Builder Who Excuted Construction of Building For Sale Is Liable To Pay GST

Normally the Joint development agreement (JDA) will have a common clause that, To enter into Agreement of Sale of certain percentage of undivided share of land in the Schedule Property to which the DEVELOPER is entitled to convey under the Joint Joint development agreement and the constructed super built up area of such percentage  and proportionate car parking slots and to enter into any Agreement/s on such terms may deem fit with the prospective Purchaser/s and to obtain the registration of the Sale Agreement, Sale Deed/s, Rectification Deed, Supplemental Deeds, Confirmation Deed, Consent Deed, Cancellation Deed, Correction Deed or any other Assurance in relation to the share of the Developer in the Schedule Property and to present the said document/s for registration before the jurisdictional Sub Registrar or Registrar and to obtain the registration of the same, to sign all applications, declarations, affidavit, and forms as contemplated under the Stamp Act and Rules and The Indian Registration Act and Generally to do all such lawful in relation to the registration of any Deed or deeds. To receive the consideration for sale/transfer/conveyance, as also advances, earnest money deposits, pan payment and balance payment in regard to tire sale/conveyance/transfer of undivided share of the DEVELOPER in the Schedule Property therein and issue receipts and acknowledgements, if required. On a conjoint reading of the JDA and the GPA, it is evident that, the construction has to be carried out by the developer.

The Hon’ble supreme court of India in the case of SRIGANESH CHANDRASEKARAN & OTHERS versus M/S UNISHIRE HOMES LLP & OTHERS given judgment that Landowners cannot be held jointly and severally liable with the developer for deficiency in service arising from construction delays if the obligation to construct rests solely with the developer under the JDA and the General Power of Attorney (GPA) – The developer’s right to enter into sale agreements and undertake construction for their share of the property, coupled with indemnity clauses protecting landowners from the developer’s breaches, shifts the liability for delay compensation exclusively to the developer.

And According to Section 7 (1A) where certain activities or transactions, constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.  (5) Supply of services The following shall be treated as supply of services, namely:—

(b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier.

So the builder who executed the construction of a building or complex for sales to prospective buyer is responsible to pay tax on those goods and services used in the construction of such building or complex for sale under section 7 (1A) read with serial No 2 of schedule II (5) (b) of GST Act. Hence the tax liability will be with the builder who executed the construction of Flats for sales under development agreement with landowners.

The same opinion has been given by Hon’ble HIGH COURT OF KARNATAKA in the case of SHYAMARAJU AND  Co (India) (P.) Ltd Vs DEPUTY COMMISSIONER OF COMMERCIAL TAXES (Audit), Bangalore that Whereas from the above discussion and the given facts in the case, it appeared that works contract service is being provided by the builder/developer to the landowner. The developer receives consideration for the construction service provided by him, from landowner in the form of development rights in “scheduled property”; and from other buyers: normally in cash. Thus, construction of residential complex service provided by the developer in respect of construction of residential flats is taxable in case any part of the payment/ development rights of the land was received by the developer before the issuance of completion certificate and the Goods and Service tax would be required to be paid by builder/developers even for the flats given to the landowner. Further from the available Audit records it is observed that the RP has shared the 30% of total receipts from sale proceeds of flats booked before OC to the landowner and subjected the entire receipts to tax including the portion of landowner, and the flats that were constructed but left unsold as on the date of OC were claimed with exemption from payment of admissible GST. And it is an undisputed fact that pursuant to the said order, the aforesaid M/s. DivyaSree Projects has discharged the entire GST liability towards the entire property as evidenced from the intimation of voluntary payment in Form GST DRC-03. The aforesaid facts and circumstances are sufficient to come to the conclusion that the adjudication order dated 28.12.2023 was passed against the registered person i.e., Developer – M/s. DivyaSree Projects pursuant to which the said person discharged the entire GST liability in relation to the entire property including the 30% share of the petitioner under the Joint Development Agreement dated 06.02.2017 and consequently, the question of there being double taxation i.e., payment being made by the aforesaid M/s. DivyaSree Projects and once again payment being demanded from the petitioner would not arise in the facts and circumstances of the instant case and the impugned order deserves to be quashed

Builder is promoter for construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer

 As per theNotification 7/2019 Dt 29/03/2019 the registered person specified in column (3) of the table below, (Promoter) shall in respect of supply of goods or services or both specified in column (2) of the Table below, received from an unregistered supplier shall pay tax on reverse charge basis as recipient of such goods or services or both, Supply of such goods and services or both [other than services by way of grant of development rights, long term lease of land (against upfront payment in the form of premium, salami, development charges etc.) or FSI (including additional FSI)] which constitute the shortfall from the minimum value of goods or services or both required to be purchased by a promoter for construction of project, in a financial year (or part of the financial year till the date of issuance of completion certificate or first occupation, whichever is earlier).

 And byNotification 8/2019 Dt 29/03/2019  – Schedule III – 9%, after serial number 452P in column (1) and the entries relating thereto, the following serial number and entries shall be inserted that  supply of any goods other than capital goods and cement falling under chapter heading 2523 in the first schedule to the Customs Tariff Act, 1975 (51 of 1975), by an unregistered person to a promoter for construction of the project on which tax is payable by the promoter as recipient of goods under sub- section 4 of section 9 of the Central Goods and Services Tax Act, 2017 (12 of 2017), as prescribed in notification No. 07 / 2019- Central Tax (Rate), dated 29^th March, 2019, published in Gazette of India vide G.S.R. No. _, dated 29^th March, 2019

Since the builder who is procuring the goods and services for construction of complex or building for sales as prescribe under Schedule II (5) of GST, is solely responsible to pay tax under GST either in forwards mechanism or under Reverse Charge mechanism being promoter for the construction of building intended for sale. So no liability on landowner, who is one among all the buyers.    

 No liability on landowner for transfer of development rights.

As per the Notification 5/2019 Dt 29/03/2019, the following further amendments the notification of the Government of India, in the Ministry of Finance (Department of Revenue), No.10/2017- Integrated Tax (Rate), dated the 28th June, 2017, notifies that on categories of supply of services mentioned in column (2) of the Table below, supplied by a person as specified in column (3) of the said Table, the whole of integrated tax leviable  under section 5 of the said Integrated Goods and Services Tax Act, shall be paid on reverse charge basis by the  recipient of the such services as specified in column (4) of the said Table, after serial number 6A and the entries relating thereto, the following serial number and entries shall be inserted 6B Services supplied by any person by way of transfer of development rights or Floor Space Index (FSI) (including additional FSI) for  construction of a project by a promoter and 6C Long term lease of land (30 years or more) by any person against consideration in the form of upfront amount (called as premium, salami, cost, price, development charges or by any other name) and/or periodic rent for Construction of a project by a promoter.

And the builder is liable to pay tax on development rights as per the Notification 4/2019 Dt 29/03/2019.The promoter shall be liable to pay tax at the applicable rate, on reverse charge basis, on such proportion of value of development rights, or FSI (including additional FSI), or both, as is attributable to the residential apartments, which remain un-booked on the date of issuance of completion certificate, or first occupation of the project, as the case may be.

And the following further amendments in the notification of the Government of India, in the Ministry of Finance (Department of Revenue), No.12/2017- Central Tax (Rate), dated the 28^th June, 2017. S. No 41A Service by way of transfer of development rights (herein refer TDR) or Floor Space Index (FSI) (including additional FSI) on or after 1^st April, 2019 for construction of residential apartments by a promoter in a project, intended for sale to a buyer, wholly or partly, NIL RATED ::

Provided that the promoter shall be liable to pay tax at the applicable rate, on reverse charge basis, on such proportion of value of development rights, or FSI (including additional FSI), or both. And as per S. No 41B Upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable in respect of service by way of granting of long term lease of thirty years, or more, on or after 01.04.2019, for Construction of residential apartments by a promoter in a project, intended for sale to a buyer, NIL RATED :: Provided that the promoter shall be liable to pay tax at the applicable rate, on reverse charge basis, on such proportion of upfront amount (called as premium, salami, cost, price, development charges or by any other name) paid for long term lease of land.

Therefore, no liability on landowner EITHER under S. No (1) Transfer (a) any transfer of the title in goods is a supply of goods Schedule II OR under S. No (2) Land and Building (a) any lease, tenancy, easement, licence to occupy land is a supply of services under schedule II.

Second sale of Apartment by Landowner is not liable to tax under GST

Under JDA the builder has to sell the constructed area to every prospective buyer including the landowner. The landowner is one of the buyer under Joint development agreement who got the construction area from the builder. So the builder who executed the construction can only transfer such constructed are by way of sale deed.  Unless the constructed area registered in favour of landowner, the land owner cannot get legal rights on such property.  Hence the second sale of constructed area by the landowner is considered to be sale of building falling under S. No (5) Schedule III   sales of land and building neither sale of goods nor sales of services under GST Act.

Under JDA contracts. the time of supply from builder to landowner as per notification 4/2018 Dt 25/01/2018 shall arise at the time when the said developer, builder, transfers possession or the right in the constructed complex, building or civil structure, to the person supplying the development rights by entering into a conveyance deed or similar instrument (for example allotment letter). Eventually the landowner gets his share of completed building from the builder. Therefore, the sale of his share by the landowner becomes second sale of building by the landlord not liable under serial number 5 of schedule III. With regards to grant of right to develop the property cannot be a supply of service, since the landowner keeps his right with him till the end of the project is being sold.

The same opinion has been upheld by Hon’ble Karnataka High Court judgment in M/S ROHAN CORPORATION INDIA PVT LTD Vs UNION OF INDIA the Hon’ble adjudged   that, when the constructed immovable property whether fully constructed or partially constructed is sold, as such, without providing any construction service subsequently, the same would not attract Paragraph 5(b) of Schedule II and Section 7 of the Act, since there is no supply of goods or services or both in the said transaction and consequently, the question of whether the building has received completion certification or not would be irrelevant in such cases. The fact that Paragraph 5(b) of Schedule II and Section 7, contemplates only construction service provided by a builder/promoter to a service recipient is further evident from the description of service entries provided under “construction services” in the Notification No.11/2017-Central Tax (Rate) dated 28.06.2017 prescribed the rate of GST.  Sale of land is treated under the Act as neither supply of goods nor a supply of service. As far as sale of building is concerned, if the same is not coming within the ambit of Paragraph 5(b) of Schedule II, then the same would be treated neither as supply of goods nor a supply of service. In the present case, as stated supra, the subject transaction would not fall within the ambit of Paragraph 5(b) of Schedule II, as there was no construction service being contemplated between the parties and consequently, in terms of Paragraph 5 of Schedule III, the subject sale transaction between the Petitioner and Respondent No.4 is neither a supply of goods nor a supply of service as wrongly held in the impugned order which deserves to be quashed.

OPINION

Under JDA contracts. the time of supply from builder to landowner as per notification 4/2018 Dt 25/01/2018 shall arise at the time when the said developer, builder, transfers possession or the right in the constructed complex, building or civil structure, to the person supplying the development rights by entering into a conveyance deed or similar instrument (for example allotment letter). Hence the landowner gets his share of completed building from the builder. Therefore the second sale of building effected by the landlord not liable to GST under serial number 5 of schedule III.

With regards to grant of right to develop the property cannot be a supply of service, since the landowner keeps his right on land with him till the completion of project.  And also as per the Notification 4/2019 Dt 29/03/2019 and Notification 5/2019 Dt 29/03/2019 the builder is liable to pay tax under RCM on land taken for construction. Hence no liability on landowner for grant of right to develop the property to a builder under JDA.

Cases Discussed

1. Shyamaraju And Co (India) Private Limited v. Deputy Commissioner of Commercial Taxes (Audit)-1.7 (Karnataka High Court), W.P. No. 5027 of 2024, decided 18 July 2025 — demand on landowner’s share where developer had discharged GST.
2. Rohan Corporation India Pvt. Ltd. v. Union of India (Karnataka High Court), W.P. No. 12700 of 2023, decided 10 September 2024 — sale of immovable property without subsequent construction services.
3. Sriganesh Chandrasekaran & Others v. M/s Unishire Homes LLP & Others (Supreme Court of India) — full citation and judgment date not independently confirmed; contractual responsibility for construction delays.