Flat buyers will face 18% GST on open car parks' sale: AAAR

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The sale or right to use a parking lot is not inherently packaged with construction services, according to the West Bengal bench of the Appellate Authority of Advance Rulings (AAAR), which upheld an earlier decision. As a result, it won't be considered a composite supply and will be subject to GST at the higher rate of 18%.

Eden Real Estates, which is involved in the building of residential units, appealed the AAAR's decision.

Beginning April 1, 2019, non-affordable housing projects without input tax credits will be subject to a 5% GST (ITC). The builder has the option to pay GST at the previous rate of 12% with ITC for ongoing projects (like this one), meaning taxes spent on inputs can be offset. If the AAAR had viewed the transaction involving the parking lot as a composite supply, the GST levied would have applied would have been the lower primary supply of construction levied.

The effect of this decision, according to Anita Rastogi, principal (indirect taxation) at Price Waterhouse-India, is that purchasing residences with parking spaces will be more expensive.

"Although advance rulings are only enforceable against the parties involved in the transaction for which the judgement was requested, tax authorities frequently depend on rulings that are in the department's favour. Litigation follows if the taxpayer (in this case, a builder) used a different strategy. As a result, some builders can take a cautious stance and charge 18% GST for the parking space.

In this instance, the real estate developer claimed that the parking space was only provided to flat purchasers and that stamp duty had already been paid on the full amount they were charged (that is, price of the apartment and the car parking space).

The AAAR bench did note, however, that potential apartment purchasers may or may not choose a parking space when booking their apartment. Hence, the claim that the right to use an open parking spot is a composite supply that is inextricably linked to building services fails.

Additionally, since the buyer of the apartment only receives the "right to use" the available parking space, it is a completely different service.

The bench further noted that under RERA, an open parking space is not included in the definition of a garage. The arguments centered mostly on open automobile parking spaces.