Sale of car parking is not naturally bundled with construction services: AAAR

The West Bengal Appellate Authority of Advance Ruling (AAAR West Bengal) in the matter of M/s Eden Real Estates Private Limited has ruled out that Sale of car parking is not naturally bundled with construction services.

The appellant is stated to be in the business of construction of residential apartments intended for sale to buyers and one such project is named “EDEN CITY MAHESHTALA” which has multiple towers in different stages of completion. It is submitted by the Appellant that the prospective buyers are given an option to acquire car parking space along with the apartment being booked by them and accordingly the buyers who opt to avail the car parking facility are charged a certain sum towards the car parking space and the same forms part of the total consideration charged by the Appellant from the prospective buyer. It is to be mentioned that the project commenced prior to 01.04.2019 and the Appellant exercised option to remain in the old tax rate prior to 01.04.2019.

The Appellant sought an advance ruling under section 97 of the West Bengal Goods and Services Tax Act, 2017/ Central Goods and Services Tax Act, 2017 (hereinafter referred to as the “GST Act”) before the WBAAR on the following questions:

(a) Whether the amounts charged by the applicant for right to use of car/two wheeler vehicle parking space along with the sale of under constructed apartments to its prospective buyers is to be treated as a composite supply of construction of residential apartment services or the same is a distinct supply under section 7 of the CGST/WBGST Act, 2017.

(b) If the same is not to be treated as a composite supply, then the rate of tax applicable on such charges collected by the applicant from its prospective customers.

(c) If such apartments are sold after receipt of completion certificate from the competent authority, then whether the amounts collected for right to use of car parking space will also be treated as a non GST supply under Schedule III of the CGST/WBGST Act, 2017 and no GST shall be payable on the amounts charged towards such right to use car parking space.

(d) Whether the taxability would change if such charges for right to use of car parking space is collected after the sale of the apartment has been done i.e. the customer had not opted for the car parking space at the time of purchase of the under constructed unit, but had sought for the same after the unit was handed over to the customer after receipt of the completion certificate.

In those cases where completion certificate has already been obtained from the competent authority and as the principal supply becomes a non GST supply consequently the entire supply (apartment and right to use of open parking space) being a bundled supply is treated as non GST supply and hence no GST is charged on it. The Appellant’s representative further stated that the appellant was registering the deed of conveyance of both sale of apartment and right to use of open parking space and payment of statutory stamp duty was being made on the entire consideration received from the bundled supply. Reference was drawn by the Appellant’s representative to Circular No.34/8/2018-GST dated 01.03.2018, where it was clarified that “the primary question that should be asked is what is the essential nature of the composite supply and which element of the supply imparts that essential nature of the composite supply”. It was further clarified in case of re-treading tyres the essential supply was the service of re-treading and the supply of rubber in the process was an ancillary supply. In line with this argument the Appellant’s authorized representative stressed on the point that the facility of right to use of open parking space is naturally bundled with the construction services for /sale of apartment.

The Appellant’s authorized representative also relied on the rulings given by both WBAAR and WBAAAR in the matter of M/s Bengal Peerless Housing Development Co. Ltd. where both agreed that car parking space was ancillary supply to the principal supply of construction services for apartment. In view of this observation the Appellant’s authorized representative argued that the construction services for the apartment together with the right to use of open parking space is a bundled supply and will attract tax of that of the principal supply and will also qualify for the abatement given on the value of land for both principal and ancillary supply. Thus in case of an apartment sold after receipt of completion certificate, it being a sale of building covered under Schedule III of the GST Act and the right to use of car parking space being a part and parcel of composite supply will also not attract any tax under the GST Act.

The Appellant’s authorized representative further argued that these open parking spaces have been shown in the sanctioned plan of the project and at the time of registering the deed of conveyance appropriate stamp duty is paid on the entire consideration received from this right to use of parking space. During the course of hearing the Appellant’s authorized representative submitted copies of allotment letters issued by the Appellant to its customers and they show valuation of apartments, parking spaces and other charges along with the amount of abatement given and the amount of tax charged under the GST Act.

The Respondent was of the view that as the parking facility was an optional facility as stated by the Appellant the right to use of open parking space along with the construction services for the apartment cannot be classified as composite supply. Further the nature of service being right to use means that the ownership of the space is not being transferred to the allottee. Hence, the right to use of open parking space is a separate service altogether.

Provisions of RERA that though a sanctioned plan requires inclusion of parking layout, an uncovered parking space such as open parking area is not included in the definition of “garage” but falls within the meaning of “common area”. Now the “common area” belongs to all apartment owners jointly or the owners’ association when formed and no portion can be sold/transferred/leased out to any person by the promoter. So in the instant case the sanctioned plan may have open parking spaces but the Appellant has no right to transfer ownership or lease out or allow right to use of the said spaces to allottees. The owners’ association on joint agreement of its members may lease out the open parking space on rent at a future date but that question is beyond the ambit of the current discussion. So it is clear that the consideration collected from allottees for right to use of open parking spaces will not form a part of value of “composite supply” as prayed for by the Appellant. The amount charged by the appellant for right to use of car/two wheeler vehicle parking space, though not permissible as per RERA, constitutes a separate supply under the GST Act and the appellant is therefore liable to pay tax @ 18% on such supply. Further, the question of one-third abatement of valuation of land for open parking space is not maintainable as the “common area” which includes such open parking space is considered in the valuation of apartment and one-third abatement on supply of construction services is being availed before levy of tax under the GST Act.

Further, it has been submitted by the appellants that their prospective buyers are given an option to opt for car parking space along with the apartment being booked by the customers and accordingly, the customers who opt for availing the car parking facility also, are charged a certain sum towards the car parking space. A customer of a flat may avail car parking facility even after the issuance of completion certificate of the project. A customer may choose to opt or not opt for car parking at the time of purchase/booking of an apartment.

As per Sec 2(30) of the GST Act, –“composite supply means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply”.

So, it is evident that sale/right to use car parking service and construction services are separate services which are not dependent on sale and purchase of each other. Therefore, sale/right to use car parking is not naturally bundled with construction services and hence, it can not be treated as composite supply of construction services.

In view of the above discussion WBAAR Ruling No. 19/WBAAR/2022-23 dated 22.12.2022 is confirmed. The appeal thus fails and stand disposed.

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