GST Rate and ITC Eligibility for Residential Villa Projects Commencing On or After 01.04.2019 — Kerala AAR Rules in ICLOUD Homes Case

Overview of the Advance Ruling

The Kerala Authority for Advance Ruling (AAR) examined a set of critical questions raised by M/s. ICLOUD Homes Private Limited, a registered promoter engaged in constructing and selling residential villas and apartments in Thiruvananthapuram. The ruling addressed the GST classification, applicable rate of tax, and input tax credit (ITC) eligibility in respect of residential villa projects that commenced on or after 01.04.2019, along with ancillary and modification works carried out for villa buyers. The case provides significant clarity on the post-01.04.2019 real estate GST regime and the limitations it imposes on new projects.

Background and Nature of Business

M/s. ICLOUD Homes Private Limited is registered as a regular assessee under the CGST Act. The company is engaged in developing villa projects and apartments within Thiruvananthapuram city. Prior to 01.04.2019, the assessee discharged GST at an effective rate of 12% on its construction services — factoring in the one-third deduction towards land value as permitted under Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017.

When the Government restructured the GST rate framework for the real estate sector through Notification No. 03/2019-Central Tax (Rate) dated 29.03.2019 (effective 01.04.2019), the assessee exercised the available option for all projects that qualified as "ongoing projects" as on 31.03.2019, thereby continuing those projects under the earlier rate structure with ITC.

However, the present advance ruling pertained to two separate projects — "Winds of Change – Phase II" and "The 44 Club – Phase II" — which the assessee maintained had commenced only after 01.04.2019, supported by development permits issued by the Thiruvananthapuram Corporation. These projects did not qualify as ongoing projects and were therefore outside the scope of the option exercised earlier.

Questions Raised Before the Authority

The assessee sought rulings on the following key issues:

  1. Classification and SAC code applicable to construction services provided to villa buyers for projects commencing after 01.04.2019
  2. Classification of additional modification works and ancillary services rendered to villa buyers
  3. Applicable GST rate under Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended
  4. Eligibility to avail ITC on inward supplies used for such construction services
  5. Whether ITC availed "under protest" and retained in the electronic credit ledger could be utilised, or whether the assessee could opt to pay a higher rate of GST in order to retain ITC

Admissibility of the Application

The Authority confirmed that the questions raised fell within the scope of clauses (a), (b), (d) and (e) of sub-section (2) of Section 97 of the CGST Act, 2017, as they pertained to classification of services, applicability of a notification, determination of tax liability, and admissibility of ITC. The jurisdictional officer confirmed no pending or decided proceedings existed against the assessee in respect of the subject matter. The application was accordingly admitted and taken up for consideration on merits.

A personal hearing was initially granted on 10/09/2024, followed by a re-hearing on 20/06/2025 due to a change in the composition of Central and State members. The assessee was represented by Shri. Unnikrishnan, Chartered Accountant, in the virtual hearing.

Discussion and Findings by the Authority

Classification of Villa Construction Services

The Authority examined whether residential villas constructed and sold under projects commencing on or after 01.04.2019 — specifically those that are "other than affordable residential apartments" in a Residential Real Estate Project (RREP) — would fall under the category of a developer-promoter as defined under Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended.