals with the help of printing machines and some time manually too.

iii. Different ratios of colour, dyes and chemicals are used for different type of printing. Colour printing on textiles fabrics requires nearly 30-55% of Inputs i.e. Colour, Dyes and chemicals.

DISCUSSION AND FINDING

7). At the outset, we would like to make it clear that the provisions of both the CGST Act and the UPGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the UPGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / UPGST Act would be mentioned as being under the ‘CGST Act’ 2017.

8). We have gone through the submissions made by the applicant and have examined the explanation submitted by them. We also observe that the Deputy Commissioner Commercial Tax, Sikandrabad, vide letter 70/D. Commr./CT/Sikandrabad dated 03.01.2020 has informed that with reference to the refund claim filed by the applicant, a Show Cause Notice was issued to the applicant vide RFD-08 and the refund application of the applicant was rejected by the jurisdictional authority vide RFD-06 dated 20.07.2019. Further, on perusal of the said Refund Rejection Order dated 20.07.2019, we observe that the jurisdictional authority, before rejecting the said refund claim, has discussed, in lengths, about the classification and rate of duty of the activity performed by the applicant.

9). We further observe that as per the proviso of Section 98 (2) of CGST Act, 2017:-

“The Authority may, after examining the application and the records called for and after hearing the applicant or his authorised representative and the concerned officer or his authorised representative, by order, either admit or reject the application:

Provided that the Authority shall not admit the application where the question raised in the application is already pending or decided in any proceedings in the case of an applicant under any of the provisions of this Act.”

10). Accordingly, we observe that the question asked by the applicant before the advance ruling authority has already been decided by the jurisdictional authority. Further, vide aforesaid letter dated 03.01.2020, the jurisdictional SGST authority has informed that the applicant has not preferred an appeal against the said refund rejection order.

11). In view of the above discussions, we, both the members unanimously rule as under;

RULING

Question:- What is GST Rate on Job work of printing and colouring of Textile fabrics provided by manufacturer of textile fabric.

Answer:- The application shall not be admitted in terms of the provisions of Section 98(2) of CGST Act, 2017, as the question raised in the application has already been decided by the SGST authorities, Sikandrabad.

12) This ruling is valid subject to the provisions under Section 103(2) until and unless declared void under Section 104(1) of the CGST Act, 2017.8

M/S. GUBBA COLD STORAGE PRIVATE LIMITED,

Liability of GST – leased premises for cold storage purpose of agriculture produce on leasing charges – cold storage leased on rent for storage with or without preservation and maintenance to Private Enterprises – seeds/agricultural produce for storage or warehousing on behalf of farmers and traders – HELD THAT:- Sl. No. 54(e) of the N/N. 12/2017-CT (R) dated 28.06.2017 as amended [SGST Not. No. 12/2017-ST(R)dated 29-062017 as amended] provides for exemption from GST in respect of supply of services rendered for storage in relation to the agricultural produce. It is noticed that the term ‘agricultural produce’ has been defined under clause 2(d) of the Notification ibid. Thus, the supply of service for storage or warehouse of goods is exempted if the same is provided in connection with storage or warehousing of ‘agriculture produce’ as defined in clause 2(d) of Not. No. 12/2017-CT (R) dated 28.06.2017 as amended. Further, the notification is with regard to service supplied and not person specific. As such, the entry No. 54(e) is equally applicable for storage services in respect of agricultural produce of both the farmers and the traders.

Tax liability on leasing services availed by the applicant with regard to the cold storage facility – HELD THAT:- If the agreement is purely for renting/leasing of the premises of cold storage by one entity to another entity, then the said activity amounts to renting/leasing of immovable property and does not fall within the ambit of storage services.In terms of clause (a) of para 5 of the Schedule II (appended to the GST Act), read with Section 7of the GST Act, renting of immovable property is to be treated as supply of service. Thus, providing non-residential property on rental basis is a supply of service which is classifiable under SAC No.997212. The said supply of service is chargeable to tax @18% under residuary entry at Sl. No. 35 of Not. No. 11/2017-CT (R) dated 28.06.2017 as amended [SGST Not.No. 11/2017-ST (R) dated 29-06-2017 as amended].

No.- A.R.Com/37/2018 TSAAR Order No.01/2020

Dated.- January 4, 2020

SRI J. LAXMINARAYANA, ADDITIONAL COMMISSIONER(GRADE-I) (STATE TAX) AND SRI B. RAGHU KIRAN, IRS, JOINT COMMISSIONER (CENTRAL TAX) MEMBER

(Under Section 100(1) of the CGST/TGST Act, 2017, any person aggrieved by this order can prefer an appeal before the Telangana State Appellate Authority for Advance Ruling, Hyderabad, within 30 days from the date of receipt of this Order) *****

  1. M/s. Gubba Cold Storage Private Limited, Flat No.25, P and T Colony, Lane Opp SBI Bank, Trimulgherry, Secunderabad, Telangana, (GSTIN No. 36AAACG7442D1ZV) have filed an application in FORM GST ARA-01 under Section 97(1) of TGST Act, 2017 read with Rule 104 of CGST/TGST Rules, seeking Advance Ruling with regard to tax implication in respect of supply of certain services mentioned in their application.
  2. At the outset, it is made clear that the provisions of both the CGST Act and the TGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the TGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression ‘GST Act’ would mean CGST Act and TGST Act.
  3. It is observed that the queries raised by the applicant fall within the ambit of Section 97 of the GST ACT. The Applicant enclosed copies of challans as proof of payment of ₹ 5,000/- for SGSTand ₹ 5000/- for CGST towards the fee for Advance Ruling. The Applicant has declared that the questions raised in the application have neither been decided by nor are pending before any authority under any provisions of the GST Act. The concerned jurisdictional officer also raised no objection to the admission of the application. The application is therefore, admitted.
  4. Brief facts of thecase:

The facts, in brief, that were reported by the tax payer in their application are as follows:

  1. They are dealing in services which are in the nature of storage and ware housing of agricultural produce, food grains including pulses and rice etc.;
  2. They are renting or leasing of agro machinery or vacant land with or without structure incidental to its use, in relation to agricultural produce; c. They are using leased premises for storage of agricultural produce which is exempted from GST and lessor is insisting to pay GST on lease charges and the lessee is denied to pay GST on lease charges where the lessee is using the premises for storage of agricultural produce only.
  3. Questions raised:

With the above background, the applicant raised the following queries:

  1. i) What are tax implications in GST regime using leased premises for cold storage purpose of agriculture produce on leasing charges?
  2. ii) What are tax implications in GST regime on cold storage leased on rent for storage with or without preservation and maintenance to Private Enterprises?

iii) What are tax implications in GST regime on seeds/agricultural produce for storage or warehousing on behalf of farmers and traders?

  1. Contention of the tax payer:

The taxpayer have contended that:

1) Supply of services by way of renting immovable property for commercial purpose is a taxable supply under GST law and attracts levy of GST @ 18%;

2) Having said so, services in the nature of storage and ware housing of agricultural produce, food grains including pulses, rice etc., are fully exempted from GST;

3) Further, renting or leasing of agro machinery or vacant land with or without a structure incidental to its use, in relation to agricultural produce would also be exempt.

  1. Personal Hearing:

A personal hearing was held on 04-12-2019 at 03.00 P.M. Sri R. Giri Rao, Authorized representative along with Sri Srinivas, General Manager of M/s. Gubba Cold Storage Private Limited appeared for the personal hearing. They reiterated the facts mentioned aboveand sought for clarifications in respect of the queries raised in their application. They submitted, copies of the agreements entered with the following companies relating to taking lease of the cold storage facility and in connection with providing of storage services of agricultural produce:

(i) M/s Nuziveedu Seeds Limited (Lessor) and M/s Gubba Cold Storage Private Limited (Lessee) –with regard to taking lease the cold storage facility;

(ii) M/s Vibhav Cold Storage (Lessor) and M/s Gubba Cold Storage Private Limited (Lessee) –with regard to taking lease the cold storage facility;

(iii) M/s PonalabBiogrowth (P) Ltd (Lessee) and M/s Gubba Cold Storage Private Limited (Lessor) –in connection with providingof cold storage facility for seeds.

  1. Discussion & Findings:

8.1 We have considered the submissions made by the applicant in their application for advance ruling as well as at the time of personal hearing. As seen from the application, the applicant appears to have engaged in providing the services which are in the nature of storage of agricultural produce. For this purpose, they took the cold storage facility owned by other entities on lease basis. They produced copies of agreements with various companies in support of the same. Relevant extract of one such agreement provided by the applicant is reproduced below:

Further, the applicant appears to have entered into agreements with their customers for providing storage services. Relevant extract of such agreement is reproduced below:

8.2 We feel that to determine the tax liability in respect of the services mentioned in the queries, it is pertinent to refer to the Sl. No. 54 of Not. No. 12/2017-CT (R) dated 28.06.2017 as amended [SGST Not. No. 12/2017-ST(R)dated 29-062017 as amended] which provides for exemption from GST in respect of certain services in relation to agricultural produce. The same is reproduced below:

Sl.No   Chapter, Section, Heading, Group or Service Code (Tariff)   Description of services   Rate (percent)   Condition
54 Heading 9986  Services relating to cultivation of plants and rearing of all life forms of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products or agricultural produce by way of-

(a) agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or testing;

(b) supply of farm labour;

(c) processes carried out at an agricultural farm including tending, pruning, cutting, harvesting, drying, cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations which do not alter the essential characteristics of agricultural produce but make it only marketable for the primary market;

(d) renting or leasing of agro machinery or vacant land with or without a structure incidental to its use;

(e) loading, unloading, packing, storage or warehousing of agricultural produce;

(f) agricultural extension services :

(g) services by any Agricultural Produce Marketing Committee or Board or services provided by a commission agent for sale or purchase of agricultural produce.

(h) services by way of fumigation in a warehouse of agricultural produce

Nil Nil

8.3 As can be seen, Sl. No. 54(e) of the aforesaid notification provides for exemption from GST in respect of supply of services rendered for storage in relation to the agricultural produce. It is noticed that the term ‘agricultural produce’ has been defined under clause 2(d) of the Notification ibid. Thus, the supply of service for storage or warehouse of goods is exempted if the same is provided in connection with storage or warehousing of ‘agriculture produce’ as defined in clause 2(d) of Not. No. 12/2017-CT (R) dated 28.06.2017 as amended. We further find that the notification is with regard to service supplied and not person specific. As such, the entry No. 54(e) is equally applicable for storage services in respect of agricultural produce of both the farmers and the traders.

8.4 Coming to the issue of tax liability on leasing services availed by the applicant with regard to the cold storage facility, we opine that if the agreement is purely for renting/leasing of the premises of cold storage by one entity to another entity, then the said activity amounts to renting/leasing of immovable property and does not fall within the ambit of storage services.In terms of clause (a) of para 5 of the Schedule II (appended to the GST Act), read with Section 7of the GST Act, renting of immovable property is to be treated as supply of service. Thus, providing non-residential property on rental basis is a supply of service which is classifiable under SAC No.997212. The said supply of service is chargeable to tax @18% under residuary entry at Sl. No. 35 of Not. No. 11/2017-CT (R) dated 28.06.2017 as amended [SGST Not.No. 11/2017-ST (R) dated 29-06-2017 as amended].

Advance Ruling

  1. In view of the observations stated above, the following rulings are issued :

Q1. What are tax implications in GST regime using leased premises for Cold Storage purpose of agriculture produce on Leasing Charges.

Ans: Taxable @ 18%.

Q2. What are tax implications in GST regime on Cold Storage Leased on rent for storage with or without preservation and maintenance to Private Enterprises?

Ans: Taxable @ 18%.

Q3. What are tax implications in GST regime on Seeds/Agricultural Produce for storage or Warehousing on behalf of Farmers and Traders?

Ans: Exempted if the supply of service is for storage or warehousing of ‘agriculture produce’ as defined in clause 2(d) of Not. No. 12/2017-CT (R) dated 28.06.2017 as amended

M/S. VIPPY INDUSTRIES LTD. LTD.,

Classification of supply – supply of goods or supply of services – supply of print on flex – whether under HSN 4911 under entry no 132 of Schedule II of Notification 1/2017- CTR – supply of print on flex non commercial purpose, classifiable under HSN 4911 under entry no 132 of Schedule II of Notification 1/2017- CTR or not – HELD THAT:- The applicant in the instant case is engaged in supply of printed flex material and the raw materials of the goods in questions are completely procured by the applicant himself. Immaterial of the fact that whether the content is supplied by the customer or it is designed by the applicant himself basing on the requirement of the customer, the applicant transfers the title in the goods i.e., printed material on flex to the customer – the applicant is transferring the title in goods to his customers in the form of printed flex material and it amounts to nothing but supply of goods only.

Rate of tax of the goods – HELD THAT:- The supply of print on flex is classifiable vide Notification No.1/2017 – Central Tax (Rate) dated 28.06.2017 under Sl.No.132 under HSN code 4911 and attracts tax rate of 12%. Further, the same has been clarified in detail vide the clarification issued under F.No.354/263/2017 – TRU, Dt: 20th October, 2017 in Circular No.11/11/2017-GST.

Whether supply of print on flex non-commercial purpose is also classifiable under HSN 4911 under entry no 132 of Schedule II of Notification 1/2017- CTR? – HELD THAT:- The applicant did not submit any specific details pertaining to the question that what would constitute commercial / Non-Commercial in the context of trade as mentioned by him. Nevertheless, the supplier of the goods i.e., applicant in this context shall levy and collect tax from the recipients for the taxable supplies made by him as per the classification of the goods and tax rates as specified in the notifications of the CGST / APGST Act 2017 from time to time as amended.

No.- AAR No. 32/AP/GST/2019

Dated.- December 9, 2019

Citations:

  1. IN RE: M/s. Macro Media Digital Imaging Private Limited – 2018 (6) TMI 519 – AUTHORITY FOR ADVANCE RULING HYDERABAD TELANGANA

SRI. D. RAMESH, AND SRI. M. SREEKANTH, MEMBER

Represented by: Sri Ashish Kumar Agrawal Assistant Commissioner (ST), Vizianagaram West Circle, Vizianagaram Division.

ORDER

(Under sub-section (4) of Section 98 of Central Goods and Services Tax Act, 2017 and sub- section (4) of Section 98 of Andhra Pradesh Goods and Services Tax Act, 2017)

  1. The present application has been filed u/s 97 of the Central Goods & Services Tax Act, 2017 and AP Goods & Services Tax Act, 2017 (hereinafter referred to CGST Act and APGST Act respectively) by M/s Sree &Co, (hereinafter referred to as applicant), registered under the Goods & Services Tax.
  2. The provisions of the CGST Act and APGST Act are identical, except for certain provisions. Therefore, unless a specific mention of the dissimilar provision is made, a reference to the CGST Act would also mean a reference to the same provision under the APGST Act. Further, henceforth, for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST or AP GST Act would be mentioned as being under the GST Act.
  3. Brief Facts of thecase:

M/s Sree & Co, D.No.22-1-10 & 13 A.G. Complex, Ground Floor, P B Road, Vizianagaram-535002, (hereinafter referred to as the Applicant) is in business of flex banner printing. The applicant gets image done on computer software from customers for different sizes and print the same on flex (HSN 3921) as flex banners and deliver the same to its customers. At times, the applicant is required to provide design and charge the customer for consolidate value of design and print; and bill them for composite supply value. These flex banners are used for both commercial and non-commercial purposes such as birthday, marriage and political purpose.

The applicant submits the following facts:

  1. The applicant purchases flex material, inks etc., for delivery of flex banners.
  2. Certain customers provide design to be printed on the flex banner.
  3. On customer requirement, the applicant provides design services also and Print the same on flex banner and charge as consolidate supply of flex banner.
  4. The applicant charges customer on per sq., feet basis on size of flex banner printed by them.
  5. The customer does provide design, size and specification of matter to be printed and does not provide any material. All the material i.e., flex, ink, etc., are procured by applicant only.
  6. In pre-GST regime the applicant paid tax under works contract on value of material only.

The applicant had filed an application in form GST ARA-01, Dt: 04.06.2019, by paying required amount of fee for seeking Advance Ruling on the following issues, as mentioned below.

  1. Questions raised before the Authority:
  2. Whether supply of print on flex is classifiable as supply of goods or service?
  3. If yes, whether falls under HSN 4911 under entry no 132 of Schedule II of Notification 1/2017- CTR?
  4. If answer to question 2 is yes, whether supply of print on flex non commercial purpose is also classifiable under HSN 4911 under entry no 132 of Schedule II of Notification 1/2017- CTR?

On Verification of basic information of the applicant, it is observed that the applicant falls under State jurisdiction, i.e. Assistant Commissioner(ST), Vizianagaram West Circle, Vizianagaram Division. Accordingly, the application has been forwarded to the jurisdictional officers with a copy marked to the Central Tax authorities to offer their remarks as per the Section 98(1) of CGST /APGST Act 2017.

In response, no remarks are received from the jurisdictional officer concerned regarding whether there are any proceedings lying pending or passed relating to the applicant on the issue, for which the Advance Ruling sought by the applicant.

  1. Applicant’s Interpretation of Law and Facts:

The applicant states that with the changed definition of works contract in GST regime, now composite supply involving immovable property only falls under works contract service. The applicant submits that as the flex banners supplied by them are as per design or requirements of customers and same cannot be used for any other purpose, the same falls under composite supply of goods. The applicant further admits that they are paying tax @18% on supply as goods under HSN code of major raw-material flex sheet 3921.

The applicant refers to the ruling passed by Hon’ble Telangana State Authority for Advance Ruling by A.R.Com/5/2017 dated 30.5.2018 = 2018 (6) TMI 519 – AUTHORITY FOR ADVANCE RULING HYDERABAD TELANGANAin the similar matter, as supply of Goods falling under HSN 4911 and applicable at IGST of 12%. The applicant states that the present advance ruling is sought whether it is applicable in their case confirming the above ruling.

  1. Record of Personal Hearing:

Sri Ashish Kumar Agrawal, the authorized representatives of the applicant appeared for Personal Hearing on 18.09.2019 and they made further additional submissions. The applicant submits that the flex material procured by them falls under HSN 39219026 in rolls. Sample copies of purchase invoices along with physical sample of raw material is submitted at the time of Personal Hearing. The applicant further made the following submissions.

Additional Submissions:

The applicant submitted that they make the following two types of business transactions as per the requirement of the customers.

  1. a) Customer brings the design on their Pen drive/ Disk or email and the applicant just gets the same printed on the media flex and give the delivery of material. The customer will be charged for printed flex.
  2. b) In few cases, customer gives his idea and the applicant makes the design, after approval from customer get the same on the media. The customer will be charged for design charges and printed flex. Considering the same as composite supply they charge the same at rate of flex they are charging.

The applicant submitted that they had been so far collecting and paying GST @ 18% under residual entry at the same HSN and Rate at which raw material is procured i.e. HSN 3921. The HSN 4911 covers other printed material, including printed pictures and photographs such as Trade advertisement material, commercial catalogues and like, printed posters, commercial catalogues, printed inlay cards, pictures, design and photo graphs, plan and drawings for architectural engineering industrial, commercial topographical or similar purpose reproduced with the aid of computers or other devices.

Further, the applicant refers to circular F.No.332/2/2017-TRU issued in December 2017 at entry no 59, (the same was clarified by FAQ dated 29.9.2017) where in posters with photographs/ image etc printed on digital printers on coated cotton/ mix canvas media or other synthetic media are classified under Hearing 4911 and attract 12% GST. The applicant further submits that flex banners printed by individual used for non-commercial purpose does not change the classification in light of above referred circular.

  1. Discussion and Findings:

We have examined the issues raised in the application. The taxability, classification issues, applicable rate of tax etc., for the goods and services supplied or to be supplied, as governed under the provisions of respective GST Acts are examined.

We look into the issue whether the supply of print on flex material is supply of goods or services or both. The applicant in the instant case is engaged in supply of printed flex material and the raw materials of the goods in questions are completely procured by the applicant himself. Immaterial of the fact that whether the content is supplied by the customer or it is designed by the applicant himself basing on the requirement of the customer, the applicant transfers the title in the goods i.e., printed material on flex to the customer.

As per Section 7 of CGST Act, 2017 read with Schedule-II SI.No. 1(a) of CGST Act, 2017 which reads as under:

  1. Transfer
  2. a)any transfer of the title in goods is a supply of goods.”

From the plain reading of the above, it is obvious that the applicant is transferring the title in goods to his customers in the form of printed flex material and it amounts to nothing but supply of goods only.

Further, when we look into the rate of tax of the goods under dispute, i.e., the supply of print on flex is classifiable vide Notification No.1/2017 – Central Tax (Rate) dated 28.06.2017 under Sl.No.132 under HSN code 4911 and attracts tax rate of 12% (CGST 6% +SGST 6%). Further, the same has been clarified in detail vide the clarification issued under F.No.354/263/2017 – TRU, Dt: 20th October, 2017 in Circular No.11/11/2017-GST. The excerpts of the circular i.e., para 5 is reproduced as under “Subject: Clarification on taxability of printing contracts “

  1. Incaseof supply of printed envelops, letter cards, printed boxes, tissues, napkins, wall paper etc. falling under chapter 48 or 49, printed with design, logo etc. supplied by the recipient of goods but made using physical inputs including paper belonging to the printer, predominant supply is that of goods and the supply of printing of the content [supplied by the recipient of supply] is ancillary to the principal supply of goods and therefore such supplies would constitute supply of goods falling under respective heading of chapter 48 or 49 of the customs tariff”

Moreover, the clarification provided in F.No.332/2/2017- TRU, Dt: December, 2017, with the consolidated FAQ under Sl.no 59 reiterates the same as under:

SI.No Queries Replies
59 What is the classification and GST for posters with photographs/ images etc. printed on Digital Printers on coated cotton/ mix canvas media or other synthetic media? 1. These items fall under HS code 4911 and attract 12% GST.

As far as the third question is concerned, the applicant did not submit any specific details pertaining to the question that what would constitute commercial / Non-Commercial in the context of trade as mentioned by him. Nevertheless, the supplier of the goods i.e., applicant in this context shall levy and collect tax from the recipients for the taxable supplies made by him as per the classification of the goods and tax rates as specified in the notifications of the CGST / APGST Act 2017 from time to time as amended.

RULING

(Under Section 98 of Central Goods and Services Tax Act, 2017 and the Andhra Pradesh Goods and Services Tax Act, 2017)

Question 1: Whether supply of print on flex is classifiable as supply of goods or service?

Answer 1 : The supply of print on flex is classified under Goods only as per Section 7 of CGST Act, 2017 read with Schedule – II SI.No.1 (a) of CGST Act, 2017

Question 2: If yes, whether falls under HSN 4911 under entry no 132 of Schedule II of Notification 1/2017- CTR?

Answer 2: It is classifiable vide Notification No.1/2017 – Central Tax (Rate) dated 28.06.2017 under Sl.No.132 Chapter /Heading/ Sub-Heading/ Tariff item 4911 and attracts tax rate of 12% (CGST 6% + SGST 6%).

Question 3: If answer to question 2 is yes, whether supply of print on flex non-commercial purpose is also classifiable under HSN 4911 under entry no 132 of Schedule II of Notification 1/2017- CTR?

Answer 3: Supply of print on flex used for non-commercial purpose does not change the classification per se and attracts same rate of tax as mentioned above.

M/S. SHAPOORJI PALLONJI AND COMPANY PRIVATE LIMITED

Concessional rate of tax / GST – building completion and finishing services – Affordable Housing Project (AHP) – Entry (v) (da) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 as amended by Notification No.01/2018-Central Tax (Rate) with effect from 25.01.2018 – separate services or composite supply – benefit of reduced rate of tax – works contract services provided for the construction of the units and common areas and amenities on pro-rata basis.

HELD THAT:- The applicant’s case is covered under concessional tax rate of 12% (8% GST after deducting value of land), under Heading 9954 (Construction Services), (v) (da) of above mentioned Notification No. 11/2017, as amended, since the project undertaken by them falls under the definition of “Affordable Housing Project”. The benefit of reduced rate would be available to them only in the cases of supply effected after 25.01.2018 i.e. the date on which Notification 1/2018-Central Tax (Rate) was issued and the benefit of this reduced rate would be applicable in case of only those flats which are of carpet area upto 60 sq mtrs – In case of other flats which have carpet area more than 60 sq.mtrs. or commercial units, the applicant would be required to pay GST at normal applicable rate, since the benefit of reduced rate is available only for residential units of carpet area less that 60 sq. mts.

We agree with applicant’s submission that entry (v) (da) of Notification 01/2018, mentioned above no-where restricts the benefit to a ‘Developer’ only. The Notification entry is qua the supply of service and not qua the person and therefore once a project qualifies as an Affordable Housing Project, the benefit of concessional rate of tax would be available in respect of works contract services pertaining to Low Cost Houses, irrespective of it being supplied by the Developer or the Contractor – In the subject case, the project qualifies as an Affordable Housing Project, and the benefit of concessional rate of tax @12% GST, would thus be available to the applicant.

Whether the building completion and finishing services be regarded as a separate service or would it be a composite supply of works contract service as covered under entry v(da) of Notification No. 11/2017 to avail the benefit of reduced rate of tax? – HELD THAT:- In view of the terms of the contract, the building completion and finishing services would not be regarded as separate services. It would be a part of the composite supply of works contract services rendered by the applicant with principal supply of building construction, supply of finishing services will be covered under entry (v)(da) of Notification No. 112017 and applicant will be eligible to avail the benefit of reduced rate of tax i.e 12%, only in respect of dwelling units having area less than 60 sq.mtrs.

What would be the appropriate rate of Goods and Services Tax on works contract services provided for the construction of the units and common areas and amenities on pro-rata basis which do not qualify the criteria of low cost houses’? – HELD THAT:- The concessional rate available to applicant is only in respect of low cost houses along with amenities constructed by the applicant. We find that the common amenities and areas are a part of ‘Affordable Housing Project’ and therefore the applicant will be entitled to benefit of concessional rate for the same, only when they are a part of low cost houses i.e. units less than 60 sq.mtrs. The applicant will thus have to discharge GST @ 12% (after deducting value of land) on works contract services provided for the construction of the units and common areas and amenities, which do qualify the criteria of low cost houses – since concessional rate would be available only for construction services pertaining to dwelling units less than 60 sq. mtrs including common areas and amenities on pro-rata basis, construction services including common areas and amenities on pro-rata basis, performed by the applicant in respect of dwelling units exceeding 60 sq.mtrs. would be liable to full rate of GST i.e. 18%.

No.- GST-ARA-28/2019-20/B-122

Dated.- December 26, 2019

Citations:

  1. In Re: M/s. Puranik Construction Pvt. Ltd. – 2019 (5) TMI 493 – AUTHORITY FOR ADVANCE RULING, MAHARASHTRA
  2. IN RE: ANKIT TANDON AND ENTERPRISES & TOLLWAYS PRIVATE LIMITED – 2018 (9) TMI 1039 – AUTHORITY FOR ADVANCE RULING, MADHYA PRADESH
  3. IN RE: SHREE CONSTRUCTION – 2018 (9) TMI 854 – AUTHORITY FOR ADVANCE RULING, MAHARASHTRA

SMT. P. VINITHA SEKHAR, AND SHRI. A. A. CHAHURE, MEMBER

PROCEEDINGS

(Under Section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)

The present application has been filed under Section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act” respectively] by MIs. Shapoorji Pallonji and Company Private Limited, the applicant, seeking an advance ruling in respect of the following questions.

  1. Whether the Applicant, being the Contractor at Joyville, Virar, will be eligible for concessional rate of Goods and Service under Entry (v) (da) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 as amended by Notification No.01/2018-Central Tax (Rate) with effect from 25.01.2018 and discharge Goods and Services Tax at the rate of 12%?
  2. Whether the building completion and finishing services be regarded as a separate service or would it be a composite supply of works contract service as covered under entry V(da) of Notification No. 11/2017 to avail the benefit of reduced rate of tax?
  3. What would be the appropriate rate of Goods and Services Tax on works contract services provided for the construction of the units and common areas and amenities on pro-rata basis which do not qualify the criteria of low cost houses’?

At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purpose of this Advance Ruling, the expression ‘GST Act’ would mean CGST Act and MGST Act.

  1. FACTS AND CONTENTION – AS PER THE APPLICANT

The submissions of the applicant made vide letter 19.07.2019 is as under:-

2.1 The present Application filed by Shapoorji Pallonji and Company Private Limited (Applicant) is in respect of the Civil Construction Contract entered into with Joyville Shapoorji and Housing Private Limited (Developer) for its ongoing project which comprises of four RERA phases having five towers under the name Joyville Virar’ situated at Palghar, Vasai, Maharashtra (Project).

2.2 The Developer vide Term Sheet dated 16.11.2015 appointed Applicant as the Contractor for the construction. Pursuant to the entering of the term sheet, the Developer and the Applicant also propose to enter into a detailed construction contract wherein the scope of the proposed work, the timelines, the contract value and other relevant conditions were agreed to.

2.3 The Project comprises of 7 residential buildings having approximately 1360 apartments (FSI utilization of 63,166 Sq. Mtrs) of carpet area less than 60sq. mtrs except 44 apartments where RERA carpet area would be more than 60 sq. mtrs (FSI Utilization of 2,927 sq. mtrs). Construction of 5 towers is in progress and construction of remaining 2 towers would start in due course.

2.3 Applicant has stated that any ‘Affordable Housing Project (AHP) which has been given infrastructure status under Notification No: 13/6/2009-INF dt. 30.03.2017 issued by Department of Economic Affairs (DEA Notification) is eligible to GST at the concessional rate of 12% under entry (v)(da) of Notification 11/2017-C.T. (Rate) dated 28.11.2017 (“Notification No. 11/2017”) read with Notification 12018-C.T. (Rate) dated 25.01.2018 (“Notification No. 1/2018”). Further, Central Government vide Notification No.03/2019-C.T. (Rate) dated 29.03.2019 (“Notification No.03/2019”) has inserted a clause to state that construction of an apartment in an ‘ongoing project under the aforesaid Notification would be eligible to GST at a concessional rate if the promoter exercises the option to pay central tax after fulfilling the conditions mentioned therein.

2.4 Notification No. 112017 issued on 28.06.2017 specifies the rate of construction services. Notification No. 11/2017 was thereafter amended by Notification No.1/ 2018 with effect from 25.01.2018 and a new entry (da) under item (v) to Chapter 99 was inserted wherein specific benefit of reduced rate of GST with respect to ‘low cost housing’ was introduced. It read as;

S.No. Chapter, Section or Heading Description of Service Rate Condition
1 2 3 4 5
3. Heading 9954 (Construction services) (v) Composite supply of works contract as defined in clause (119) of Section 2 of the CGST Act, 2017, supplied by way of construction, erection, commissioning, or installation of original works pertaining to, –

(da) low-cost houses up to a carpet area of 60 sq. meters per house in an affordable housing project which has been given infrastructure status vide notification of Government of India in Ministry of Finance, Department of Economic Affairs, vide F. No. 13/6/2009-INF, dated the 30th March, 2017;

6% CGST + 6% SGST Nil

2.5 Applicant submits that dwelling units at Joyville, Virar qualifies for the benefit under Entry (v)(da) of Notification No.11/2017 as amended and that, Applicant being the Contractor as well is also eligible to the said benefit. Applicant submits that, benefit under Notification No.11/2017 does not create any embargo /restriction on the eligibility of the reduced rate of tax based on the provider of service. In other words, entry (v)(da) of Notification No, 11/2017 read with Notification No. 01/2018 is solely based on the nature of service provided & to that extent, Applicant is also eligible for the benefit of reduced rate of GST. Benefit under Entry (v) (da) of Notification No.11/2017 is based on the nature of services & not on the basis of supplier. Applicant submits that Entry (v) provides that a concessional rate of tax shall be levied on activities by way of construction, erection or commissioning of various original works and that entry (v) therefore is one of wide import & only lays down the nature of the services being supplied. Thus services of a similar nature would all be classifiable under this heading irrespective of whether they are being supplied by the Developer or the contractor.

2.6 Applicant states that in an identical factual situation, the Contractor raised a similar question in the case of in Re Puranik Construction Pvt Ltd [2019-VIL-132-AAR) = 2019 (5) TMI 493 – AUTHORITY FOR ADVANCE RULING, MAHARASHTRA & sought ruling on the applicability of Entry (v)(da) to the Contractor. The Maharashtra Authority for Advance Ruling has allowed the plea of the Applicant in that case. Applicant has also placed reliance on the order passed by the Madhya Pradesh Authority for Advance Rulings, in the case of In Re. Ankit Tandon and Enterprises & Tollways Private Limited (2018-VIL-146-AAR) = 2018 (9) TMI 1039 – AUTHORITY FOR ADVANCE RULING, MADHYA PRADESH. Applicant has also placed further reliance on the holding by the Maharashtra Authority for Advance Rulings in In Re. Shree Construction (2018-VIL-150-AAR) = 2018 (9) TMI 854 – AUTHORITY FOR ADVANCE RULING, MAHARASHTRA which involved a similar fact scenario wherein the sub-contractor was providing a composite supply of works contract in respect of original works pertaining to railways to the main contractor.

2.7 Applicant submits that services provided to Developer is of a similar nature to the service provided by Developer to customer. Construction of original works are performed by Applicant for the Developer & the property in goods i.e. materials used in the construction, gets transferred to the customer directly. Hence, Applicant submits that services provided to the Developer also fulfil the criteria of a works contract service as defined in Section 2(119) of the CGST Act.

2.8 Further, the units being constructed fulfill the criteria of low cost houses” under the affordable housing scheme mentioned in Entry (v) (da) of Notification 11/2017 & since the specific entry does not create any embargo qua the provider of service, Applicant is also entitled to the concessional benefit of GST & should charge 12% to the Developer for the ongoing project.

2.9 Applicant has submitted that building completion and finishing services form part of the same transaction and is a composite supply of works contract services & eligible for the benefit under entry (v)(da) of Notification No. 11/2017: They have stated that in the subject case, services related to building, completion & finishing services are naturally bundled with construction contracts considering the business exigencies. Since the principal supply i.e. pre-dominant supply is of construction of “low cost houses’ in an affordable housing project, the complete contract should be taxed as per the rate and provisions applicable to the principal supply. Accordingly, since the principal supply would be eligible for the concessional rate of tax i.e. 12% building completion and finishing services should also be taxed at reduced rate of GST.

2.9.1 Applicant further submits that the scheme of classification of services under GST regime states that Heading 9954 pertains to ‘construction services’, which includes various groups contained thereunder. Group heading 99547 pertains to ‘building completion & finishing services’ & includes services such as glazing services, plastering services, painting services, tiling, fencing & so on. Thus the supply of completion & finishing services has to be treated to be naturally bundled with other supplies in the supply of construction services. To substantiate the same, they have placed reference on the contract entered into with the Developer where the ‘scope of work’ clause in the construction contract is for a composite supply of various supplies, including the supply of completion & finishing services, all pertaining to original works, & thus should qualify in entirety for the benefit of concessional GST under Entry (v) (da) to Sl. No. 3 of Notification No. 11/2017.

2.10 They have further queried as to what would be the appropriate rate of GST on the units & common areas and amenities on a pro rata basis at Joyville Virar which do not satisfy the criteria of low cost house’?

2.11 Applicant submits that 904 units at Joyville Virar in Phase 1, 2, 3 & 5 satisfy the criteria of low cost houses’ & consequentially, benefit of reduced GST should also be available to them qua those 904 units. They are also seeking clarity on the appropriate rate of tax qua the 44 other units & common areas & amenities on pro-rata basis which do not satisfy the criteria of low cost houses”.

  1. CONTENTION – AS PER THE JURISDICTIONAL OFFICER:

Submissions of the jurisdictional officer made vide letter F. No. DC(E-621)/LTU-02/ARA Shapoorji/2019-20/B-102/Mumbai dated 05.11.2019, is as under:-

  1. Term Sheet agreement between the Applicant and Joyville Shapoorji Housing Private Limited and signed by the respective Directors, nowhere mentions anything about ‘Scheme of Affordable Housing’.
  2. Construction Contract between the developer & applicant has not yet been entered into till date. Applicant has merely submitted a draft agreement, which nowhere mentions anything in regards to ‘Scheme of Affordable Housing’.
  3. In the subject project 95.37 % housing apartments would be of having carpet area less than 60 Sq. Mtrs in terms of FSI utilization.
  4. As on 30/03/2017, quantum of work completed/executed & pending is not on record.
  5. Contractor has charged GST @18% on his supply of services till date.
  6. In respect to question no. 1 raised by the applicant, the Contractor has nothing to do with the scheme of affordable Housing. So the transaction being from B2B, no reduced rate of tax is applicable for this transaction. As per the facts of thecase, applicant is not eligible to avail the benefits of concessional rate of GST under Entry (v)(da) of Notification No.11/2017-C.T.(Rate) dt. 28.06.2017 as amended. Further, the supply of service made by applicant is not to the end user customer but to the Developer. To fit into the criteria of the eligibility for the concessional rate, the transaction needs to be from supplier to the end user customer. The Developer can avail the benefit of such concessional rate as his service would fit clearly into Business-to-Consumer (B2C) supply but not the Contractor.
  7. With respect to question no. 2, it has been submitted that applicant’s construction service shall not be covered under entry (v)(da) of Notification No.11/2017.
  8. In respect of question no. 3, since applicant is not eligible for concessional rate of tax, they will be liable to GST @ 18% (CGST@9% and SGST@9%) as per entry 9954 (i).
  9. HEARING

Preliminary hearing in the matter was held on 05.11.2019. Ms. Kanupriya Bhargava, Advocate and Sh. Arjyadeep Roy appeared and requested for admission of their application Jurisdictional Officer Sh. Rajesh Surve, D.C., E-621, LTU-2 also appeared.

The application was admitted and called for final hearing on 20.11.2019. Ms. Kanupriya Bhargava, Advocate and Sh. Arjyadeep Roy appeared & made both, oral & written submissions. Jurisdictional Officer Sh. Rajesh Surve, D.C., E-621, LTU-2 also appeared. We heard both the sides.

  1. OBSERVATIONS AND FINDINGS:

5.1 We have gone through the facts of the case, documents on record and submissions made by both, the applicant as well as the jurisdictional officer.

5.2 Applicant has stated that they have entered into Civil Construction Contract, with Joyville Shapoorji Housing Private Limited (Developer), for constructing residential apartments. Applicant has further submitted that Notification No.11/2017-C.T (Rate) dt. 28.06.2017 prescribes concessional rate of tax for certain categories of composite supplies of works contracts.

5.3 Applicant is of the opinion that the said project satisfies the condition of being an Affordable Housing Project in terms of Entry (v) of the said Notification No. 11/2017 as amended, as they are providing works contract service in the form of construction services to the main Developer and hence they would be eligible to avail of concessional rate of GST as per the said Notification.

5.4 We observe that, the major issue before us is whether the construction services proposed to be provided by the applicant under the subject project will qualify for the reduced GST rate of 12% (6% each of CGST & SGST), as provided in Sr. No. 3 – item (v) – sub item (da) of Notification No. 01/2018-CT (Rate) dated 25.01.2018.

5.5 It is submitted that total FSI consumed in the said project is 63,166 Sq. Mtrs. out of which 95.37% sq mtrs. of FSI will be consumed for flats having carpet area below 60 sq mtrs. Therefore, the applicant is of the opinion that their project falls under the definition of “Affordable Housing” as mentioned in notification issued by Department of Economic Affairs vide F. No. 13/6/2009-INF, dated the 30th March, 2017.

5.6 As per Sr. No. 3, column 3, item (v) sub-item (da) of Notification No. 1/2018-C.T.(Rate) dated 25.01.2018, low-cost houses up to a carpet area of 60 square metres per house in an affordable housing project, which has been given infrastructure status vide notification of Department of Economic Affairs vide F. No. 13/6/2009-INF, dated the 30th March,2017 will attract tax rate of 12 % (6% each of CGST & SGST.)

5.7 This clause is applicable to applicant only if the project undertaken by them is an affordable housing project which has been given infrastructure status vide Government of India notification mentioned above.

5.8 Department of Economic Affairs’ notification dated 30.03.2017 has included Affordable Housing under the column “Infrastructure sub sector” against the category of Social and Commercial Infrastructure and has further defined “Affordable Housing” as a housing project using at least 50% of the Floor Area Ratio (FAR)/Floor Space Index (FSI) for dwelling units with carpet area of not more than 60 square meters and “Carpet Area” shall have the same meaning as assigned to it in clause (k) of section 2 of the Real Estate (Regulation and Development) Act, 2016.

5.9 One of the recommendations made by the GST Council in its 25th meeting held on 18th January 2018 at Delhi was to extend the concessional rate of 12% (8% GST after deducting value of land) to services by way of construction of low cost houses up to a carpet area of 60 sqm in a housing project which has been given infrastructure status under notification No. 13/06/2009 dated 30th March, 2009. The said notification of Department of Economic Affairs provides infrastructure status to Affordable Housing. The recommendation of the Council would extend the concessional rate to construction of flats/ houses of less than 60 sqm in projects other than the projects covered by any scheme of the Central or State Government also. The GST Council has also observed that “It may be recalled that all inputs used in and capital goods deployed for construction of flats, houses, etc. attract GST of 18% or 28%. As against this, most of the housing projects in the affordable segment in the country would now attract GST of 8% (after deducting value of land). As a result, the builder or Developer will not be required to pay GST on the construction service of flats etc. in cash but would have enough ITC (input tax credits) in his books to pay the output GST, in which case, he should not recover any GST payable on the flats from the buyers. He can recover GST from the buyers of flats only if he recalibrates the cost of the flat after factoring in the full ITC available in the GST regime and reduces the ex-GST price of flats.” The GST Council has also mentioned that the builders / Developers are expected to follow the principles laid down under Section 171 of the GST Act (Anti-Profiteering Rules) scrupulously.

5.10 In response to a request for clarification to enable availing 8% GST on Affordable Housing made by the builders association namely, CREDAI vide their letter no. CREDAI/MoF/2018/14 dated 19th March, 2018, the Government vide F. No. 354/52/2018-TRU, Government of India Ministry of Finance Department of Revenue (TRU) dated 7th May, 2018 has clarified that “Low cost houses up to a carpet area of 60 square metres per house in an affordable housing project, which has been given infrastructure status under notification F. No. 13/6/2009-INF, dated the 30th March 2017 of MOF (DEA), attract concessional GST of 8% (the value of the undivided share of land is included in the price of the house). Whether the housing project qualifies as affordable housing project or not, shall be determined by the builder/ Developer as per the definition of affordable housing given in the above mentioned notification (i.e., affordable housing has been defined as a housing project using at least 50% of FAR/FSI for dwelling units with carpet area of not more than 60 SQM). No certificate from any authority is required.”

5.11 From a reading of the above clarification, notification and the clause (da) of item (v) of Notification No. 01/2018-C.T. (Rate) and facts on record, we find that that applicant’s case is covered under concessional tax rate of 12% (8% GST after deducting value of land), under Heading 9954 (Construction Services), (v) (da) of above mentioned Notification No. 11/2017, as amended, since the project undertaken by them falls under the definition of “Affordable Housing Project”. The benefit of reduced rate would be available to them only in the cases of supply effected after 25.01.2018 i.e. the date on which Notification 1/2018-Central Tax (Rate) was issued and the benefit of this reduced rate would be applicable in case of only those flats which are of carpet area upto 60 sq mtrs. In case of other flats which have carpet area more than 60 sq.mtrs. or commercial units, the applicant would be required to pay GST at normal applicable rate, since the benefit of reduced rate is available only for residential units of carpet area less that 60 sq. mts.

5.12 As decided by us, in the case of Puranik Constructions which has been referred by them, we agree with applicant’s submission that entry (v) (da) of Notification 01/2018, mentioned above no-where restricts the benefit to a ‘Developer’ only. The Notification entry is qua the supply of service and not qua the person and therefore once a project qualifies as an Affordable Housing Project, the benefit of concessional rate of tax would be available in respect of works contract services pertaining to Low Cost Houses, irrespective of it being supplied by the Developer or the Contractor. In the subject case, the project qualifies as an Affordable Housing Project, and the benefit of concessional rate of tax @12% GST, would thus be available to the applicant.

5.13 Question No. 2:- Whether the building completion and finishing services be regarded as a separate service or would it be a composite supply of works contract service as covered under entry v(da) of Notification No. 11/2017 to avail the benefit of reduced rate of tax?

5.13.1 The ‘scope of work’ clause in the Term Sheet is as under –

*3. Scope of Work(s): The scope of work of the Contractor under this Contract shall mean the construction of civil, structural works) and related work(s) (both permanent and temporary) for the Project and includes civil and finishing work(s) which shall include laying of foundation. RCC work brick work, block work, plastering, flooring: doors and windows, cladding, painting, plumbing, electrical, firefighting, fire alarm, elevators, and other Mechanical works etc. whether, executed in-house by the Contractor or through a Sub-Contractor…………………….”.

5.13.2 It is seen that the terms entered into between the Applicant and Developer is for a composite supply of works contract which includes the supply of building, completion and finishing services. Supply of these services are pertaining to original work. We agree with the applicant’s contention that the building completion and finishing services cannot be treated as a separate service since the contract envisages that the said services would be provided as a part and parcel of the main activity which is, construction of dwelling units.

5.13.3 In view of the terms of the contract, we find that building completion and finishing services would not be regarded as separate services. It would be a part of the composite supply of works contract services rendered by the applicant with principal supply of building construction and in view of the discussions made above, supply of finishing services will be covered under entry (v)(da) of Notification No. 112017 and applicant will be eligible to avail the benefit of reduced rate of tax i.e 12%, only in respect of dwelling units having area less than 60 sq.mtrs.

5.14 Question No. 3:- What would be the appropriate rate of Goods and Services Tax on works contract services provided for the construction of the units and common areas and amenities on pro-rata basis which do not qualify the criteria of low cost houses’?

5.14.1 We have no doubt that the project undertaken by the applicant pertains to an affordable housing project. In the subject project, the applicant will be constructing dwelling units of less than 60 sq mtrs. carpet area as well as dwelling units having carpet area greater than 60 sq mtrs.

5.14.2 We find that common amenities form part of the overall construction service and are always naturally bundled when offered to the customer. Therefore, such services will qualify as composite supply of works contract service, where the principal supply would be, construction services. Accordingly, the rate applicable to the principal supply will also be applicable to common amenities. The word ‘housing project’ cannot be confined only to dwelling units, it would also include within its fold, other common amenities, structures, etc. Common amenities form part of the overall construction service and are always naturally bundled when offered to the customer. Therefore, such services will qualify as composite supply of works contract service wherein provision of construction services is the principal supply. Accordingly, the rate applicable to the principal supply will also be applicable to common amenities i.e in respect of dwelling units having area less than 60 sq mtrs., the GST rate would be 12% and incases of dwelling units having area greater than 60 sq mtrs the GST rate would be 18%.

5.14.3 We observe that that the applicant’s case is covered under the concessional rate of 12% (8% GST after deducting value of land), under Heading 9954 (Construction Services), (v) (da) of above mentioned Notification No. 11/2017, as amended since the project undertaken by them falls under the definition of “Affordable Housing”. The benefit of reduced rate would be available to them only in the cases of supply effected after 25.01.2018 i.e. the date on which Notification 1/2018-Central Tax (Rate) was issued and the benefit of this reduced rate would be applicable only in case of amenities pertaining to only those flats which are of carpet area upto 60 sq mtrs.. In case of amenities provided to purchasers of flats which have carpet area more than 60 sq.mtrs., the applicant would be required to pay GST at normal applicable rate i.e. @18% GST.

5.14.4 Subject project consists of both, dwelling units less than and also greater than 60 sq mtrs. Benefit of concessional rate is only available to “Affordable Housing’ as already discussed above. The definition of ‘Affordable Housing’ is confined to dwelling units with carpet area of not more than 60 square meters. Thus, in our opinion, concessional rate available to applicant is only in respect of low cost houses along with amenities constructed by the applicant. We find that the common amenities and areas are a part of ‘Affordable Housing Project’ and therefore the applicant will be entitled to benefit of concessional rate for the same, only when they are a part of low cost houses i.e. units less than 60 sq.mtrs. The applicant will thus have to discharge GST @ 12% (after deducting value of land) on works contract services provided for the construction of the units and common areas and amenities, which do qualify the criteria of low cost houses. We also hold that, since concessional rate would be available only for construction services pertaining to dwelling units less than 60 sq. mtrs including common areas and amenities on pro-rata basis, construction services including common areas and amenities on pro-rata basis, performed by the applicant in respect of dwelling units exceeding 60 sq.mtrs. would be liable to full rate of GST i.e. 18%.

  1. In view of the extensive deliberations as held hereinabove, we pass an order as follows:

ORDER

(Under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)

No. GST-ARA-28/2019-20/B-122

Mumbai, dt. 26-12-2019

For reasons as discussed in the body of the order, the questions are answered thus –

Question 1. Whether the Applicant being the Contractor at Joyville, Virar will be eligible for concessional rate of Goods and Service under Entry (v) (da) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 as amended by Notification No.01/2018-Central Tax (Rate) with effect from 25.01.2018 and discharge Goods and Services Tax at the rate of 12%?

Answer:- Yes. The applicant will be eligible for concessional rate of Goods and Service under Entry (v) (da) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 as amended by Notification No.01/2018-Central Tax (Rate) with effect from 25.01.2018 and discharge Goods and Services Tax at the rate of 12%,in respect of Affordable Housing only, as discussed above.

Question 2. Whether the building completion and finishing services be regarded as a separate service or would it be a composite supply of works contract service as covered under entry (v) (da) of Notification No. 11/2017 to avail the benefit of reduced rate of tax?

Answer:-Building completion and finishing services will not be regarded as a separate services.

In view of the discussions made above, such building completion and finishing services will be a part of composite supply of works contract services with the principal supply of building construction, covered under entry (v)(da) of Notification No. 11/2017 and eligible to avail the benefit of reduced rate of tax @12% GST only in respect of dwelling units having an area of less than 60 sq mtrs.

Question 3. What would be the appropriate rate of Goods and Services Tax on works contract services provided for the construction of the units and common areas and amenities on pro-rata basis which do not qualify the criteria of low cost houses’?

Answer:- The rate of GST will be 18% on works contract services provided for the construction of the units, common areas and amenities on pro-rata basis which do not qualify the criteria of low cost houses.

M/S. CHOWGULE INDUSTRIES PRIVATE LIMITED

CENVAT credit – capital goods – inward supply of Motor Vehicle which are used for Demonstration purpose in the course of business of supply of Motor Vehicle – whether the credit can be utilised for payment of output tax payable?

HELD THAT:- As per Section 2(19) of the CGST Act, 2017, “capital goods” means goods, the value of which is capitalised in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business – the Demo cars in the subject case fulfill the definition of capital goods, are received under a Tax Invoice and are used or intended to be used in the course or furtherance of business i.e. sale of motor vehicles – the applicant is eligible to avail ITC on capital goods.

Whether Section 17 (5) of the said Act debars the applicant from taking credit? – applicant has submitted that every model of demo cars is used by them for demonstration only for a limited period i.e. every two years or 40,000 Kms whichever is earlier – HELD THAT:- Since the applicant will be making further supplies of the Demo vehicles, and there is no time limit prescribed in the GST Act for making such further supplies, we are of the opinion that they will be eligible to avail ITC in the subject case.

Whether the ITC availed by them on capital goods can be utilized for payment of output tax payable under this Act? – HELD THAT:- The manner of utilization of ITC is provided as per provisions of Section 49 of the CGST Act. Section 18 of the CGST Act deals with availability of credit in special circumstances. As per Section 18(6) of the CGST Act, when there is a supply of capital goods on which ITC has been taken, as in the subject case then the applicant shall pay an amount equal to the ITC taken on the said Demo Vehicles reduced by such percentage points as may be prescribed or the tax on the transaction value of such Demo Vehicles, whichever is higher.

No.- GST-ARA-18/2019-20/B-121

Dated.- December 26, 2019

Citations:

  1. In Re: M/s. Chowgule Industries Private Limited – 2019 (7) TMI 844 – AUTHORITY FOR ADVANCE RULING, GOA
  2. In Re: M/s. A.M. Motors. – 2018 (10) TMI 514 – AUTHORITY FOR ADVANCE RULINGS, KERALA

SMT. P. VINITHA SEKHAR, AND SHRI. A.A. CHAHURE, MEMBER

PROCEEDINGS

(Under Section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)

The present application has been filed under Section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act”] by M/s. Chowgule Industries Private Limited, the applicant, seeking an advance ruling in respect of the following question.

Whether the applicant is entitled to avail Input tax credit charged on inward supply of Motor Vehicle which are used for Demonstration purpose in the course of business of supply of Motor Vehicle as input tax credit on capital goods and whether the same can be utilised for payment of output tax payable under this Act.

At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a reference is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression `GST Act’ would mean CGST Act and MGST Act.

2. FACTS AND CONTENTION – AS PER THE APPLICANT

The submissions of the applicant is as under:-

2.1 “M/s. Chowgule Industries Private Limited (hereinafter referred to as the Applicant) is a Private Limited Company, is registered under Central Goods and Service Tax Act, 2017 in the State of Maharashtra vide GSTIN 27AACCC927211ZG and also in other State. The Applicant is an authorized dealer for Maruti Suzuki India Limited for supply of motor vehicles and spares and for servicing as also for some other commercial vehicle manufacturers.

The Applicant has made purchases of motor vehicles against tax invoice which are reflecting in the books of accounts of the Applicant as capital goods. The vehicles are used as demo cars for providing trial run to customers to understand the features of the vehicle. This is an essential part of marketing and sales promotion to facilitate supply of cars.

As per the dealership norms with Maruti Suzuki India Limited, the applicant is required to maintain at least one Demo vehicle of each model per location. The Applicant purchases these Demo vehicles against tax invoice. The said Demo vehicles are capital goods accounted under Fixed Assets of the Company excluding GST component. The applicant has not claimed depreciation on the tax component of the said demo cars nor claimed as business expenditure u/s. 37 of the Income Tax Act.

Every model of demo cars are used for demonstration for a limited period. They are generally replaced every two years or 40,000 Kms whichever is earlier. Secondly, the vehicle model keep on changing due to competition in the market and changing demands of the customers. The customers always demands for brand new model of cars for test Drive. Hence, it become mandatory for the Applicant to buy new Demo vehicle on launch of new model of vehicle. The Demo vehicles are sold after paying the applicable taxes on sale value at that point of time.

According to Section 16(1) of the GST Act, every registered person shall be entitled to take credit of input tax charged on any supply of goods or services or both which are used or intended to be used in the course or furtherance of his business.

As per Section 2 (19), “capital goods’ means goods. The value of which is capitalized in the books of accounts of the person claiming the input tax credit and which are used or intended to be used in the course of furtherance of business. The Demonstration vehicles purchased from supplier are being capitalized. The demo cars are used in the course or furtherance of business and entitled for input tax credit u/s. 16(1) of the GST Act.

As per Section 17 (5) (a) the input tax credit shall not be available on motor vehicles except when they are used for making further supply of such motor vehicles. The further supply of such demo motor vehicle are made after one or two years and constitutes a taxable supply and GST is paid thereon. GST Act does not prescribe the time within which further supply is to be effected. Hence, the impugned tax credit is available.

The Goa Authority for Advance Ruling has already ruled in favour in their own case in State of Goa in AAR No GOA/GAAR/07 of 2018-19/4796 dated 26/3/2019 = 2019 (7) TMI 844 – AUTHORITY FOR ADVANCE RULING, GOA, copy of the same in enclosed herewith as Annexure 1.

Reliance is placed on Goa authority and the Kerala Authority in Advance Ruling AAR No GOA/GAAR/07 of 2018-19/4796 dated 26/3/2019 = 2019 (7) TMI 844 – AUTHORITY FOR ADVANCE RULING, GOA and No. KER/10/2018 dated 26/09/2018 (AAR – Kerala) = 2018 (10) TMI 514 – AUTHORITY FOR ADVANCE RULINGS, KERALA, where in it held that “Input tax paid by a vehicle dealer on the purchase of motor car used for demonstration purpose of the customer can be availed as input tax credit on capital goods and set off against output tax payable under GST.”

The Goa authority and the Kerala Authority for Advance Ruling has observed that the suppliers of vehicles supplied demo cars against tax invoices. The demo car is an indispensable tool for promotion of sales by providing trial run to customers and to understand the features of the vehicle. The capital goods which are used in the course or furtherance of business, is entitled for input tax credit. As the impugned purchase of demo car is in furtherance of business, the Applicant is eligible for input tax credit. Furthermore, this activity does not come under the negative clause, as after a limited period of use as demo car, the vehicles are sold at the written down book value.

This same principle is applicable to the Applicant also. Therefore, input tax credit on the motor vehicle purchased for demonstration purpose can be availed as credit on capital goods and the same can be set off against output tax payable”.

2.2 The applicant made further submissions on 02.11.2019, which are reproduced as under:

“The Applicant is regularly collecting & paying GST in respect of sales & servicing income & also availing GST ITC. Applicant further submits that they have filed periodical returns in GSTR-1 and GSTR-3B during the period for which advance ruling is sought.

As per the Sales Policy Bulletin: SPB No. 635 dated 15/09/2010 with the Maruti Suzuki India Ltd., the Applicant is required to maintain at least one Demo vehicle of each model per location. Applicant purchases these Demo vehicles against tax invoice. The said Demo vehicles are capital goods accounted under Fixed Assets of the Company excluding GST component. The GST component of the said demo cars is not utilised for claiming depreciation nor claimed as business expenditure u/s. 37 of the Income Tax Act.

These vehicles are exclusively used as demo vehicles and the outside body it is marked as demo vehicles and used only for the trials and demos which helps in marketing the products, so each brand of vehicle will have at least one demo vehicle.

The vehicles are used by the Applicant for demonstration to/Test Drive by the customers who are interested in buying vehicles. The Demo vehicles are also used as means of promotion of sales by providing trial run to customers to understand the features of the vehicle & make their decision accordingly. It is a dealership requirement that every dealer shall compulsorily buy from its principal dealer & possess with them for trial run for satisfaction of its customers. This is an essential part of marketing and sales promotion to facilitate sale of cars.

Every model of demo cars are used for demonstration for a limited period. They are generally replaced every two years or 40,000 Kms whichever is earlier. Secondly, the vehicle models keep on changing due to competition in the market & changing demands of customers. The customers always demand for brand new model of cars for test Drive. Hence, it become mandatory for the Applicant to buy new Demo vehicle on launch of new model of vehicle. The Demo vehicles are sold after paying the applicable taxes on sale value at that point of time.

3. Counter of the department filed by Asstt. Commr., Divn II (Swargate), Pune-II CGST Commissionerate, vide letter F.No. CGST/P-II/D-II/R-I/Chowgule/Advance Ruling/19-20/4165 dated 04.10.2019 and received in the office of this authority on 23.10.2019 is as under:-

The assessee has filed an application with Maharashtra Advance Ruling Authority for the point that, whether input tax credit on motor vehicle purchased for demonstration purpose can be availed as credit on capital goods and the same can be set off against output tax payable.

In this regard it is to mention that, as per Section 16(1) of the GST Act –

“Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him…………..”

And as per Section 2(19), Capital Goods are defined –

“capital goods” means goods, the value of which is capitalised in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business;”

In view of the above provisions, the assessee has submitted in their application that –

The assessee purchases motor vehicles against tax invoice which are reflecting in the books of accounts of the assessee as capital good. The vehicles are used as demo cars for providing trial run to customers to understand the features of the vehicle. This is an essential part of marketing and sales promotion to facilitate supply of cars. These demo cars are capital goods accounted under fixed assets of the company excluding GST component. The assessee does not claim depreciation on the tax component of the said demo cars nor claim business expenditure under Section 37 of the Income Tax Act. These demo cars are generally replaced every two years or 40000 kilometers and then sold after paying the applicable taxes on sale value at that point of time. Thus it appears that these demo vehicles are used in the course of furtherance of business.

Further assessee submitted that as per Section 17(5) –

“(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:

(a) motor vehicles and other conveyances except when they are used

(i) for making the following taxable supplies, namely:

(A) further supply of such vehicles or conveyances ; or

(B) transportation of passengers; or

(C) imparting training on driving, flying, navigating such vehicles or conveyances;

(ii) for transportation of goods;

The input tax credit shall not be available on motor vehicles except when they are used for making supply of such motor vehicles. Further supply of such demo motor vehicles are made after one or two years and constitutes a taxable supply and GST is paid thereon.

In view of the legal provisions and as discussed above, it seems that, these demo vehicles are used in the course of furtherance of business and are capital goods accounted under fixed assets of the company, hence, the assessee is eligible for input credit.

However, assessee has submitted that, they have applied the similar issue with the Goa Advance Ruling Authority vide AAR No. GOA/GAAR/07 of 2018-19/4796 dated 26.03.2019 = 2019 (7) TMI 844 – AUTHORITY FOR ADVANCE RULING, GOA and it is hold that

“The input tax credit on the Motor Vehicle purchased for demonstration purpose can be availd as Input Tax Credit on Capital Goods and set off against output tax payable under GST.”

04. HEARING

Preliminary hearing in the matter was held on 05.11.2019. Sh. Kishor Bandekar, Advocate, appeared and requested for admission of their application. Jurisdictional Officer, Ms.J. L. Parekar, Supdt., Range -I, Division -2, CGST, Pune-II, also appeared and made submissions.

The application was admitted and called for final hearing on 20.11.2019. Sh. Kishor Bandekar, Advocate, appeared and made their submissions. Jurisdictional Officer, Ms. J. L. Parekar, Supdt., Range-1, Division -2,CGST, Pune-II, also appeared.

5. OBSERVATIONS

Heard both the parties.

5.1 We have gone through the facts of the case, documents on record and submissions made by both, the applicant as well as the jurisdictional office.

5.2 The Applicant, an authorized dealer for Maruti Suzuki India Limited and also for some other commercial vehicle manufacturers, for supply of motor vehicles and spares, and for servicing has, as per the dealership norms with Maruti Suzuki India Limited, made purchases of motor vehicles, to be used as Demo Vehicles for providing trial run to customers, against tax invoice which are reflecting in their books of accounts, as capital goods and reflected under Fixed Assets of the Company excluding GST component. They have not claimed depreciation on the tax component of the said demo cars nor claimed as business expenditure u/s. 37 of the Income Tax Act. These Demo vehicles are sold, after a certain period of time, after paying the applicable taxes on sale value at that point of time.

5.3 From the submissions made by the applicant we observe that they are dealers of Maruti Suzuki India Limited, a company which is a manufacturer of motor vehicles. As a dealer in this line of business it is of utmost necessity to have vehicles for providing trial run to customers to understand the features of the vehicle. These vehicles, known as Demo Vehicles are an important and essential requirement for marketing and promoting the sale of motor vehicles. Thus we find that these Demo Vehicles are being used to further their business i.e. sale of motor vehicles and further, the purchases of such Demo Vehicles are capitalized in their books of accounts.

5.4 To answer their question whether they are entitled to avail Input tax credit (ITC) charged on inward supply of such Demo Motor Vehicle, as ITC on capital goods and whether the same can be utilized for payment of output tax payable under this Act, we refer to the provisions of Chapter V of the CGST Act, 2017 comprising of Sections 16 to 21.

5.5 Section 16 of the CGST Act, 2017, contains provisions with respect to eligibility and conditions for taking ITC. As per Section 16 (1), every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in Section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person. The section does not make any distinction between capital goods and other goods for allowing credit of ITC. Hence, ITC in respect of capital goods, is available and can be taken, since ITC credit for capital goods is in parity with other goods. However, the credit is available subject to such conditions and restrictions as may be prescribed and in the manner specified in Section 49 of the CGST Act.

5.6 We observe that the Demo Vehicles are capital goods for the applicant and will be capitalized and accounted under Fixed Assets of the Company excluding GST component. They orally submitted that they have /will not claim depreciation on the tax component of the said demo cars nor will claim such expenses incurred as business expenditure u/s. 37 of the Income Tax Act. Further, vide letter dated 13.12.2019, the applicant has submitted that, they are accounting for fixed assets, excluding GST which is accounted as input credit separately. They have also stated that the depreciation is claimed only on the cost of the car and not on GST.

5.7 As per Section 2(19) of the CGST Act, 2017, “capital goods” means goods, the value of which is capitalised in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business.

We have no doubt, as per the submissions made, that the Demo cars in the subject case fulfill the definition of capital goods, are received under a Tax Invoice and are used or intended to be used in the course or furtherance of business i.e. sale of motor vehicles. Hence in view of the discussions made above we find that the applicant is eligible to avail ITC on capital goods

5.8 While we find that the applicant is eligible to take ITC under the provisions of the CGST Act, it is to be seen whether Section 17 (5) of the said Act debars the applicant from taking credit. Section 17 of CGST Act, 2017, as reproduced under, explains Apportionment of credit and blocked credits :

Section 17 (5): Notwithstanding anything contained in sub-section 0) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:-

(a) motor vehicles and other conveyances except when they are used-

(i) for making the following taxable supplies, namely:-

(A) further supply of such vehicles or conveyances ; or

(B) transportation of passengers; or

(C) imparting training on driving, flying, navigating such vehicles or conveyances;

(ii) for transportation of goods;

A reading of Section 17 (5) indicates that ITC shall be available in respect of motor vehicles which are further supplied as such.

5.9 In the subject case, the applicant has submitted that every model of demo cars is used by them for demonstration only for a limited period i.e. every two years or 40,000 Kms whichever is earlier (the documents submitted by the applicant on 14.11.2019 reveal that the two year period as being the minimum period is not followed by them. Their Demo Vehicles are sold after two years also) and thereafter, the said vehicles are sold after paying the applicable taxes on sale value at that point of time. Since the applicant will be making further supplies of the Demo vehicles, and there is no time limit prescribed in the GST Act for making such further supplies, we are of the opinion that they will be eligible to avail ITC in the subject case.

5.10 The applicant has also queried whether the ITC availed by them on capital goods can be utilized for payment of output tax payable under this Act.

The manner of utilization of ITC is provided as per provisions of Section 49 of the CGST Act. Section 18 of the CGST Act deals with availability of credit in special circumstances. As per Section 18(6) of the CGST Act, when there is a supply of capital goods on which ITC has been taken, as in the subject case then the applicant shall pay an amount equal to the ITC taken on the said Demo Vehicles reduced by such percentage points as may be prescribed or the tax on the transaction value of such Demo Vehicles, whichever is higher.

6. In view of the extensive deliberations as held hereinabove, we pass an order as follows:

ORDER

(Under Section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)

NO.GST-ARA-18/2019-20/B-121

Mumbai, dt.26-12-2019

For reasons as discussed in the body of the order, the questions are answered thus –

Question 1):- Whether the applicant is entitled to avail Input tax credit charged on inward supply of Motor Vehicle which are used for Demonstration purpose in the course of business of supply of Motor Vehicle as input tax credit on capital goods and whether the same can be utilised for payment of output tax payable under this Act.

AnswerAnswered in the affirmative.

M/S. JOYVILLE SHAPOORJI HOUSING PRIVATE LIMITED

Benefit of concessional rate of tax – dwelling units at Joyville, Virar – low cost houses – benefit of concessional rate would be available to common amenities such as club house, swimming pool and amenities of like nature – ongoing project – whether the construction services provided by the applicant under the subject qualifies for the reduced GST rate of 12% as provided in Sr. No. 3 – item (v) – sub item (da) of Notification No. 01/2018-CT (Rate) dated 25.01.2018? – HELD THAT:- The applicant’s case is covered under the tax rate of 12% (8% GST after deducting value of land), under Heading 9954 (Construction Services), (v) (da) of above mentioned Notification No. 11/2017, as amended, since the project undertaken by applicant falls under the definition of “Affordable Housing”. The benefit of reduced rate would be available to applicant only in the cases of supply effected after 25.01.2018 i.e. the date on which Notification 1/2018-Central Tax (Rate) was issued and only in respect of dwelling units having carpet area less than 60 sq. mtrs.

Whether the benefit of concessional rate would be available to common amenities such as club house, swimming pool, etc., except corpus fund subscription and share application money, as mentioned in Annexure D of the agreement for sale? – HELD THAT:- Such services will qualify as composite supply of works contract service, where the principal supply would be, construction services. Accordingly, the rate applicable to the principal supply will also be applicable to common amenities. The word ‘housing project’ cannot be confined only to dwelling units, it would also include within its fold, other common amenities, structures, etc. The jurisdictional office has also opined that Common amenities form part of the overall construction service and are always naturally bundled when offered to the customer. Therefore, such services will qualify as composite supply of works contract service wherein provision of construction services is the principal supply. Accordingly, the rate applicable to the principal supply will also be applicable to common amenities – the concessional rate of 12% will be charged on such amounts collected by the applicant from buyers of units with area less than 60 sq mtrs. and GST @ of 18% will be charged on such amounts collected by the applicant from buyers of units with area greater than 60 sq mtrs.

Whether the project of the Applicant at Joyville, Virar qualifies as an ongoing project under Notification No. 3/2019-Central Tax (Rate) dated 29.03.2019 so as to be eligible for the concessional rate of benefit under Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017? – HELD THAT:- The project of the Applicant at Joyville, Virar qualifies as an ‘ongoing project under Notification No. 3/2019-C.T. (Rate) dated 29.03.2019. Further, the jurisdictional officer has also agreed that subject project is an ‘ongoing project’ as per said Notification No. 3/2019-Central Tax (Rate) dated 29.03.2019.

What would be the rate of Goods and Services Tax on the units at Joyville, Virar which do not qualify the criteria of ‘low cost houses’? – Whether 12% or 18% tax is to be levied on those units? – HELD THAT:- The applicant’s case is covered under the concessional rate of 12% (8% GST after deducting value of land), under Heading 9954 (Construction Services), (v) (da) of above mentioned Notification No. 11/2017, as amended since the project undertaken by them fails under the definition of “Affordable Housing” – The benefit of reduced rate would be available to them only in the cases of supply effected after 25.01.2018 i.e. the date on which Notification 1/2018-Central Tax (Rate) was issued and the benefit of this reduced rate would be applicable in case of only those flats which are of carpet area upto 60 sq mtrs., in this scheme which is covered in the category of affordable housing. In case of other flats which have carpet area more than 60 sq.mtrs. applicant would be required to pay GST at normal applicable rate i.e. @18% GST.

No.- GST-ARA-29/2019-20/B-123

Dated.- December 26, 2019

Citations:

  1. In Re: Bengal Peerless Housing Development Company Limited – 2019 (5) TMI 311 – AUTHORITY FOR ADVANCE RULING, WEST BENGAL
  2. IN RE: THE IDEAL CONSTRUCTION – 2018 (9) TMI 974 – AUTHORITY FOR ADVANCE RULING, MAHARASHTRA

SMT. P. VINITHA SEKHAR, AND SHRI. A.A. CHAHURE, MEMBER

PROCEEDINGS

(Under Section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)

The present application has been filed under Section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act” respectively] by M/s. Joyville Shapoorji Housing Private Limited, the applicant, seeking an advance ruling in respect of the following questions.

  1. Whether the dwelling units at Joyville, Virar qualify as low cost houses’? Consequentially whether the said dwelling units are eligible for the concessional rate of 12% under Entry (v) (da) of Notification No.11/2017 Central Tax (Rate) dated 28.6.2017 as amended by Notification No.1/2018-Central Tax (Rate) dated 25.01.2018 with effect from 25.01.2018?
  2. Whether the benefit of concessional rate would be available to common amenities such as club house, swimming pool and amenities of like nature?
  3. Whether the project of the Applicant at Joyville, Virar qualifies as an ‘ongoing project under Notification No. 3/2019-Central Tax (Rate) dated 29.03.2019 so as to be eligible for the concessional rate of benefit under Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017?
  4. What would be the rate of Goods and Services Tax on the units at Joyville, Virar which do not qualify the criteria of low cost houses’? Whether 12% or 18% tax is to be levied on those units?

At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression ‘GST Act’ would mean CGST Act and MGST Act.

  1. FACTS AND CONTENTION – AS PER THE APPLICANT

The submissions of the applicant made vide letter 19.07.2019 is as under:-

2:1 Joyville Shapoorji Housing Private Limited (Applicant), a real estate developer in India is presently involved in a residential development project under the name ‘Joyville Virar, at Palghar district of Vasai, Maharashtra (Project). The subject Project is proposed to be built in 6 phases consisting of 7 towers in total of which currently, development is in progress for 4 phases comprising of 5 towers with each phase having separate registration number under The Real Estate (Regulation and Development) Act, 2016 (“RERA”). Phase 1 consists of two towers of 308 units, out of which 264 units have a carpet area of less than 60 sq. mtrs: (i.e. 83% of the total Floor Space Index). Phases 2, 3 and 5 have all the units of carpet area less than 60 square meters. Applicant further states that as per the approval plans, the balance two phases which are yet to be launched have all units less than 60 sq. mtrs.

2.2 Applicant has submitted that, Notification 012018-Central Tax (Rate) dated 25.01.2018 (“Notification No 01/2018”) inserted entry (v) (da) to Notification 11/2017-Central Tax (Rate) dated 28.06.2017 (Notification No. 11/2017”), wherein a concessional rate of GST was given to projects which are ‘low cost houses’ in an affordable housing project. As per the said entry, a ‘low cost house shall be accorded the benefit of concessional rate which is in an Affordable Housing Project (“AHP’) and has been given Infrastructure status under the Notification F. No. 13/62009-INF dated 30.03.2017 issued by Department of Economic Affairs (“DEA Notification”).

2.3 Applicant states that since more than 50% of Floor Space Index is utilized towards construction of the dwelling units of less than 60 sq. mtrs: at Joyville Virar ((100%in Phase 2,3&5]. and 83% in Phase 1), the subject project qualifies as an AHP.

2.4 They have submitted that as on 31.03.2019, in respect of all the existing phases (Phase 1, 2, 3 & 5):

(a) The Commencement Certificate has been issued for the Phases before 31.03.2019,

(b) Completion Certificate or Occupancy Certificate (‘OC”) has not been issued for any Phase before 31.03.2019 and

(c) Some of the units in each Phase have already been booked before 31.03.2019 and the money was received by the Applicant.

2.5 Applicant has also submitted that, Notification No. 112017 has been amended by Notification No. 032019-C.T. (Rate) dated 29.03.2019 (“Notification No.3/2019”) whereby the applicable rates of GST have been reduced for services of the residential construction sector and in respect of ongoing projects (as defined under Clause 4. (xx) of Notification No. 03/2019. An option has been given to suppliers of such services to continue payment of GST as per the erstwhile applicable rates. It further provided that suppliers, choosing to continue at the old rates under Notification No. 11/2017 should file a form in Ann-IV to the Jurisdictional Commissioner. Applicant has filed Ann. IV for the RERA Phases 1, 2, 3, and 5 with the concerned authorities.

2.6 Applicant submits that the Government had issued Notification No. 01/2018 which extended the benefit of concessional rate of 12% GST in respect of original works’ pertaining to low cost houses up to 60 Sq. Mts. in an affordable housing project having infrastructure status. To avail the benefit of reduced rate of GST under entry (v) (da), Composite supply of works contract by way of construction, erection; commissioning or installation of original works has to be undertaken and the units must be low cost house up to carpet area of 60 Sq. mtrs. in an AHP having the infrastructure status.

2.7 THE DWELLING UNITS AT JOY VILLE VIRAR UNDER PHASES. 1,2,3 AND 5 QUALIFY AS ‘LOW COST HOUSES’ IN AN ‘AFFORDABLE HOUSING PROJECT’ AND THEREFORE IS ELIGIBLE FOR THE BENEFIT OF CONCESSIONAL RATE OF TAX UNDER ENTRY (v) (da) OF NOTIFICATION NO.11/2017 READ WITH NOTIFICATION NO.01/2018 WITH EFFECT FROM 25.01.2018

2.7.1 Applicant submits that, contract entered into with the customer, is for construction of housing units wherein there is a transfer of property in goods involved. Applicant shall transfer a dwelling unit after the materials are incorporated and construction is completed. Therefore, considered as an AHP having Infrastructure status as per the DEA Notification. Reference has also been made to the decision of the Maharashtra AAR in another ruling, namely, The Ideal Construction (2018-VIL- I 49-AAR) = 2018 (9) TMI 974 – AUTHORITY FOR ADVANCE RULING, MAHARASHTRA.

2.8 THE APPLICANT HAS SUBMITTED THAT THEY ARE ALSO ENTITLED TO THE BENEFIT OF CONCESSIONAL RATE TO COMMON AMENITIES SUCH AS CLUB HOUSE, SWIMMING POOL AND AMENITIES OF LIKE NATURE

2.8.1 Applicant submits that the common amenities form part of the overall construction service and are always naturally bundled when offered to customers. Therefore, such services will qualify as composite supply of works contract service. Accordingly, rate applicable to the principal supply will also be applicable to common amenities. In this regard, they have referred to the West Bengal Advance Ruling issued in the case of Bengal Peerless Housing Development Company Ltd. [2019-TIOL-137-GST) = 2019 (5) TMI 311 – AUTHORITY FOR ADVANCE RULING, WEST BENGAL which held supply of common amenities with apartments as composite supply.

2.8.2 Applicant has also submitted that, the word ‘real estate project as defined under Cause 2(zn) of the RERA covers every amenities and common amenities which are required to be constructed for the proper functioning of the real estate project and such amenities undoubtedly cover club house, swimming pool and other amenities of like nature. The meaning of the word project is not confined to only dwelling units, but it takes within fold its common amenities, structure and all improvements therein. On a bare perusal of Clause 2(zn), it can be said that even common amenities come within the purview of the definition of project’ and hence, the benefit under Entry (v)(da) of Notification No. 11/2017 should be made applicable for the common amenities as well since the same are ancillary supply to the principal supply of construction of dwelling units.

2.8.3 Alternatively, it is submitted that in the case of 904 units being constructed at Joyville Virar which satisfy the criteria of ‘low cost house’, the corresponding benefit of reduced rate of GST of 12% under Entry (V)(da) of Notification No. 11/2017 should be given to the common amenities like club house, swimming pool and amenities of like nature.

2.9 THE PROJECT AT JOYVILLE VIRAR QUALIFIES AS AN ONGOING PROJECT UNDER NOTIFICATION NO.03/2019

2.9.1 Applicant submits that Notification No.3/2019 has provided a right to registered suppliers to either continue to discharge GST under entry 3(v)(da) of Notification No. 11/2017 or migrate to the new rate of GST as prescribed under entry (ie) of Notification No. 3/2019. However, Notification No.3/2019 provides that registered suppliers can discharge GST at the old rates with respect to projects which were being already undertaken under Entry (v) (da) of Notification No. 11/2017 with certain conditions. Entry (ie) of Notification No.3/2019 reads as:

SI.No Chapter, Section or Heading Description of Service Rate (per cent.) Condition
(1) (2) (3) (4) (5)
3. Heading 9954(Construction services)               (ie) Construction of an apartment in an ongoing project under any of the schemes specified in sub-item (b), sub- item (c), sub item (d), sub-item(da) and sub-item (db) of item(iv); sub-item (b), sub-item (c), sub-item (d) and sub-item (da) of item (v); and sub-item (c) of item(vi), against serial number 3 of the Table, in respect of which the promoter has exercised the option to pay central tax on construction of apartments at the rates as specified for this item. 6% CGST+6%SGST Provided that in case of ongoing 995.4 project, the registered person shall exercise one time option in the Form at Annexure IV to pay central tax on construction of apartments in a project at the rates specified for item (ie) or(if), as the case may be, by 10th of May, 2019:

Provided also that where the option is not exercised in Form at: Annexure IV by the 10th of May, 2019, option to pay tax at the rates as applicable to item (i) or (ia) or (ib) or (ic) or (id) above, as the case may be, shall be deemed to have been exercised;

2.9.2 Applicant submits that to continue to be eligible under Entry (v)(da) of Notification No. 11/2017, the projects when undertaken under Entry (v)(da) should be an ongoing project’ even after the Introduction of Notification No.3/2019 and that Format Ann IV must be filed before 2014 May 2019 with the concerned jurisdictional authority. Applicant submits that all the current phases of the Project undoubtedly qualify as ‘ongoing project’, since commencement certificate has been issued to the Project Copy of the commencement certificate, received from time to time has been submitted, additionally, a certificate of Architect certifying that the project had commenced before 31.03.2019 is also submitted); Site preparation is complete ; Occupation certificate (OC) has not been issued and Units are sold and at least one installment credited in the bank account. (Sample copy of invoices, evidencing the booking of apartments before 31st March, 2019 is submitted.) (Copy of the demand note and bank statement reflecting the amount being credited in the bank account of Applicant prior to 31.03.2019 is also submitted). They have already filed Form IV with the jurisdictional Commissioner on 07.05.2019 for the phases of the project, (A copy of Ann IV as filed with the Jurisdictional Commissioner at the central & the state level is submitted.).

2.10 Applicant is also seeking clarity about the tax rate on the remaining units at Joyville Virar which do not satisfy the conditions attached to ‘low cost house, whether the units can be taxed at 12% under Entry (V)(da) being part of the same housing project or should it be taxed at 18%.

  1. CONTENTION – AS PER THE JURISDICTIONAL OFFICER:

The jurisdictional office has made submissions as under:-

3.1 With respect to Question 1, it is submitted that there is no restriction on the supplier of the service whether it is developer or contractor and if the project fulfills the criteria / norms of an “Affordable Housing Project” which has been given infrastructure status vide notification of Government of India, in Ministry of Finance, Department of Economic Affairs vide F. No. 13/6/2009-INF, dated the 30th March, 2017 then the concessional rate of 12% would be applicable to developer as well as contractor also to the extent of supply of services effected after 25.01.2018 as provided under Entry (v)(da) of Notification No.11/2017-C.T. (Rate) dated 28.06.2017 as amended by Notification No.01/2018-C.T. (Rate) dated 25.01.2018, pertaining to low-cost houses up to a carpet area of 60 square meters per house. Dwelling units at Joyville up to a carpet area of 60 square meters per house, Virar qualify as low cost houses.

3.2 With respect to Question 2, it is submitted that Common amenities form part of the overall construction service and are always naturally bundled when offered to the customer. Therefore, such services will qualify as composite supply of works contract service wherein provision of construction services is the principal supply. Accordingly, the rate applicable to the principal supply will also be applicable to common amenities.

3.3 With respect to Question 3, it is submitted that the criteria for qualifying as an ongoing project stands satisfied in view of the fact that Commencement Certificate has already been issued before 31/03/2019. The work commenced for the phases prior to 31.03.2019 (i.e. site preparation is completed), No occupation certificate or Completion certificate has been granted to the applicant, Various units under phase 1,2,3 and 5 and have been booked before 31/03/2019 and installments are credited in bank accounts and Applicant has already submitted Ann. IV to the office of Hon Joint Commissioner LTU-IV on 08/05/2019 of exercising option of paying Central tax at earlier rate

3.4 In respect of Question 4, it is submitted that Housing units which do not qualify the criteria of ‘low cost houses’ cannot be eligible for the concessional rate of tax of 12% (CGST @ 6% and SGST @ 6%) and applicant would be required to pay GST at normal applicable rate. Hence applicable GST @ 18%.

  1. HEARING

Preliminary hearing in the matter was held on 05.11.2019. Ms. Kanupriya Bhargava, Advocate and Sh. Arjyadeep Roy appeared and requested for admission of their application. Jurisdictional Officer, Ms. Manjiri Phansalkar, DC (E-611), LTU-4 also attended.

The application was admitted and called for final hearing on 20.11.2019. Ms. Kanupriya Bhargava, advocate and Sh. Arjyadeep Roy Advocate along with Mr. Tinish Salot, C. A. and Mr. Himanshu Jani, CFO appeared and made oral and written submissions. During the course of Final Hearing, applicant submitted one agreement copy and also partly reframed Question No. 2. Jurisdictional Officer Ms. Manjiri Phansalkar, DC (E-611), LTU-4 also attended.

  1. OBSERVATIONS AND FINDINGS:

Heard both sides.

5.1 We have gone through the facts of the case, documents on record and submissions made by the applicant as well as the jurisdictional office.

5.2 Applicant has submitted that in the subject project at Joyville Virar, out of the 4 phases currently under development, Phases 2, 3 and 5 have all the units of carpet area less than 60 square meters. However Phase 1 consists of two towers of 308 units, out of which 264 units have a carpet area of less than 60 sq. mtrs. (i.e. 83% of the total FSI). Applicant has further submitted that the balance two phases which will be taken up at a later stage have all units less then 60 sq. mtrs. The applicant has also submitted that all units in Phases 1, 2, 3 and 5 were sold out before 31.03.2019.

5.3 In view of the above facts, the applicant has raised the question:

“Whether the dwelling units at Joyville, Virar qualify as low cost houses’? Consequentially whether the said dwelling units are eligible for the concessional rate of 12% under Entry (v) (da) of Notification No. 11/2017 Central Tax (Rate) dated 28.6.2017 as amended by Notification No.1/2018-Central Tax (Rate) dated 25.01.2018 with effect from 25.01.2018?”

5.3.1 We find that the issue before us is whether the construction services provided by the applicant under the subject qualifies for the reduced GST rate of 12% as provided in Sr. No. 3 – item (v) – sub item (da) of Notification No. 01/2018-CT (Rate) dated 25.01.2018

5.3.2 This issue is with respect to the affordable housing project undertaken by the applicant in Virar, Mumbai. The Four Phases, namely, Phase 1, 2, 3, and 5 are under development where the applicant will be constructing dwelling units majority of which would be less than 60 sq.mtrs, with some units exceeding 60 sq.mtrs.

5.3.3 Notification No. 11/2017-C.T. (Rate) dated 28.06.2017, has specified the rate of central tax to be levied on Intra State supply of services of description specified in Column 3 of the Table in the said Notification, falling under scheme of classification of services mentioned therein. The relevant clauses of the said Notification as amended by Notification No. 20/2017-C.T. (Rate) dated 22.10.2017 is reproduced below:-

Sl.No. Chapter, Section or Heading Description of Service Rate (per cent) Condition
3 Heading 9954 (Construction services) (iv) Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, supplied by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of,-

(a)…………………………………………,

(b) a civil structure or any other original works pertaining to a scheme under Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awaas Yojana;

(c) a civil structure or any other original works pertaining to the “In-situ rehabilitation of existing slum dwellers using land as a resource through private participation” under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana, only for existing slum dwellers;

(d) a civil structure or any other original works pertaining to the “Beneficiary led individual house construction / enhancement” under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana;

(e)………………………………………; or

(f)………………………………………

6 -]
(v) Composite supply of works contract as defined in 6 clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, supplied by way of construction, erection, commissioning, or installation of original works pertaining to,-

(a)………………………………….;

(b)………………………………….;

(c) low-cost houses up to a carpet area of 60 square metres per house in a housing project approved by competent authority empowered under the ‘Scheme of Affordable Housing in Partnership’ framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India;

(d) low cost houses up to a carpet area of 60 square metres per house in a housing project approved by the competent authority under-

(1) the “Affordable Housing in Partnership” component of the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana;

(2) any housing scheme of a State Government;

(e)…………………………………; or

(f)………………………………….

5.3.4 Notification No. 1/2018-C.T. (Rate) dated 25.01.2018 has made amendments to Sr. No. 3, column no. 3, item no. iv & v to the above Notification No 11/2017 reads as follows:-

In the said notification,

“(i) in the Table, –

(a) against serial number 3, in column (3), –

(A) in item (iv), –

(I) for sub-item (c), the following sub-item shall be substituted, namely: –

‘(c) a civil structure or any other original works pertaining to the “In-situ redevelopment of existing slums using land as a resource, under the Housing for All (Urban) Mission/ Pradhan Mantra Awas Yojana (Urban);’;

(II) after sub-item (d), the following sub-items shall be inserted, namely: –

‘(da) a civil structure or any other original works pertaining to the “Economically Weaker Section (EWS) houses” constructed under the Affordable Housing in partnership by State or Union territory or local authority or urban development authority under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (Urban);

(db) a civil structure or any other original works pertaining to the “houses constructed or acquired under the Credit Linked Subsidy Scheme for Economically Weaker Section (EWS)/ Lower Income Group (LIG)/ Middle Income Group-1 (MlG-1)/ Middle Income Group-2 (MIG-2)” under the Housing for All (Urban) Mission/ Pradhan Mantri Awas Yojana (Urban);’;

(III) …………………………………………..”;

(B) in-item (v),

(I) in sub-item (a), for the word “excluding”,……………………..;

(II) after sub-item (d), the following sub-item shall be inserted, namely: –

“(da) low-cost houses up to a carpet area of 60 square metres per house in an affordable housing project which has been given infrastructure status vide notification of Government of India, in Ministry of Finance, Department of Economic Affairs vide F. No. 13/6/2009-INF, dated the 30th March,2017;”

5.3.5 According to sub item (da) of item (v), “low-cost houses up to a carpet area of 60 square meters per house in an affordable housing project which has been given infrastructure status vide notification of Government of India, in Ministry of Finance, Department of Economic Affairs vide F. No. 13/6/2009-INF, dated the 30th March, 2017 would attract a tax rate of 12%. This clause will be applicable to the applicant if the project undertaken by them is an affordable housing project which has been given infrastructure status vide Government of India notification mentioned above.

5.3.6 Department of Economic Affairs’ notification issued vide F. No. 13/6/2009-INF, dated the 30th March,2017 has included Affordable Housing under the column “Infrastructure sub-sector” against the category of Social and Commercial Infrastructure and has further defined

“Affordable Housing”, as a housing project using at least 50% of the Floor Area Ratio (FAR)/Floor Space Index (FS1) for dwelling units with carpet area of not more than 60 square meters and “Carpet Area” shall have the same meaning as assigned to it in clause (k) of section 2 of the Real Estate (Regulation and Development) Act, 2016.

5.3.7 One of the recommendations made by the GST Council in its 25th meeting held on 18th January 2018 at Delhi was to extend the concessional rate of 12% (8% GST after deducting value of land) to services by way of construction of low cost houses up to a carpet area of 60 sqm in a housing project which has been given infrastructure status under notification No. 13/06/2009 dated 30th March, 2009. The said notification of Department of Economic Affairs provides infrastructure status to Affordable Housing. The recommendation of the Council would extend the concessional rate to construction of flats/ houses of less than 60 sqm in projects other than the projects covered by any scheme of the Central or State Government also. The GST Council has also observed that “It may be recalled that all inputs used in and capital goods deployed for construction of flats, houses, etc attract GST of 18% or 28%. As against this, most of the housing projects in the affordable segment in the country would now attract GST of 8% (after deducting value of land). As a result, the builder or developer will not be required to pay GST on the construction service of flats etc. in cash but would have enough ITC (input tax credits) in his books to pay the output GST, in which case, he-should not recover any GST payable on the flats from the buyers. He can recover GST from the buyers of flats only if he recalibrates the cost of the flat after factoring in the full ITC available in the GST regime and reduces the ex-GST price of flats.” The GST Council has also mentioned that the builders/developers are expected to follow the principles laid down under Section 171 of the GST Act (Anti-Profiteering Rules) scrupulously.

5.3.8 In response to a request for clarification to enable availing 8% GST on Affordable Housing made by the builders association namely, CREDAI vide their letter no. CREDAI/MoF/2018/14 dated 19th March, 2018, the Government vide F. No. 354/52/2018-TRU, Government of India Ministry of Finance Department of Revenue (TRU) dated 7th May, 2018 has clarified that “Low cost houses up to a carpet area of 60 square metres per house in an affordable housing project, which has been given infrastructure status under notification F. No. 13/6/2009-INF, dated the 30th March, 2017 of MOP (DEA), attract concessional GST of 8% (the value of the undivided share of land is included in the price of the house). Whether the housing project qualifies as affordable housing project or not, shall be determined by the builder/ developer as per the definition of affordable housing given in the above mentioned notification (i.e., affordable housing has been defined as a housing project using at least 50% of FAR/FSI for dwelling units with carpet area of not more than 60 SQM). No certificate from any authority is required.”

5.3.9 We find that the total FSI consumed in the said project is greater than 50% for flats having carpet area below 60 sq mtrs. and therefore, their project falls under the definition of “Affordable Housing” as in DEA Notification mentioned above. We also find that all the units in Phase 1, 2, 3 and 5 have been booked prior to 31.03.2019.

5.3.10 Hence, from a reading of the above clarification, notification and the clause (da) of item (v) of Notification No. 11/2017-C.T.(Rate) dated 28.06.2017, we find that applicant’s case is covered under the tax rate of 12% (8% GST after deducting value of land), under Heading 9954 (Construction Services), (v) (da) of above mentioned Notification No. 11/2017, as amended, since the project undertaken by applicant falls under the definition of “Affordable Housing”. The benefit of reduced rate would be available to applicant only in the cases of supply effected after 25.01.2018 i.e. the date on which Notification 1/2018-Central Tax (Rate) was issued and only in respect of dwelling units having carpet area less than 60 sq. mtrs.

5.4 Question No. 2:- Whether the benefit of concessional rate would be available to common amenities such as club house, swimming pool, etc., except corpus fund subscription and share application money, as mentioned in Annexure D of the agreement for sale?

5.4.1 We have no doubt that the project undertaken by the applicant is an affordable housing project and that in the subject project, the applicant will be constructing dwelling units of less than 60 sq mtrs. carpet area as well as dwelling units having carpet area greater than 60 sq mtrs.

5.4.2 We agree with the applicant’s submissions that common amenities form part of the overall construction service and are always naturally bundled when offered to the customer. Therefore, such services will qualify as composite supply of works contract service, where the principal supply would be, construction services. Accordingly, the rate applicable to the principal supply will also be applicable to common amenities. The word ‘housing project’ cannot be confined only to dwelling units, it would also include within its fold, other common amenities, structures, etc. The jurisdictional office has also opined that Common amenities form part of the overall construction service and are always naturally bundled when offered to the customer. Therefore, such services will qualify as composite supply of works contract service wherein provision of construction services is the principal supply. Accordingly, the rate applicable to the principal supply will also be applicable to common amenities.

5.4.3 We shall now discuss whether the charges mentioned in Annexure D of the agreement submitted before us on 20.11.2019, are collected for services which are an integral part of a composite supply of works contract, construction services being the principal supply and whether applicant will be eligible for concessional rate of GST, for such charges collected by them.

5.4.4 Advance Maintenance Charges are charges collected in advance from the purchasers of units/flats and are used for maintenance of flats, etc., during the period, after the possession is given to such buyers and before the society is formed. Hence, these charges cannot be considered as a part of composite supply where the principal supply is construction of dwelling units in an Affordable Housing project.

Further, Vide F. No. 354/32/2019-TRU dated 14.05.2019, Government of India Ministry of Finance Department of Revenue (Tax Research Unit) issued FAQs (Part II) on real estate which is reproduced as under:-

Sr.No. Question Answer
4 For the purpose of determining the threshold of ₹ 45 lakhs in case of “affordable residential apartment”, whether the following charges generally recovered by the developer from the buyer shall be included? Amenity Charges • Society formation charges • Advance maintenance • Legal Charges For the purpose of determining the threshold of the gross amount of ₹ 45.00 lakh for affordable residential apartments, all the charges or amounts charged by the promoter from the buyer of the apartments shall form part of the gross amount charged. Clause xvi, sub-clause (a)(ii)(C) of paragraph 4 of notification No. 11/2017-CT(R) dated 28.06.2017, reproduced below, refers.

“C. Any other amount charged by the promoter from the buyer of the apartment including preferential location charges, development charges, parking charges, common facility charges etc.”

However the value shall not include stamp duty payable to the statutory authority, maintenance charges / deposits for maintenance of apartment or maintenance of common infrastructure

From a reading of the said Table it is seen that, for the purpose of determining the threshold of ₹ 45 lakhs in case of “affordable residential apartment”, the value shall not include stamp duty payable to the statutory authority, maintenance charges / deposits for maintenance of apartment or maintenance of common infrastructure. Hence GST @ of 18% will be charged on such amounts collected by Applicant.

5.4.5 Club house development charges are collected by applicant, from all buyers of dwelling units whether low cost or otherwise, to develop a club house in the subject project. Since development of a club house is incidental to the construction of dwelling units in the subject project it can be said to be a part of composite supply, where principal supply is construction of dwelling units in an Affordable Housing project. Hence concessional rate of 12% will be charged on such amounts collected by the applicant from buyers of units with area less than 60 sq mtrs. and GST @ of 18% will be charged on such amounts collected by applicant from buyers of units with area greater than 60 sq mtrs.

5.4.6 Water, Electricity, Drainage, Sewerage, Society Formation, Legal Service and Documentation Charges, are collected for services which are an integral part of a composite supply of works contract, construction services being the principal supply. The developer is bound to provide Water, Electricity, Drainage, Sewerage to the flat owners and also provide legal support and documentation services to the customers. Further, the formation of Society is also the developer’s responsibility. These services form an important part of the composite supply of works contract services provided by the applicant where the principal supply is construction of dwelling units in an Affordable Housing project. Hence concessional rate of 12% will be charged on such amounts collected by the applicant from buyers of units with area less than 60 sq mtrs. and GST @ of 18% will be charged on such amounts collected by the applicant from buyers of units with area greater than 60 sq mtrs.

5.5 Question No. 3:- Whether the project of the Applicant at Joyville, Virar qualifies as an ongoing project under Notification No. 3/2019-Central Tax (Rate) dated 29.03.2019 so as to be eligible for the concessional rate of benefit under Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017?

5.5.1 As per Sr.No. (xx) of Notification No. 3/2019-C.T.(Rate) dated 29.03.2019 an on-going project is defined as under:-

(xx) the term “ongoing project” shall mean a project which meets all the following conditions, namely-

(a) commencement certificate in respect of the project, where required to be issued by the competent authority, has been issued on or before 31st March, 2019, and it is certified by any of the following that construction of the project has started on or before 31st March, 2019:-

(i) an architect registered with the Council of Architecture constituted under the Architects Act, 1972 (20 of 1972); or

(ii) a chartered engineer registered with the Institution of Engineers (India); or

(iii) a licensed surveyor of the respective local body of the city or town or village or development or planning authority.

(b) where commencement certificate in respect of the project, is not required to be issued by the competent authority, it is certified by any of the authorities specified in sub- clause (a) above that construction of the project has started on or before the 31st March, 2019;

(c) completion certificate has not been issued or first occupation of the project has not taken place on or before the 31st March, 2019;

(d) apartments being constructed under the project have been, portly or wholly, booked on or before the 31st March, 2019.

Explanation.- For the purpose of sub- clause (a) and (b) above , construction of a project shall be considered to have started on or before the 31st March, 2019, if the earthwork for site preparation for the project has been completed and excavation for foundation has started on or before the 31st March, 2019.

5.5.2 Applicant has submitted that commencement certificate for the subject project were received from time to time from concerned authorities. A certificate of Architect certifying that the project had commenced before 31.03.2019 is also submitted. The said certificate mentions that 100% Excavation Work has been done as on 30.03.2019. Applicant has further submitted that no completion or occupation certificate has been granted with respect to any unit in the subject project. They have also submitted that the various units being constructed at Joyville, Virar under Phase 1, 2, 3 and 5, have been booked before 31.03.2019. In the said Notification, it is further provided that the registered suppliers choosing to continue at the old rates under Notification No. 11/2017 have to file a form in Annexure-IV to the Jurisdictional Commissioner exercising their option to discharge GST at the old rates. Applicant has submitted that they have filed Annexure IV for the four RERA Phases under consideration, with the concerned authorities.

5.5.3 In view of the above, we find that, the project of the Applicant at Joyville, Virar qualifies as an ‘ongoing project under Notification No. 3/2019-C.T. (Rate) dated 29.03.2019. Further, the jurisdictional officer has also agreed that subject project is an ‘ongoing project’ as per said Notification No. 3/2019-Central Tax (Rate) dated 29.03.2019.

5.6 Question No. 4:- What would be the rate of Goods and Services Tax on the units at Joyville, Virar which do not qualify the criteria of ‘low cost houses’? Whether 12% or 18% tax is to be levied on those units?

We find that that applicant’s case is covered under the concessional rate of 12% (8% GST after deducting value of land), under Heading 9954 (Construction Services), (v) (da) of above mentioned Notification No. 11/2017, as amended since the project undertaken by them fails under the definition of “Affordable Housing”. The benefit of reduced rate would be available to them only in the cases of supply effected after 25.01.2018 i.e. the date on which Notification 1/2018-Central Tax (Rate) was issued and the benefit of this reduced rate would be applicable in case of only those flats which are of carpet area upto 60 sq mtrs., in this scheme which is covered in the category of affordable housing. In case of other flats which have carpet area more than 60 sq.mtrs. applicant would be required to pay GST at normal applicable rate i.e. @18% GST.

  1. In view of the extensive deliberations as held hereinabove, we pass an order as follows:

ORDER

(Under Section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)

NO.GST-ARA-29/2019-20/B-123

Mumbai, dt. 26-12-2019

For reasons as discussed in the body of the order, the questions are answered thus –

Question 1. Whether the dwelling units at Joyville, Virar qualify as low cost houses’?

Consequentially whether the said dwelling units are eligible for the concessional rate of 12% under Entry (v) (da) of Notification No.11/2017 Central Tax (Rate) dated 28.6.2017 as amended by Notification No.1/2018-Central Tax (Rate) dated 25.01.2018 with effect from 25.01.2018?

Answer:- The dwelling units measuring less than 60 sq.mtrs. will qualify as low cost houses. They are eligible for the concessional rate of 12% (8% GST after deducting value of land)under Entry (v) (da) of Notification No.11/2017 Central Tax (Rate) dated 28.6.2017 as amended by Notification No.1/2018-Central Tax (Rate) dated 25.01.2018 with effect from 25.01.2018 on such units.

Question 2. Whether the benefit of concessional rate would be available to common amenities such as club house, swimming pool, etc., except corpus fund subscription and share application money, as mentioned on Annexure D of the agreement for sale?

Answer:- Concessional rate of 12%, would be available only in respect of Society Formation Charges; club house development charges; Water, Electricity, Drainage, Sewerage Charges; Legal Service Charges and Documentation Charges which are collected from buyers of houses having area less than 60 sq mtrs.

Question 3. Whether the project of the Applicant at Joyville, Virar qualifies as an ‘ongoing project under Notification No. 3/2019-Central Tax (Rate) dated 29.03.2019 so as to be eligible for the concessional rate of benefit under Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017?

Answer:- The project of the Applicant at Joyville, Virar qualifies as an ‘ongoing project under Notification No. 3/2019-Central Tax (Rate) dated 29.03.2019. Applicant is eligible for the concessional rate of benefit under Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended, only for dwelling units measuring less than 60 sq mtrs.

Question 4. What would be the rate of Goods and Services Tax on the units at Joyville, Virar which do not qualify the criteria of ‘low cost houses’? Whether 12% or 18% tax is to be levied on those units?

Answer:- The units at Joyville, Virar which do not qualify the criteria of ‘low cost houses’ will be taxed at 18% GST.

M/S. MAHALAKSHMI STORE, SHRI CHELLASAMY NADAR DEIVARAJAN

Classification of goods – unbranded mixture of flour of pulses and grams i.e. leguminous vegetables and cereal flours – whether fall under the HSN Code 1106 and 1102 respectively? – circular no 80 dt. 31-12-2018 – rate of GST.

HSN Code – Type I (Flour of Grams-80%, Flour of Maize-10% and Flour of rice-10%) – Type II (Flour of Grams-70%, Flour of Peas-10%, Flour of Maize-10% and Flour of Rice-10%) – Type III (Flour of Grams-50%, flour of Peas-20%, Flour of Maize-20% and Flour of Rice-10%) – Type IV (Flour of Peas-70%, Flour of Maize-15% and Flour of Rice-15%) – Type V (Flour of Grams-25%, Flour of Peas-25%, Flour of Maize-25% and Flour of Rice-25%) – HELD THAT:- Classifiable under CTH 11061090.

HSN Code – Type VI (Flour of Rice-95% and Flour of Urad-5%) – HELD THAT:- CTH 11029090.

Applicable rate of tax – products are packed with such a registered Trade Mark in unit containers – Type I, II, III, IV and V (CTH 11061090) – HELD THAT:- 2.5% CGST as per Sl.No. 59 of Schedule I of the Notification No. 1/2017-C.T.(Rate) dated 28.06.2017 as amended and 2.5% SGST as per Sl.No. 59 of Schedule I of Notification Ms. No. II(2)/CTR/532(d-4)/2017 vide G.O. (Ms) No. 62 dated 29.06.2017 as amended.

Applicable rate of tax – products are packed with such a registered Trade Mark in unit containers – Type VI (CTH 11029090) – HELD THAT:- 2.5% CGST as per Sl.No. 55 of Schedule I of the Notification No. 1/2017-C.T.(Rate) dated 28.06.2017 as amended and 2.5% SGST as per Sl.No. 55 of Schedule 1 of Notification Ms. No. II(2)/CTR/532(d-4)/2017, vide G.O. (Ms) No. 62 dated 29.06.2017 as amended.

Applicable rate of tax – If the products are packed without a registered brand name – Type I, II, III, IV and V (CTH 11061090) – HELD THAT:- Nil CGST as per Sl.No. 78 of the Notification No. 2/2017-C.T.(Rate) dated 28.06.2017 as amended and nil SGST as per Sl.No. 78 of Notification No. II(2)/CTR/532(d-5)/2017 vide G.O. (Ms) No. 63 dated 29.06.2017 as amended.

Applicable rate of tax – If the products are packed without a registered brand name – Type VI (CTH 11029090) – HELD THAT:- Nil CGST as per Sl.No. 74 of the Notification No. 2/2017 -C.T. (Rate) dated 28.06.2017 as amended and nil SGST as per Sl.No. 74 of Notification No. II(2)/CTR/532(d-5)/2017 vide G.O (Ms ) No. 63 dated 29.06.2017 as amended.

No.- TN/55/AAR/2019

Dated.- December 23, 2019

  1. MANASA GANGOTRI KATA, IRS THIRU. KURINJI SELVAAN V.S., M.SC., (AGRI.), M.B.A., MEMBER,

Note: Any appeal against the advance ruling order shall be filed before the Tamil Nadu State Appellate Authority for Advance Ruling, Chennai under Sub-section (1) of Section 100 of CGST ACT/TNGST Act 2017 within 30 days from the date on which the ruling sought to be appealed against is communicated.

At the outset, we would like to make it clear that the provisions of both the Central Goods and Service Tax Act and the Tamil Nadu Goods and Service Tax Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the Central Goods and Service Tax Act would also mean a reference to the same provisions under the Tamil Nadu Goods and Service Tax Act.

Shri. Chellasamy Nadar Deivarajan, Proprietor, M/s Mahalakshmi Store 26/6, Chinthamani Road, Near Keeraithurai Bus Stop, Madurai – 625 001. (hereinafter referred to as ‘Applicant’) is registered under GST vide GSTIN No. 33AESPD1764Q1ZZ. The Applicant has preferred an application seeking Advance Ruling on the following Question:

1) Whether the unbranded mixture of flour of pulses and grams i.e. leguminous vegetables and cereal flours fall under the HSN Code 1106 and 1102 respectively though blending of leguminous flour added with very small quantity of rice flour or maize flour (without adding salt or any masala product) fall under exemption as per the circular no 80 dt. 31-12-2018?

2) Clarify the GST Rate for Flour Mixture of Grams, pulses, leguminous vegetable with cereal flour/Rice flour and it’s HSN Code?

The Applicant has submitted the copy of application in Form GST ARA – 01 and submitted a copy of Challan evidencing payment of application fees of ₹ 5,000/-each under Sub-rule (1) of Rule 104 of CGST rules 2017 and SGST Rules 2017.

2.1 The applicant has stated that they manufacture flour of pulses and gram i.e. leguminous vegetables and cereal flour. Their products are sold without having any brand name and claiming exemption after filing disclaimer affidavit which is also mentioned in the packing material. Sometimes meager cereal/rice flour is added to the leguminous flour for preparing dishes. When the dhall, gram, pulses are merely crushed into powder without adding any substances, they are called un branded flour of the dried leguminous vegetables (HSN Code 1106) and are exempted. Similarly, unbranded cereal flours (rice Flour, Wheat flour, maize flour, etc.,) without having any other substances also fall under exemption category under HSN Code 1102.

2.2 For making savories and snacks, the above mentioned different types of flour are needed by mere blending/mixing, i.e. for a kind of specific category of savories, some portion of pea flour and gram flour were mixed. Sometimes minimum percentages of rice flour or maize flour are mixed for the preparation of savories. Here there is no addition of any chemical or salt or masala power. It is only a mere blending of flour of pulses and cereals. Though the different kinds of flour of pulses and grams are mixed with rice flour or maize flour, it is still called as flour of pulses and grams and there would not be emergence of a commercially distinct and separate commodity. But such blending/mixture of flour of pulses and grams does not have any separate HSN Code and specific entry under the GST Act, which leads to wrong interpretation and misconception on the part of the officer’s resultant in to unnecessary levy of tax.

2.3 To avoid such ambiguity, they requested to clarify though some minimum quantity of rice flour and maize flour were added to the gram and peace flour, they would still fall under entry having HSN Code 1106 eligible for exemption. Recently the government has issued circular no.80, dated 31.12.2018 clarifying the product:-

Chhatua or Sattu is a mixture of flour of ground pulses and cereals. HSN code 1106 includes the flour, meal and powder made from peas, beans or lentils (dried leguminous vegetables falling under 0713.) Such flour improved by the addition of very small amounts of additives continues to be classified under HSN Code 1106. In unbranded, it attracts Nil GST (S. No. 78) of notification No. 2/2017 – Central Tax (Rate) dated 28.06.2017) and if branded and packed it attracts 5% GST (S.No. 59 of schedule I of notification No. 1/2017 – Central Taxes (rate) dated 28.06.2017)”.

Further the dictionary meaning of (Wikipedia),-

“Sattu is flour from the Indian subcontinent consisting of a mixture of ground pulses and cereals. The dry powder is prepared in various ways as a principal or secondary ingredient of dishes.”

3.1 The applicant was heard in person on 24.07.2019. The applicant appeared and gave a written submission. They stated that they have been supplying gram flour, peas flour, com flour, rice flour separately. Now, they propose to supply a mixture of these flours. They undertook to submit the ratios in which these flour are going to be sold. They have not yet made any supply for the same. They will submit the specific ratio of each ingredients for which the ruling is sought.

3.2 The Superintendent of CGST & Central Excise, Madurai south Range appeared and filed written submissions of the central jurisdiction authority, the Commissioner of CGST & Central Excise, Madurai.

  1. The Central Authority has furnished the following comments:
  • Unbranded flour of dhall, gram, pulses of dried leguminous vegetables(HSN Code 1106) and unbranded cereal flours(rice flour, maize flour etc)(HSN Code 1102) are figured in the exemption list as per Notification No. 2/2017-C.T.(Rate) dated 28.06.2017. But blending/mixing of these flours for preparing savories has to be considered as “Preparation of flour” and are to be classified under 1901 of HSN
  • HSN 1901 is not covered under Notification No. 2/2017-C.T.(Rate), hence the same is taxable and not exempted. The GST rate for the same is levied @ 18%

5.1 The applicant submitted the following categories of proportionate percentage of various kinds of flour of pulses and grams/cereals resulted into mixture of flours:

Mixture of Flours Flour of Grams Flour of Peas Flour of Maize Flour of Rice Flour of Urad
I Type 80% 10% 10%
II Type 70% 10% 10% 10%
III Type 50% 20% 20% 10%
IV Type 70% 15% 15%
V Type 25% 25% 25% 25%
VI Type 95% 5%

Further, the stated that at the time of hearing, the CGST officer had mentioned that hat preparations of flours are to be classified under CTH 1901 and to be taxed at 18%. The said entry mentioned about the food preparation of flour, grouts meal starch or malt extract no. containing cocoa and also mentioned about the food preparation of goods of heading 0401 to 0404 which are totally not relevant to their products. Their products are only mixture of flour for the preparation of savories and dishes and it do not contain any other product like sugar, salt or any other kind of additives and is not a ready mix product.

5.2 The applicant also submitted purchase bills for ‘Gram Dal’ (HSN 0713), ‘Canada Yellow peas’ (HSN 07131000), Moong Dai’ (HSN 0713100). They are supplying the same under description ‘Besan’, ‘Unbranded’ with HSN 1106. They submitted manufacturing process with photos stating that the process involves grinding of pulses, mixing of flours, sieving and the finished product is packed. They submitted sample of packaging material on which “Besan” “ingredients : Gram Dhall 50% ,& Multigrains 50%(Atta, Peas, Flour, Chola Flour, Rice Flour) with ‘Mahalakshmi Store’ along with ‘Shri Mappillai Vinayagar Mark’ are affixed.

  1. We have carefully considered the various submissions made by the applicant and the comments of the jurisdictional central Tax Officer. The applicant is manufacturer of mixtures of flours of Pulses, grams and cereals in various proportions given in para 5.1 above. They claim that there would not be emergence of a commercially distinct and separate commodity when different kinds of flour of pulses and grams are mixed with rice flour or maize flour, which continue to be called as flour of pulses and grams. The applicant has sought the eligibility of exemption under the HSN Code 1106 and 1102 as per the circular no. 80 dated 31.12.2018 and the applicable GST Rate and the HSN Code.

7.1 The applicant has claimed exemption on the basis of the circular No.80/54/2018 GST, F.No.354/432/2018-TRU, Govt. India, Ministry of Finance, Department of Revenue (Tax Research Unit), dated 31.12.2018 which clarifies that Chhatu or Sattu, which is a mixture of flour of ground pulses and cereals improved by the addition of very small amounts of additive and continued to be classified under HSN 1106, if sold only as unbranded, attracts Nil GST vide Sl.No.78 of Notification No.2/2017-Central Tax (Rate), dated 28.06.2017 and if branded, attracts 5% GST vide Sl.No.59 of Schedule I of Notification No. 1/2017 -Central Taxes (Rate) dated 28.06.2017. The primary issue to be decided is whether the product of the applicant, a mixture of the flour or flours of Leguminous Vegetables and Cereals as ingredients at specified percentage of composition depending upon the preparation of the desired type of savories falls under HSN code 1106.

7.2 In terms of explanation (iii) and (iv) to Notification No. 1/2017-Central Tax (Rate) dt. 28-06-2017, tariff heading, sub-heading, heading and chapter shall mean respectively a tariff item, sub-heading, heading and chapter as specified in the First Schedule to the Customs Tariff Act, 1975 and the rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975, including the Section and Chapter Notes and the General Explanatory Notes of the First Schedule shall be applied for the interpretation and classification of goods.

7.3 Chapter 11 covers Products of the milling industry; malt; starches; inulin; wheat gluten

General notes to HSN explanatory notes of chapter 11 states.

This Chapter includes :

(1) Products from the milling of the cereals of Chapter 10 and of sweet corn of Chapter 7, other than milling residues of heading 23.02. In this context. the products from the milling of wheat, rye, barley, oats, maize (corn) (including whole cobs ground with or without their husks), grain sorghum, rice and buckwheat falling in this Chapter are to be distinguished from the residues of heading 23.02 in accordance with the criteria as to starch and ash content laid down in Chapter Note 2(A).

Within the Chapter, as regards the cereals mentioned by name above, the flours of heading 11.01 or 11.02 are to be distinguished the from the products of heading 11.03 or 11.04 in accordance with the criterion as to passage through a sieve laid down in Chapter Note 2 (B) At the same time, all cereal groats and meal or heading 11.03 must fulfil the relevant criterion as to passage through a sieve laid down in Chapter Note 3.

(2) Products also for obtained from the cereals of Chapter 10 by submitting them to the processes provided for in the various headings of the Chapter, such as malting or the extraction of starch or wheat gluten.

(3) Products obtained by submitting raw materials of other Chapters (dried leguminous vegetables, above. potatoes, fruit, etc.) to processes similar to those indicated in paragraph (1) or (2) above.

This Chapter excludes, inter alia :

(a) Roasted malt put up as coffee substitutes (heading 09.01 or 21.01).

(b) Cereal husks (heading 12.13).

(c) Prepared flours, groats, meals or starches of heading 19.01.

It is seen from the above that chapter 11 covers products obtained from milling of cereals, dried leguminous vegetables, potatoes, fruits etc. The further classification depends on the raw materials and the fineness of the products .i.e flour vs groats or meals when passed through sieve. It specifically excluded prepared flours of heading 1901.

CTH 1102 :

1102 CEREAL FLOURS OTHER THAN THAT OF WHEAT OR MESLIN
1102 20 00 Maize (corn) flour
1102 90 Other
1102 90 10 – – – Rye flour
1102 90 90 – – – Other

HSN Explanatory notes to CTH 1102 states:

11.02 Cereal flours other than of wheat or meslin.-
1102.20 Maize (corn) flour
1102.90 Other

This heading covers flours (i.e., the pulverised products obtained by milling the cereals of Chapter 10) other than flours of wheat or meslin.

Products of the milling of rye, barley, oats, maize (corn) (including whole cobs ground with or without their husks) grain sorghum, rice or buckwheat are classified in this heading as flours if they fulfil the requirements as to starch content and ash content set out in paragraph (A) of Chapter Note 2 see General Explanatory Note) and comply with the criterion of passage through a standard sieve as required by paragraph (B) of that Note.

Flours of this heading may be improved by the addition of very small quantities of mineral phosphates, anti-oxidants, emulsifiers, vitamins or prepared baking powders (self-raising flour).

The heading also covers “swelling” (pregelatinised) flours which have been heat treated to pregelatinise the starch. They are used for making preparations of heading 19.01, bakery Improvers or animal feeds or in certain industries such as the textile or paper industries or in metallurgy (for the preparation of foundry core binders).

Flours which have been further processed or had other substances added with a view to their use as food preparations are excluded (general)y heading 19.01).

It is seen that CTH 1102 covers flours which are pulverized products obtained by milling the cereals other than wheat or meslin including rice, maize etc. However, flours which are further processed or had substances added with a view to use as food preparation are excluded and classified under CTH 1901.

CTH 1106:

1106 FLOUR, MEAL AND POWDER OF THE DRIED LEGVMNOUS VEGETABLES OF HEADING 0713, OF SAGO OR OF ROOTS OR TUBERS OF HEADING 0714 OR OF THE PRODUCTS OF CHAPTER 8
1106 10 Of the dried leguminous vegetables of heading 0713
1106 10 10 Guar Meal
1106 10 90 Others

The relevant explanatory notes as per the HSN is as below:

11.06 Flour, meal and powder of the dried leguminous vegetables of heading 07.13. of sago or of roots or tubers of heading 07.14 or of the products of Chapter 8.
1106.10 Of the dried vegetables of 07.13
1106.20 Of sago or of roots or tubers of heading 07.14
1106.30 Of the products of Chapter 8

(A) Flour, meal and powder of the dried leguminous vegetables of heading 07.13.

This heading includes the flour, meal and powder made from peas, beans or lentils: they are mainly used for prepared soups or purees.

The heading does not covers:

(a) Non-defatted soya flour (heading 12.08).

(b) locust bean flour (heading 12.12).

(c) Soups and broths (whether in liquid solid powder with a basis of vegetable flours or meals (heading 21.04)

Products of this heading may be improved by the addition of very small amounts of anti-oxidants or emulsifiers.

It is seen from above that products obtained from milling of dried leguminous vegetable including peas, lentils are covered under CTH 1106 and by milling of cereals under CTH 1102. The applicant submitted that the product at hand is manufactured by grinding of pulses, mixing of flours, sieving and the finished product is packed. The flour of grams, peas, rice, maize and urad dal are mixed in various proportions and packed. There is no addition of salt, spices etc nor of any further processing of the flours. As seen in the explanatory notes to chapter 11 above, flours of cereals and flours of dried leguminous vegetable and lentils are classified under chapter 11 if they are obtained only by milling of these raw materials and no further processing has taken place and no addition of other substances with a view for their use as food preparations. If that was the case, they would be classified under CTH 1901 and such products are excluded from chapter 11. Explanatory notes to chapter 1901 also states that it covers food preparations with a basis of flour or meal or starch or malt extract where other substances may be added to main ingredients such as milk, sugar, eggs fat, oil etc. Unprocessed flour obtained only by milling and sieving of cereals, dried leguminous vegetable including peas, lentils etc are to be classified under chapter 1 1 alone. In the instant case, the product has a mixture of various flours such that multiple tariffs are involved i.e CTH 1102 and CTH 1106. Rule 3 of the General Rules For The Interpretation Of Import Tariff states,-

  1. When by application of rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows:

(a) The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.

(b) Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to (a), shall be classified as if they consisted of the material or component which gives them their essential character, in so far as this criterion is applicable.

(c) When goods cannot be classified by reference to (a) or (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.

As per Rule 3(b), mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to (a), shall be classified as if they consisted of the material or component which gives them their essential character, in so far as this criterion is applicable. In the product of Type I, II, III, and IV above, the proportion of flours of grams and peas are together more than the flours of rice and maize i.e. 80%, 80%, 70% and 70% respectively. This gives these products the essential characteristics of flours of dried leguminous vegetables and lentils i.e classified under CTH 11061090. In Type VI, the proportion of rice flour is 95% and hence it has the characteristics of flour of cereal and hence classified under CTH 11029090.

In the case of Type V, there is equal proportion of flour of cereals (25 % rice and 25% maize) and dried leguminous vegetable (25% gram and 25% peas). In this case, Rule 3(c) is applicable i.e. When goods cannot be classified by reference to (a) or (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration. Accordingly, Type V product is to be classified under CTH 11061090.

  1. Having decided the classification, the applicable rate of tax is dependent on whether the applicant is using a registered brand name which is defined in Notification No. 1/2017-C.T.(Rate) dated 28.06.2017 as the brand name or trade name, that is to say, a name or a mark, such as symbol, monogram, label, signature or invented word or writing which is registered under the Trade Marks Act, 1999. It is seen from the packaging that the applicant is packing in unit containers and affixing ‘Shri Mappillai Vinayagar Mark’. It is not submitted by the applicant whether this is a mark registered under Trade Marks Act, 1999. The rate of tax will depend on this.

If the products are packed with such a registered Trade Mark in unit containers, the rate of tax will be :-

Type I, II, III, IV and V (CTH 11061090)- 2.5% CGST as per Sl.No. 59 of Schedule I of the Notification No. 1/2017-C.T.(Rate) dated 28.06.2017 as amended and 2.5% SGST as per Sl.No. 59 of Schedule I of Notification Ms. No. II(2)/CTR/532(d-4)/2017 vide G.O. (Ms) No. 62 dated 29.06.2017 as amended

Type VI (CTH 11029090) : 2.5% CGST as per Sl.No. 55 of Schedule I of the Notification No. 1/2017-C.T.(Rate) dated 28.06.2017 as amended and 2.5% SGST as per Sl.No. 55 of Schedule I of Notification Ms. No. II(2)/CTR/532d-4)/2017 vide G.O. (Ms) No. 62 dated 29.06.2017 as amended.

If the products are packed without a registered brand name , the rate of tax will be :-

Type I, II, III, IV and V (CTH 11061090)- nil CGST as per Sl.No. 78 of Notification No. 2/2017-C.T.(Rate) dated 28.06.2017 as amended and nil SGST as per Sl.No. 78 of Notification No. II(2)/CTR/532(d-5)/2017 vide G.O. (Ms) No. 63 dated 29.06.2017 as amended.

Type VI (CTH 11029090) : nil CGST as per Sl.No. 74 of the Notification No. 2/2017-C.T.(Rate) dated 28.06.2017 as amended and nil SGST as per Sl.No. 74 of Notification vide G.O. (Ms) No. 63 dated 29.06.2017 as amended.

  1. In view of the foregoing discussions, we rule as under:

Ruling

1) The product of the applicant are classifiable as under :

  • Type I (Flour of Grams-80%, Flour of Maize- 10% and Flour of rice 10%)- CTH 11061090;
  • Type II (Flour of Grams-70%, Flour of Peas-10%, Flour of Maize-10% and Flour of Rice-10%) – CTH 11061090;
  • Type III (Flour of Grams-50%, flour of Peas-20%, Flour of Maize-20% and Flour of Rice-10%) – CTH 11061090
  • Type IV (Flour of Peas-70%, Flour of Maize-15% and Flour of Rice-15%) CTH 11061090
  • Type V (Flour of Grams-25%, Flour of Peas-25%, Flour of Maize-25% and Flour of Rice-25%)- CTH 11061090
  • Type VI (Flour of Rice-95% and Flour of Urad-5%) – CTH 11029090

2) The applicable rate of tax is :

  1. If the products are packed with such a registered Trade Mark in unit containers, the rate of tax will be :-
  2. Type I, II, III, IV and V (CTH 11061090)- 2.5% CGST as per Sl.No. 59 of Schedule I of the Notification No. 1/2017-C.T.(Rate) dated 28.06.2017 as amended and 2.5% SGST as per Sl.No. 59 of Schedule I of Notification Ms. No. II(2)/CTR/532(d-4)/2017 vide G.O. (Ms) No. 62 dated 29.06.2017 as amended.
  3. Type VI (CTH 11029090) : 2.5% CGST as per Sl.No. 55 of Schedule I of the Notification No. 1/2017-C.T.(Rate) dated 28.06.2017 as amended and 2.5% SGST as per Sl.No. 55 of Schedule 1 of Notification Ms. No. II(2)/CTR/532(d-4)/2017, vide G.O. (Ms) No. 62 dated 29.06.2017 as amended.
  4. If the products are packed without a registered brand name, the rate of tax will be:-
  5. Type I, II, III, IV and V (CTH 11061090)- nil CGST as per Sl.No. 78 of the Notification No. 2/2017-C.T.(Rate) dated 28.06.2017 as amended and nil SGST as per Sl.No. 78 of Notification No. II(2)/CTR/532(d-5)/2017 vide G.O. (Ms) No. 63 dated 29.06.2017 as amended.
  6. Type VI (CTH 11029090) : nil CGST as per Sl.No. 74 of the Notification No. 2/2017 -C.T. (Rate) dated 28.06.2017 as amended and nil SGST as per Sl.No. 74 of Notification No. II(2)/CTR/532(d-5)/2017 vide G.O (Ms ) No. 63 dated 29.06.2017 as amended.

M/S. PAPAKA HERBS & SPICES PRIVATE LTD.

Classification of goods – Rice Husk Board – whether classified as wood and Articles of Wood under Chapter 44 and attract 12% rate of GST? – HELD THAT:- Fibreboard manufactured by bonding fibres extracted from wood chips or other lingo-cellulose material. They are bonded together by adding thermosetting resins and find application such as furniture, interior decoration and in building are classified under this heading. The product in hand is a ‘Natural Fibre Composite Board’ with density of ranging from 0.65 – 0.8g/Cm3(as given in the brochure) and finds application in furniture, interior decoration, building, etc. In this case as per the manufacturing process, fibres are extracted from the rice husk and then mixed with lime powder (calcium carbonate), processing additives such as lubricants, foaming agents, foam regulators, heat stabilizers, etc. PVC resin is used as a binding agent. Hence, the product is a Fibreboard and is more aptly classifiable under CTH 441193 as ‘Others’ as it is not a Medium Density Fibreboard. Further classification will depend on the individual properties of the product.

NFC Board manufactured by the applicant with main content as Rice husk, will more appropriately be classified under CTH 441193, the applicable rate of GST is taken up for consideration. The rate of CGST is notified vide Notification No. 01/2017-C.T.(Rate) dated 28.06.2017 as amended in respect of goods and that of SGST is notified vide Notification No. vide G.O. (Ms) No. 62 dated 29.06.2017 as amended. As per Sl.No 92 of Schedule-II of the Notifications, specifies the following goods falling under Chapter 44 or any other Chapter are subject to 6% CGST.

Rice Husk Board or fibre board manufactured from agricultural crop residues, irrespective of the Chapter under which the same are classified, are subjected to CGST @ 6% and 6 % SGST.

No.- TN/54/AAR/2019

Dated.- December 23, 2019

Citations:

  1. PADMAVATHY PANEL BOARDS LTD. Versus COMMISSIONER OF C. EX., BANGALORE – 2001 (5) TMI 264 – CEGAT, BANGALORE
  1. MANASA GANGOTRI KATA, IRS, AND THIRU KURINJISELVAAN V.S., M.SC.(AGRI.), M.B.A., MEMBER

Note: Any appeal against this Advance Ruling order shall lie before the Tamil Nadu State Appellate Authority for Advance Rulings, Chennai as under Sub-section (1) of CGST Act / TNGST Act 2017, within 30 days from the date on the ruling sought to be appealed is communicated.

At the outset, we would like to make it clear that the provisions of both the Central Goods and Service Tax Act and the Tamil Nadu Goods and Service Tax Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the Central Goods and Service Tax Act would also mean a reference to the same provisions under the Tamil Nadu Goods and Service Tax Act.

M/s. PAPAKA HERBS & SPICES Pvt Ltd., No. 205, City Center Road, 2nd Floor, 232 Purasawalkam High Road, Chennai 600 010. (hereinafter referred as ‘Applicant’) is registered under the GST Act 2017 vide GSTIN No. 33AAGCB8401P1Z1. They are engaged in the manufacture of “Natural Fibre Composite Board (NFC) and their manufacturing facility is at 1/138 Ellammankoil Street, Azhinjivakkam Post, Athipedu Village Sholavaram, Chennai 600 067. The applicant has sought Advance Ruling on the following question:

Whether the Rice Husk Board manufactured by the applicant comprising of Natural Fibre (Rice Husk Powder); Calcium carbonate, recycling waste and other processing aid as well as PVC resin, wherein PVC acts only as a bonding agent would remain classified as wood and Articles of Wood under Chapter 44 and attract 12% rate of GST.

The applicant submitted a copy of challan evidencing payment of application fees of ₹ 5, 000/- each under sub-rule (1) of Rule 104 of CGST rules 2017 and SGST Rules 2017.

2.1 The applicant has stated that one of the products manufactured by them is the Rice Husk Board. They procure rice husk from the farming community, rice mills or other traders who supply rice husk according to their requirement. Firstly, the rice husk, is pulverized into a fine powder and then the powdered rice husk otherwise known as natural fibre are derived from the agro-residuals. Thereafter, the natural fibre, is mixed with lime powder (calcium carbonate), processing additives such as lubricants, foaming agents, foam regulators, heat stabilizers, etc. PVC resin is used as a binding agent. The quantity of each part of raw material for the manufacturing process of the above mentioned product is produced below:

ITEM % QTY
Rice Husk Powder (Natural Fibre) 30.00
Calcium Carbonate (Lime powder) 14.00
Recycling waste 18.00
PVC 26.00
Processing aids such as thermos-coupling agents, etc. 8.00
Lubricant 4.00
TOTAL 100.00

Subsequently, the compound is mixed with PVC resin and extruded through a screw-barrel and mould at a preset temperature and pressure. The compound melts under high temperature in the screw-barrel and is released through the mould and is transferred to a thickness calibration unit. Later chilled water passes through the calibration unit in order to settle the thickness and to cool the board. The width of the sheets is maintained according to the width of the mould, which is generally 1350mm. Whereas, the thickness of such sheets is controlled with the flow and opening of the mould the sheet comes out as a continuous process and travels upto a pulling unit called haul off. In order to maintain the width of 1220 mm i.e 4 feet, the automatic system fitted with the machine runs continuously to trim the sides. Whereas, the automatic system fixed at the end of the machine allows the board to cut at a length of 2440mm i.e. 8 feet. This way, a NFC board is manufactured in 2440mm X 1220mm (8 feet X 4 feet). These boards are manufactured in various thicknesses ranging from 6mm to 25mm. They are then calibrated once again with the help of surface sanding machine.

2.2 The applicant has further stated that the dominant raw material used for the Rice Husk Board is the rice husk along with calcium carbonate. The PVC used by the applicant is only a binding agent of raw materials used in the making of the Rice Husk Board. The correct classification of these items and the applicable rate of GST are the issues on which advance ruling is sought by the applicant.

2.3 On the interpretation of law, the applicant has submitted that the natural fibre i.e the powdered rice husk and the carbonated calcium are used in larger proportion for making the Rice Husk Board. The PVC which is otherwise known as Thermoplastic polymers is a naturally white and brittle plastic. The very purpose of the PVC used by the applicant is to bind the raw materials together in order to get the desired output i.e the Rice Husk Board. Thus, the natural fibre is the dominant raw material used for the production of the said board. Wood and Articles of Wood, etc., is classified under Chapter 44 and Particle Board, Oriented Strand Board (OSB) and similar board (for example, wafer board) of wood or other ligneous materials, whether or not agglomerated with resins or other organic binding substances, other than specified boards, exclusively falls under Heading 44.10. On examination of the explanatory notes to HSN, it is observed that the product in question falls under Heading 44.10 for the reasons explained below.

Particle board is a flat product manufactured in various lengths, widths and thicknesses by pressing or extrusion. It is usually made from wood chips or particles obtained by the mechanical reduction of round wood or wood residues. It may also be produced from other ligneous materials such as fragments obtained from bagasse, bamboo, cereal straw or from flax or hemp shives. Particle board is normally agglomerated by means of an added organic binder, usually thermosetting resin, which generally does not exceed 15% of the weight of the board.

The chips, particles or other fragments constituting the particle boards of this heading are usually recognizable at the edges of the board with the naked eye. However, in some cases, microscopic examination may be required to distinguish the particles and fragments from the ligno-cellulosic fibres characterizing the fibreboard of heading 44.1 1. The particle boards are usually sanded. Moreover, they may be impregnated with one or more substances not essential for the agglomeration of their constituent materials but which confer on the board an additional property, e.g., impermeability to water, resistance to rot, insect attack, fire or the spread of flame, chemical agencies or electricity, greater density. In the last instance, the impregnating substances attain an important proportion. Oriented strand board, which is made from layers of thin strands Bf wood which are at least twice as long as they are wide. These strands are mixed with binders (usually waterproof) such as isocyanate orphenolic resins, interleaved together and laid down in layers forming a thick mat in which the strands are generally oriented lengthwise in the surface layers and generally cross oriented or laid down randomly in the inner layers in order to give the board improved elasto mechanical properties. The mat is subjected to heat and pressure producing a solid, uniform, rigid structural board. Wafer board, which is made from thin wafers of wood which are less than twice as long as they are wide. These wafers are mixed with binders (usually waterproof) such as isocyanate or phenolic resins, interleaved together and laid down randomly, thus forming a thick mat. The mat is subjected to heat and pressure producing a solid, uniform, structural board having high strength and water resistance. With regards to other ligneous material whether or not agglomerated with resins or other organic binding substance (other than specified boards), the Hon’ble Tribunal, Bangalore in M/s. Padmavathy Panel Boards vs The Commissioner of Central Excise (2001 (132) ELT 36 Tri Bang] = 2001 (5) TMI 264 – CEGAT, BANGALORE held that:

  1. We have heard both sides and considered the submissions and find-(a) HSN Note relating to particle boards prescribed “it may also be produced from other ligneous materials such as fragments obtained from Bagasse, Bamboo, Cereal Straw or from flax or hemp shieves.” We therefore cannot concur with the submission that boards manufactured out of Rice Husk would be excluded from the purview of particle boards following under Chapter Heading 44.06 as HSN Note did not limit the items, but only gives the example. Tariff Entry 44.06 is very clear, it reads as “Particle Board and similar board of wood or other ligneous materials whether or not agglomerated with resins or other organic binding substances.” The word ‘lignin’ as explained in ‘NEW WEBSTERS’ Dictionary of English, indicates the same to mean a (sic) Botanical origin, it covers an organic substance associated with cellulose in the cell walls especially of the xylem on wood of many plants. This meaning of ‘lignin’ would indicate that the word ‘ligneous’ used in the Entry 44.06, would cover a particle board, made up by using any part of plant material with Resin. ‘Rice Husk’ is part of Rice Plant being other cover of the Rice grain, which is used in thiscase, along with Resin/ Glue, Bamboo, Cereal Straw, flax or hemp shieves and the resultant ‘boards’ would be thus covered by heading 44.06.

Hence, based on the ratio of the Hon’ble CESTAT, Bangalore, the rice husk board of the applicant would very well fall under the said category and would come under the erstwhile classification under Heading 44.06, which is presently classified under heading 44.10. The applicant has further stated that, as per the general explanation note to HSN under Chapter 44, any panel which consists of layers of wood and plastic can be classified under the said Chapter, provided if the later has a subsidiary insulation function in the making of the final product. Thus, the sole purpose of using PVC is to bind the rice husk powder, fillers and other processing additives in order to get the desired output i.e the rice husk board. PVC has a very minimal dominance in the making of the rice husk board. It is evident from manufacturing process that the major proportion of raw material used is rice husk as natural fibre along with calcium carbonate. The other materials such as recycled material & processing addictive and PVC resin are comparatively less in proportion as compared to the natural fibre. The PVC resin, acts as a binding agent of all the other raw materials used. Thus, the major proportion of raw material used for manufacturing the rice husk board is the natural fibre i.e., the powdered rice husk.

Hence, the rice husk board will fall under Heading 44.10 as per the above explanation of the HSN Note.

2.4 The applicant has submitted that, based on the HSN explanatory notes and the ratio of the Hon’ble Tribunal (Bangalore), the Rice Husk Board manufactured by them would appropriately falls under Chapter 44 and Heading 44.10 of the GST Tariff. As per Sl.N0 92 of the Notification 01/2017- (CT Rate) dated 28.06.2017 Schedule 2, specified goods falling under Chapter 44 or any other Chapter are subject to 6% CGST & 6% SGST and the Rice Husk Board is specifically mentioned under the said SI.No. Moreover, the applicant also wish to submit that as long as the product satisfies the description “Rice Husk Board” irrespective of its classification GST at the rate of 12% would apply as per the above notification.

3.1 The applicant was extended an opportunity to be heard in person and was heard on 26.09.2019. Shri. G. Natarajan, Advocate and Shri. Varun Bengani, Director of the applicant company appeared for the hearing. They submitted copies of HSN clarification and explanatory notes quoting General Note stating that they should be classified under chapter 44. They stated that the product uses rice husk which is made into fine powder and mixed with resin and extruded into moulds. This product is a Rice Husk Board, a new product. They submitted copies of CESTAT judgment which classified under 4406 which is now 4410. The product does not have a layer of insulation but the PVC resin is mixed into it. They undertook to submit copies of sale invoices and invoices for all inputs. They reuse any waste generated back into the compound before putting it into a mould. The final rate will be 12% as per SL. No. 92 of Schedule II under 4410.

3.2 The Jurisdiction State Officer appeared for hearing and reiterated the written submissions. In the written submissions, it is stated that no case is pending on the Rate of Tax issue and that the Rate of Tax on the Rice Husk Board manufactured by the applicant is leviable @12% GST, since it comprises Natural Fibre i.e., Rice Husk Powder, Calcium Carbonate, recycling waste and PVC resin which is bonding agent remain classified as Woods and Articles of Wood.

3.3 As undertook during the personal Hearing the Applicant submitted copies of purchase invoice related to Purchase of ‘Rice Husk Powder’, PVC suspension resin, PE wax ( HSN 34049020), Stearic Acid Tariff a 921(HSN 3823)), Cellcom and WPC-3000E (HSN 38099390), NC Blowing Agent AKD-7800(HSN 38099390), Acrylic Processing Aid Type HL 175S(HSN 39069090), Acrylic Processing Aid Type HL-90(HSN 39069090) and sale invoices with the description ‘Indowud NFC Board’ (HSN 44109090) on 10.10.2019. The sample of Indowud – A Zero Wood NFC board produced during the hearing shows that it is similar to a board made of wood.

3.4 It is seen in the product brochure that the product is ‘Indowud NFC Boards’ which is a ‘Natural Fibre Composite’ made of natural fibres, mineral and polymer compounds, other filers and additives. It is claimed to be a better and eco friendly alternative to wood, plywood, and MDF/HDF. It is flame resistant, termite proof, waterproof. Its application include as a substitute to wood based boards in wall paneling, Outdoor furniture, Garden, Pool and Seaside furniture, Kitchen and Dining areas, CNC routing, Thermoforming, Cabinets and wardrobes, Partitions, Fencing, Signage. The brochure further states that the natural fibres are procured from polymers and natural fibres are mixed with minerals, coupling agent, heat stabilizers and necessary additives under monitored temperature and pressure forms a homogenous matrix which is responsible for the bonding between polymers and fibres. The compound is then extruded through various calibration pads. It has density of 650-850 kg/CBM (0.65-0.85 g/cm3) with a 5% variation.

  1. We have considered the application filed by the applicant and various submissions made by them as well as by the department. The short issue involved in thiscaseis determination of the classification for the product manufactured and supplied by the applicant as per the Customs Tariff and the applicable rate of GST payable as per Notification No. 01/2017-CT(Rate) dated 28.06.2017 as amended. As per Section 97 (2) of the CGST Act, 2017, advance ruling can be sought in the matter of classification of any goods and consequently the rate of GST payable. Hence we proceed to examine the issue in detail.

5.1 In terms of explanation (iii) and (iv) to Notification No. 1/2017 – Central Tax (Rate) dt. 28-06-2017, tariff heading, sub-heading, heading and chapter shall mean respectively a tariff item, sub-heading, heading and chapter as specified in the First Schedule to the Customs Tariff Act, 1975 and the rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975, including the Section and Chapter Notes and the General Explanatory Notes of the First Schedule shall be applied for the interpretation and classification of goods.

5.2 The applicant has submitted that the product under consideration is a Natural Fibre Composite (NFC) Board made of Natural Fibre, i.e, Rice Husk Powder which constitutes 30% by weight, Calcium Carbonate (Lime Powder) 14% by weight, Recycling Waste 18% by weight, PVC 26% by weight, Processing aids such as thermos-coupling agents, etc 8% by wt and lubricant 4% by weight. They claim that the product is classifiable under CTH 4410. The relevant CTH and the related Chapter/ Section notes along with the Explanatory Notes of HSN are examined as under:

CTH :4410

4410 PARTICLE BOARD, ORIENTED STRAND BOARD (OSB) AND SIMILAR BOARD (FOR EXAMPLE, WAFERBOARD) OF WOOD OR OTHER LIGNEOUS MATERIALS, WHETHER OR NOT AGGLOMERATED WITH RESINS OR OTHER ORGANIC BINDING SUBSTANCES
Of wood:
441011 Particle board:
44101110 Plain particle boards
44101120 Insulation board and hardboard
44101130 Veneered particle board, not having decorative veneers on any face
44101190 Others
441012 Oriented strand board (OSB):
44101210 Unworked or not further worked than sanded
44101290 Other
44101900 Other
441090 Other:
44109010 Plain particle board
44109020 Insulation board and hard board
44109030 Veneered particle board, not having decorative veneers on any face
44109040 Of Coir
44109050 Of jute fibre
44109090 Other

The Explanatory Notes of HSN states as follows:

4410 PARTICLE BOARD, ORIENTED STRAND BOARD (OSB) AND SIMILAR BOARD (FOR EXAMPLE, WAFERBOARD) OF WOOD OR OTHER LIGNEOUS MATERIALS, WHETHER OR NOT AGGLOMERATED WITH RESINS OR OTHER ORGANIC BINDING SUBSTANCES
Of wood:
441011 Particle board:
441012 Oriented strand board (OSB):
44101900 Other
441090 Other:

Particle board is a flat product manufactured in various length, widths and thicknesses by pressing or extrusion it is usually made from wood chips or particles obtained by the mechanical reduction roundwood or wood residues. It may also be produced from other ligneous materials such as fragments obtained from bagasse, bamboo, cercal straw or form flax or hemp shives Particle board is normally agglomerated be means of an added organic binder, usually a thermosetting resin, which generally does not exceed 15% of the weight of the board.

The chips, particles or other fragments constituting the particle boards of this heading are usually recognisable at the edges of the board with the naked eye. However, in some cases, microscopic examination may be required to distinguish the particles and fragments from the ligno-cellulosic fibres characterising the fibreboard of heading 44.11.

5.3 From the above, it is evident that those boards are manufactured by mechanical reduction of wood residues or other ligneous materials by adding organic binder, usually a thermosetting resin, which generally do not exceed 15% of the weight of the board is classified under this Heading. In the instant case, natural fibre is first extracted from rice husk and then mixed with lime powder (calcium carbonate), processing additives such as lubricants, foaming agents, foam regulators, heat stabilizers, etc. PVC resin is used as a binding agent. If the rice husk was directly added with binders etc without extracting the fibres, the product would be a particle board, which is not the case here.

5.4 We examine the other possible classification for the product. CTH 44 11

4411 FIBRE BOARD OF WOOD OR OTHER LIGNEOUS MATERIALS, WHETHER OR NOT BONDED WITH RESINS OR OTHER ORGANIC SUBSTANCES
Medium density fibre board (MDF):
44111200 Of a thickness not exceeding 5mm
44111300 Of a thickness exceeding 5mm but not exceeding 9mm
44111400 Of a thickness exceeding 9mm
Other:
441192 Of a density exceeding 0.8 gm/cm3 :
Not mechanically worked or surface covered:
44119211 —- Hardboard
44119219 —- Other
Other:
44119221 —- Hardboard
44119229 —- Other
441193 Of a density exceeding 0.5 gm/cm 3 but not exceeding 0.8 gm/cm 3 :
Not mechanically worked or surface covered:
44119311 —- Insulation board
44119319 —- Other
Other:
44119321 —- Insulation board
44119329 —- Other
441194 Of a density not exceeding 0.5 gm/cm 3 :
Not mechanically worked or surface covered:
44119411 —- Insulation board
44119419 —- Other
Other:
44119421 —- Insulation board
44119422 —- Of Coir
44119423 —- Of jute fibre
44119429 —- Other

HSN Explanatory Notes to CTH 4411 States :

44.11 Fibreboard of wood or other ligneous materials, whether or not bonded with resins or other organic substances.
Medium density fibreboard (MDF)
4411.12 – – Of a thickness not exceeding 5 mm
4411.13 – – Of a thickness exceeding 5 mm but not exceeding 9 mm
4411.14 – – Of a thickness exceeding 9 mm
Other :
4411.92 – – Of a density exceeding 0.8 g/cm3
4411.93  – – Of a density exceeding 0.5 g/cm3 but not exceeding 0.8 g/cm3
4411.94  – – Of a density not exceeding 0.5 g/cm3

Fibreboard is most often manufactured from wood chips which have been mechanically defibred (defibrated) or steam exploded or from other defibred ligno-cellulosic material (obtained e.g., from bagasse or bamboo). The fibres making up the board are recognisable under microscopic examination. They are bonded together in the board by felting and by their own adhesive properties, generally deriving from their lignin content. Additional resins or other organic bond me substances may be used to agglomerate the fibres. Impregnating or other agents may also be added during or after manufacture of the board to give an extra property, e.g. impermeability to water or resistance to rot, insect attack, fire or the spread of flame. Fibreboard may consist of a single Sheet or of several sheets bonded together.

The categories of fibreboard of this heading can be distinguished according to their production process and they include :

(A) Fibreboard obtained by the “dry production process”

This group includes, in particular medium density fibreboard (MDF): which is manufactured in a process in which additional thermosetting resins are added to the dried wood fibres in order to assist the bonding process in the press. The density generally ranges from 0.45 g/cm3 to 1 g/cm3. In the unworked state it has two smooth surfaces. It can be used in many different applications such as furniture, interior decoration and in building.

Medium density fibreboard of a density exceeding 0.8 g/cm3 is sometimes also referred to by the trade as “high density fibreboard (HDF)”

(B) Fibreboard obtained by the “wet production process”

This group includes the following types of fibreboard:

(1) Hardboard, which is manufactured in a wet production process in which the wood fibres in suspension in water are compressed in the form of a mat under high temperature and high pressure on a metallic mesh. In the unworked state this type of fibreboard has one smooth and one rough surface with a mesh pattern. However, it can sometimes also have two smooth surfaces obtained by special surf e treatment or a special production process. It generally has a density exceeding 0.8 g/cm3. Hardboard is mainly used for furniture, in the automotive industries, for doorskins and for packaging, especially fruit and vegetable packaging.

(2) Mediumboard, which is manufactured in a way similar to the one for hardboard but at a lower psessure. It generally has a density exceeding 0.35 g/cm3 but not exceeding 0.8 g/cm3. The main application is in furniture production and for interior or exterior walls.

(3) Softboard. This fibreboard is not compressed as the other types of fibreboard obtained the wet production process. It generally has a density of 0.35 g/cm3 or less. These boards are used mainly for thermal or sound Insulation in building. Special types of insulating board are used as sheathing or sarking materials.

The products of this heading remain classified herein whether or not they have been worked to form the shapes provided tor in respect of the goods of heading 44.09, curved, corrugated, perforated, cut or formed to shapes other than square or rectangular and whether or not they have been worked at the surface, the edge or the end, or coated or covered (e.g., with textile fabric, plastics, paint, paper or metal) or submitted to any other operation, provided these operations do not thereby give such products the essential character of articles of other headings.

From the above, it is seen that Fibreboard manufactured by bonding fibres extracted from wood chips or other lingo-cellulose material. They are bonded together by adding thermosetting resins and find application such as furniture, interior decoration and in building are classified under this heading. The product in hand is a ‘Natural Fibre Composite Board’ with density of ranging from 0.65 – 0.8g/Cm3(as given in the brochure) and finds application in furniture, interior decoration, building, etc. In this case as per the manufacturing process, fibres are extracted from the rice husk and then mixed with lime powder (calcium carbonate), processing additives such as lubricants, foaming agents, foam regulators, heat stabilizers, etc. PVC resin is used as a binding agent. Hence, the product is a Fibreboard and is more aptly classifiable under CTH 441193 as ‘Others’ as it is not a Medium Density Fibreboard. Further classification will depend on the individual properties of the product.

  1. Having decided that the NFC Board manufactured by the applicant with main content as Rice husk, will more appropriately be classified under CTH 441193, the applicable rate of GST is taken up for consideration. The rate of CGST is notified vide Notification No. 01/2017-C.T.(Rate) dated 28.06.2017 as amended in respect of goods and that of SGST is notified vide Notification No. vide G.O. (Ms) No. 62 dated 29.06.2017 as amended. As per Sl.No 92 of Schedule-II of the Notifications, specifies the following goods falling under Chapter 44 or any other Chapter are subject to 6% CGST. The said entry is as follows:
92. 44 or any Chapter The following goods, namely :-

a. Cement Bonded Particle Board;

b. Jute Particle Board;

c. Rice Husk Board;

d. Glass-fibre Reinforced Gypsum Board (GRG)

e. Sisal-fibre Boards;

f. Bagasse Board; and

g. Cotton Stalk Particle Board

h. Particle/fibre board manufactured from agricultural crop residues

From the above, it may be observed that Rice Husk Board or fibre board manufactured from agricultural crop residues, irrespective of the Chapter under which the same are classified, are subjected to CGST @ 6% and 6 % SGST.

  1. In view of the above discussions, we Rule as under:

RULING

“Indowud Natural Fibre Composite (NFC)Board” manufactured by the applicant merits classification under Chapter 441193 of the Customs Tariff and attracts 6 % CGST as per S.No. 92 of Schedule II under Notification 1/2017-CentraI Tax (Rate) Dt. 28.06.2017 and 6 % SGST under Notification No. II(2)/CTR/532(d-4)/2017 vide G.o. (Ms) No. 62 dated 29.06.2017 as amended.