Court Quashes Previous Orders, Emphasizing Retrospective Application of GST Council's Clarification
In a significant development, the Punjab and Haryana High Court has ruled in favor of DLF Limited, holding that charges collected for preferential location of flats are integral to the supply of construction services and must attract the same Goods and Services Tax (GST) rate. This decision overturns previous rulings by the Advanced Ruling Authority and the appellate authority, which treated these charges as separate from construction services.
The case revolved around whether the charges collected by DLF Limited for preferential locations of flats should be taxed independently or alongside the main construction services. Initially, the Advanced Ruling Authority, through its order dated August 28, 2020, and subsequently the appellate authority on March 28, 2022, held that these charges should be taxed separately.
However, the GST Council, in its 54th meeting on September 9, 2024, recommended that preferential location charges should not be taxed separately but as part of the construction services. This recommendation was subsequently accepted by the Government of India, which issued a circular on October 11, 2024, clarifying that the charges for preferential location of an apartment form an integral part of the supply of construction services and should be taxed at the same rate.
The High Court bench, comprising Justices Deepak Sibal and Lapita Banerji, emphasized that the circular issued under Section 168(1) of the Central Goods and Services Tax Act, 2017, has a retrospective application. Therefore, the previous orders by the Advanced Ruling Authority and the appellate authority have been quashed, aligning with the GST Council's recommendations.
This judgment reinforces the view that preferential location charges are naturally bundled with construction services, thereby qualifying for the same tax treatment. The decision is anticipated to bring clarity and uniformity in the application of GST on real estate transactions, benefiting developers and homebuyers alike.
Bottom line:-
GST on Preferential Location Charges (PLC) - Charges collected for preferential location of flats are integral to the supply of construction services and attract the same GST rate as construction services.
Statutory provision(s): Central Goods and Services Tax Act, 2017 Section 168(1), Rule 98
