QUESTION

The question is about the GST rate on RREP affordable housing project (Commercial units) The said project was ongoing project as at 01/04/2019 for which builder/developer has opted out the old scheme. It was an afforable housing project under the scheme of Govt. of Haryana. The project was sanction as residential as well commercial units jointly by the government. Builder/developer was charging the GST @12% (effective rate 8% with transfer of land rights) on residential construction. Now, its commercial part (office, shops etc.) is going to start which is under 15% threshold limit of RREP project. Now the questions are 1. Whether the construction of commercial units will be covered under ongoing project as at 01/04/19 despite the construction is started now? 2. What will be GST applicable rate on Commercial units as per notification no. 03/2019 CTR dated 29/03/2019?

ANSWER

FACTS OF THE CASE:
The project was ongoing project as at 01/04/2019 for which builder/developer has opted out the old scheme. The project was sanctioned as residential as well commercial units jointly by the government. Builder/developer was charging the GST @12% (effective rate 8% with transfer of land rights) on residential construction. Now, its commercial part (office, shops etc.) is going to start which is under 15% threshold limit of RREP project. 1. Whether the construction of commercial units will be covered under ongoing project as at 01/04/19 despite the construction is started now? 2. What will be GST applicable rate on Commercial units as per notification no. 03/2019 CTR dated 29/03/2019?

LAW APPLICABLE:
Notification No. 11/2017-Central Tax (Rate)

(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, partly 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.

(ie) Construction of an apartment in an ongoing project under any of the schemes specified in sub-item (b), sub-item (c), subitem (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 option to pay central tax on construction of apartments at the rates as specified for this item.

(Provisions of paragraph 2 of this notification shall apply for valuation of this service)

 6

Provided that in case of ongoing 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 as specified for item (ie) or (if), as the case may be, by the 20th of May 2019

Provided also that where the option is not exercised in Form at annexure IV by the 20th 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;

Provided also that invoices for supply of the service can be issued during the period from 1st April 2019 to 20th of May 2019; before exercising the option, but such invoices shall be in accordance with the option to be exercised.;

(if) Construction of a complex, building, civil structure or a part thereof, including,-
(i) commercial apartments (shops, offices, godowns etc.) by a promoter in a REP other than RREP,
(ii) residential apartments in an ongoing project, other than affordable residential apartments, in respect of which the promoter has exercised option to pay central tax on construction of apartments at the rates as specified for this item in the manner prescribed herein,
but excluding supply by way of services specified at items (i), (ia), (ib), (ic), (id) and (ie) above intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier.
Explanation. -For the removal of doubt, it is hereby clarified that, supply by way of services specified at items (i), (ia), (ib), (ic), (id) and (ie) in column (3) shall attract central tax prescribed against them in column (4) subject to conditions specified against them in column (5) and shall not be levied at the rate as specified under this entry.

(Provisions of paragraph 2 of this notification shall apply for valuation of this service

 9

Press Release dated 07/05/2019 FAQs on real estate

30

 (a) In case of a single building registered as 2 (two) separate projects under the provisions of RERA viz. 1st to 10th floor as one Project and 11thto 20th floor as another project, whether the Developer can consider the entire building as single ongoing project, since all the three conditions to be complied with for classifying a project as an ongoing project can be satisfied only if the entire building is considered as a single project'

(b) Furthermore, if different towers in a single layout are registered as separate projects under the provisions of RERA but where the approvals are common for all the towers, whether the Developer can consider entire layout as a single Ongoing project '
 

 (a) Both the projects registered as separate projects under RERA, 2016 shall be treated as distinct projects for the purpose of Notification No. 11/2017-Central Tax (Rate) dated 28-06-2017 as amended by Notification No. 3/2019-Central Tax (Rate) dated 29-03-2019. Both the projects will have to independently satisfy the requirements of the definition of ongoing projects.

(b) No. All the towers registered as different projects under RERA shall be treated as distinct projects. Only such towers registered as distinct projects for which commencement certificate has been issued on or before 31-03-2019, construction has started on or before 31-03-2019 and for which apartments have been booked on or before 31-03- 2019 but completion certificate has not been issued or first occupation has not taken place by the said date shall be treated as ongoing projects.

INTERPRETATION:
Any project to be considered as ongoing project as on 01/04/2019 is required to satisfy all the conditions contained in Definition of Ongoing Project given in Notification No. 11/2017 Central Tax (Rate) as reproduced above.

In the current case, the Project was sanctioned as residential as well as commercial units jointly by the Government and the said project was ongoing project as at 01/04/2019 for which GST rates as per old scheme was opted. Therefore the conditions given in the aforementioned definition are satisfied in respect of project as a whole despite of construction of commercial part is started now, only if the entire Project was registered in a single layout, mere approval of the Project as a whole is not enough.

However if both the projects were registered separately for residential and commercial, then they shall be treated as distinct projects and both the projects will have to independently satisfy the requirements of the definition of ongoing projects.

Rate of tax for commercial part as an ongoing Project is 18% as per Notification No. 11/2017 Central tax (rate) as amended vide Notification No. 03/2019 Central Tax (Rate).

CONCLUSION:
If both residential and commercial projects were registered in a single layout then commercial project will be considered as ongoing project subject to conditions mentioned above.
If both residential and commercial projects were registered separately then both the projects will have to independently satisfy the requirements of the definition of ongoing projects even if approval is given by the Government for the Project as a whole. (Reply dt. 27/09/2021)