GST Update on Taxation of Preferential Location Charges

Preferential location charges is an additional cost that a home buyer has to pay for booking a flat which has an advantage over others in terms of location. A preferred location within an apartment or a complex may mean an apartment that faces a park or is a corner plot near the main road. PLC is usually charged per sq. ft of the super area of your apartment.

Preferential location charges were brought under service tax ambit vide Notification No. 24/2010-ST dated 22.06.2010, wherein providing preferential location or external or internal development of complex was leviable to service tax at full rate. It was argued that since preferential location charges are over and above the normal price at which flats are being sold by the builder, service tax at full rate is payable on such charges. However, the assessees contended that the preferential location charges are part and parcel of the sale of flat and service tax is leviable after availing abatement. The treatment of preferential location charges under GST regime is also not expressly stated and is ambiguous.

Under GST regime, there is concept of ‘composite supply’ has been introduced which is akin to the concept of ‘bundled services’. The ‘composite supply’ has been defined in section 2(30) of the CGST Act, 2017 as follows:-
“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

There are two views possible in GST regime also. One view is that preferential location charges are part of the construction of residential complex service and are leviable to GST rate applicable to the construction of residential complex service being 12%. Another view is that preferential location charges are related to only few flats being east facing or corner flats and so are separate service that should attract GST at the rate of 18%. The litigation prevalent in Service Tax Laws appears to have been carried forward in the GST regime also. Hence, clarification in this regard must be issued by the government at the earliest possible.

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GST Update on Taxation of Preferential Location Charges

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