2026-VIL-89-AAR
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SGST Advance Ruling Authority

GST – Karnataka AAR - Classification of Supply, Development of residential villa project under Joint Development Agreement - Whether the agreement entered into by the applicant with the customers for construction of villa results in a supply of goods or services, when the entire construction is proposed to be outsourced to a contractor - HELD - The agreement for construction of villa constitutes a supply of service under the provisions of the CGST Act, 2017, notwithstanding the fact that the actual construction activity is outsourced to a third-party contractor - Further, works contracts relating to immovable property have been expressly classified as a supply of services under paragraph 6(a) of Schedule II to the CGST Act. The existence of a sub-contractor or the outsourcing of construction activity does not dilute or negate the Applicant’s independent supply to the customers, as each supply is liable to tax in the hands of the respective supplier – The agreement entered into by the Applicant with the buyers for construction of villas constitutes a taxable supply of construction service under GST, and the applicant cannot avoid tax liability on the ground that the construction activity has been entirely outsourced to a contractor – Ordered accordingly - Whether the supply undertaken by the applicant in respect of construction of villas is classifiable under Heading 9954(xii) and chargeable to 18% GST under Sl. No. 3 of Notification No. 11/2017-CT(R) dated 28.06.2017, as amended, or classifiable under Heading 9954(ia) and chargeable to GST at 7.5% under the said notification – HELD - The Applicant is engaged in the development of a residential villa project under a Joint Development Agreement and enters into agreements with prospective buyers prior to completion of construction. The Applicant receives consideration from the buyers linked to construction milestones and undertakes to deliver completed residential villas. Such activity squarely falls within the scope of construction of residential units intended for sale, where consideration is received before issuance of completion certificate - While transfer of title in land is covered under Schedule III to the CGST Act, 2017 and is not exigible to GST, the agreements are executed in pursuance of a single economic objective, namely, supply of a completed residential villa to the buyer. The sale of land and construction of villa are naturally bundled and supplied in conjunction with each other in the ordinary course of business. Therefore, the transaction qualifies as a composite supply in terms of Section 2(30) of the CGST Act, 2017, with construction service being the principal supply - The supply is classifiable under Heading 9954(ia) of the Scheme of Classification of services and is liable to GST at the rate of 7.5% under Sl. No. 3 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended. The value of supply shall be determined by deeming one-third of the total amount charged (including consideration towards land and construction) as the value of land, and the remaining amount as the taxable value of construction services, as per the valuation mechanism prescribed under the relevant rate notification.
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