GST on Sale of developed plots without receiving any advance from customers

In re Dharmic Living Private Limited (GST AAR Kerala)

Sale of developed plots without receiving any advance from their customers for undertaking development activities is neither a supply of goods nor a supply of service

The Kerala Authority of Advance Ruling (Kerala, AAR) in the matter of M/s Dharmic Living Private Limited [Advance Ruling No. KER/117/2021 Dated May 28, 2021], ruled that the sale of developed plots / land without receiving any advance from their customers for undertaking development activities is neither a supply of goods nor a supply of service as it is covered by Para 5 of Schedule III of the Central Goods and Services Tax Act, 2017 (CGST Act).

M/s. Dharmic Living Private Ltd (“the Applicant”) is a company registered in Tamil Nadu and engaged in the promotion of gated community villas in the State of Kerala for the prospective villa buyers. The Applicant started the activities in April 2019. They first identify locations suitable for the gated community villa projects and buy the land in their own name and take layout approval in their name and promote the villas to various villa buyers. And in another situation they identify locations suitable for the gated community villa projects and enter into agreement with the landlords for the purchase of the entire land area required for the project. The total area of land is divided into various plots and the layout approval is taken in the name of landlord and the villa approval is taken either in the name of landlord or in the name of villa buyers from concerned local authorities at their expense. In certain cases they redevelop the project that are uncompleted by other developers and will construct villas for the prospective villa buyers.

In some situation they buy land in their own name and develop the land and after getting lay out approval in their name will sell the plots to various prospective buyers without any construction activities. There is only the development of plots and sale of such developed plots. In such cases no advances are received from customers for undertaking the plot development and the plot is sold for a consideration to various buyers after the development work is over.

The Applicant has sought the Advance Ruling on certain issues:

• Whether the rate of GST applicable with effect from April 01, 2019 on Applicant on promotion of villa projects for the villa buyers is 1.5% / 7.5% (effective tax rate 1%/5%) without benefit of Input Tax Credit.
• Whether the GST tax rate of 1.5% / 7.5% is applicable on Applicant in their redeveloped projects undertaken after April 01, 2019 which were uncompleted and already started by developers before March 31, 2019.
• How the taxable value of construction of villa is to be calculated by Applicant on the projects developed and promoted by Applicant on the arrangement of agreement with landlord and landlord selling the plots directly to various villa buyers identified by the Applicant and whether out of the total value of the villa including land value, 2/3rd of the total value shall be taken for payment of GST at the rate of 1.5% / 7.5% (effective rate of 1% / 5% on the total value of villa).
• Whether the GST will be applicable when Applicant buy land and after development sell the developed plots to various customers.

The Hon’ble Kerala, AAR Ruled that the Applicant is liable to pay GST at the rate of 1.5% in respect of the services of construction of affordable residential apartments as per entry at Item (i) and at the rate of 7.5% in respect of the services of construction of residential apartments other than affordable residential apartments as per entry at Item No. (ia) of Sl No. 3 of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 (“Services Rate Notification”) subject to the conditions prescribed under the respective entries in the villa projects.

The Applicant is also liable to pay GST at the rate of 1.5% in respect of the services of construction of affordable residential apartments as per entry at Item (i) and at the rate of 7.5% in respect of the services of construction of residential apartments other than affordable residential apartments as per entry at Item No. (ia) of Sl No. 3 of Services Rate Notification subject to the conditions prescribed under the respective entries in the redeveloped projects undertaken by them after April 01, 2019.

Further the Kerala, AAR ruled that the taxable value of the construction services supplied by the applicant shall be governed by the provisions of Para 2 of Services Rate Notification as amended by Notification No. 03/2019 Central Tax (Rate) dated 29.03.2019 and accordingly the Applicant is eligible to avail deduction of one-third of the total amount charged for the supply in arriving at the taxable value of the supply. And the sale of developed plots / land without receiving any advance from their customers for undertaking development activities is covered by Para 5 of Schedule III of the CGST Act and accordingly it is neither a supply of goods nor a supply of service. Therefore, such sale is not liable to GST.

FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, KERALA

M/s. Dharmic Living Private Ltd (hereinafter referred to as the applicant) is a company registered in Tamilnadu and engaged in the promotion of gated community villas in the State of Kerala for the prospective villa buyers.

2. At the outset, the provisions of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as CGST Act) and the Kerala State Goods and Services Tax Act, 2017 (hereinafter referred to as KSGST Act) are same except for certain provisions. Accordingly, a reference hereinafter to the provisions of the CGST Act, Rules and the notifications issued there under shall include a reference to the corresponding provisions of the KSGST Act, Rules and the notifications issued there under.

3. Brief facts of the case:

3.1. The applicant started the activities in April 2019. They first identify locations suitable for the gated community villa projects and will buy the land in their own name and take layout approval in their name and promote the villas to various villa buyers. In another situation they identify locations suitable for the gated community villa projects and enter into agreement with the landlords for the purchase of the entire land area required for the project. The total area of land is divided into various plots and the layout approval is taken in the name of landlord and the villa approval is taken either in the name of landlord or in the name of villa buyers from concerned local authorities at their expense. After the approval from local authorities, they provide amenities like road, arch, compound wall, rain water harvest, health club etc required for the gated communities. They do marketing activities such as digital, paper ads, media advertisement etc and identify the suitable villa buyers for the projects.

3.2. The exact areas of plots as per the layout approval for each of the villa are sold to the villa buyers by the landlord and there is no undivided share of land involved in these cases. They enter into agreement with landlords to purchase the land as a whole on payment of agreed consideration and period with a condition in the agreement to register the land directly in the name of various villa buyers (may be 3 cents or 5 cents as per the prescribed plan). The land is registered by the landlord directly in the name of villa buyers and consideration for sale of such land is fixed between the applicant and the landlord. The landlord will receive the sale consideration of the plot directly from the villa buyers or from villa buyers through the applicant. A copy of the agreement entered between the applicant and landlord was produced as Annexure – A and copy of the sale deed entered between landlord and villa buyer was produced as Annexure – B. While the booking happens, they enter into construction agreement with the villa buyers to construct and transfer the villa to the villa buyers on payment of the agreed consideration as per the agreed conditions in the construction agreement. A copy of such agreement was produced as Annexure – C.

3.3. They start the construction of each villa for the prospective villa buyers as soon as getting the approval from the concerned authorities and consideration for the construction of the villa is received by them from villa buyer stage wise as per the agreed terms and conditions in the construction agreement. After completion and handing over of the villas to the villa buyers they make necessary arrangements to form an association including all villa buyers in that project and then hand over all common amenities like road etc to them to take care.

3.4. In certain cases, they redevelop the project that are uncompleted by other developers and will construct villas for the prospective villa buyers. All the above redevelopment activities are undertaken only after 01.04.2019. In such uncompleted projects of other developers taken over by them, they will enter into necessary agreements with landlord like in the case of their own projects. They will not undertake the uncompleted works of any specific villa in such projects.

3.5. In certain situations, they buy land in their own name and develop the land and after getting lay out approval in their name will sell the plots to various prospective buyers without any construction activities. There is only the development of plots and sale of such developed plots. In such cases no advances are received from customers for undertaking the plot development and the plot is sold for a consideration to various buyers after the development work is over. There is no development work undertaken by them for and on behalf of buyers.

4. Accordingly, they requested advance ruling on the following;

1. Whether the rate of GST applicable with effect from 01.04.2019 on DLPL on promotion of villa projects for the villa buyers is 1.5% / 7.5% (effective tax rate 1%/ 5%) without benefit of Input Tax Credit?

2. Whether the GST tax rate of 1.5% / 7.5% is applicable on DLPL in their redeveloped projects undertaken after 01.04.2019 which were uncompleted and already started by developers before 31.03.2019?

3. How the taxable value of construction of villa is to be calculated by DLPL on the projects developed and promoted by DLPL on the arrangement of agreement with landlord, landlord selling the plots directly to various villa buyers identified by DLPL. Whether out of the total value of the villa including land value, 2/3rd of the total value shall be taken for payment of GST at the rate of 1.5% / 7.5% (effective rate of 1% / 5% on the total value of villa)

4. We believe that GST will not be applicable when DLPL buy land and after development, sell the developed plots to various customers. Is it correct?

5. Contentions of the Applicant:

5.1. As per Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 03/2019 – Central Tax (Rate) dated 29.03.2019 projects started on or after 01.04.2019 attract GST at the following rates subject to fulfilment of the conditions specified therein;

5.2. Considering the terms in the agreement executed by them with the landlords and villa buyers, they are engaged in construction of villas with effect from 01.04.2019 and therefore the rate of GST applicable for them on the construction of villas is 1.5% for affordable villas and 7.5% for villas other than affordable villas. The effective rate of GST after excluding _1/3rd _of total consideration towards land portion as per Paragraph 2 of the Notification No. 11/2017 CTR shall be 1% for affordable villas and 5% for other than affordable villas, subject to fulfilment of other conditions in the notification.

5.3. The term “Real Estate Project” is defined in Para 4 (will) of the Notification No. 11/2017 CTR as “Real Estate Project (REP)” shall have the same meaning as assigned to it in clause (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016. The definition of Real Estate Project is an inclusive definition which not only includes fresh constructions but also includes even a part of the project and accordingly the construction of villas undertaken by them in a project which are not completed by other promoters will also be liable to GST at the rate as applicable to original promoters. Based on the above, the rate of GST applicable on their redeveloped projects after 01.04.2019 which were uncompleted and already started by other developers before 31.03.2019 is liable to GST in their hands at the rate of 1.5% for affordable villas and 7.5% for villas other than affordable villas. The effective rate of GST after excluding 1/3′ of total consideration towards land portion as per Para 2 of the said notification shall be 1% for affordable villas and 5% for villas other than affordable villas subject to fulfilment of other conditions in the notification.

5.4. As per Para 2 of the Notification No. 11/2017 CT (Rate) dated 28.06.2017 the value of construction services provided by the promoter to the buyers of villas shall be the total amount charged for such supply less the value of such transfer of land or undivided share of land in such supply and the value of land or undivided share of land shall be deemed to be one third of the total amount charged for such supply. Therefore, the taxable value shall be 2/3rd of the total value of villa including the value of land. The CBIC in Q.No. 36 of the FAQ on Real Estate Sector issued under F.No.354/32/2019 – TRU dated 07.05.2019 clarified that the developer cannot take deduction of actual value of land, as the valuation mechanism prescribed in Para 2 of the said notification clearly prescribes one-third abatement towards value of land. Therefore, in all cases the value of land included in the value of villa shall be deemed as 1/3′ of the total value of villa including the value of land. The actual value of land even if mentioned in any of the agreement is of no relevance to calculate the GST payable on the construction services of villa. Accordingly, they are liable to pay GST after deducting 1/3′ towards value of land and the actual value of land mentioned in the agreement is to be ignored.

5.5. They are buying land, developing the land into various plots and after development, sell the developed plot to various customers. No advance is received from the customers for undertaking the development activities in their plots or no development activities are undertaken for the customers after the sale of the plots. There is only a sale of developed plots. In such sale of developed plots, no GST is attracted, as Schedule III to CGST Act specifically states that sale of land is neither supply of goods nor supply of services. Accordingly, they are not liable to pay GST on sale of developed plots.

6. Comments of the Jurisdictional Officer:

The application was forwarded to the jurisdictional officer as per provisions of Section 98(1) of the CGST Act. The jurisdictional officer has not offered any comments and hence it is presumed that the jurisdictional officer has no specific comments to offer. It is also construed that there are no proceedings pending on the issue against the applicant.

7. Personal Hearing:

The applicant was granted opportunity for personal hearing on 22.12.2020. Shri. M.P.Tony, Chartered Accountant represented the applicant for personal hearing. He reiterated the contentions made in the application and requested to issue the ruling on the basis of the submissions made in the application.

8. Discussion and Conclusion:

8.1. The matter was examined in detail. The questions to be answered are regarding the rate of tax and taxable value in respect of the construction services of the villas rendered by them from April 2019 onwards. The contention of the applicant is that as per provisions of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 03/2019 Central Tax (Rate) dated 29.03.2019, the rate of GST applicable is 1.5% for affordable villas and 7.5% for villas other than affordable villas and the provisions of Paragraph 2 of the said notification apply for valuation of the service and accordingly one-third of the total amount charged for the supply is eligible as deduction as the value of transfer of land or undivided share of land involved in the supply in determining the taxable value irrespective of the actual value of land or undivided share of land.

8.2. A new tax structure for real estate sector was introduced with effect from 01.04.2019 onwards by amendment of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 by Notification No. 03/2019 Central Tax (Rate) dated 29.03.2019. Admittedly, the services of construction of villas are being rendered by the applicant after 01.04.2019 and hence the rate as notified under the new tax structure is applicable in respect of the construction services rendered by the applicant.

8.3. The entries at Items (i) and (ia) of S1 No. 3 of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 03/2019 Central Tax (Rate) dated 29.03.2019 reads as follows;

“Heading 9954 – Construction services –

(i) Construction of affordable residential apartments by a promoter in a Residential Real Estate Project (herein after referred to as RREP) which commences on or after 1st April, 2019 or in an ongoing RREP in respect of which the promoter has not exercised option to pay central tax on construction of apartments at the rates as specified for item (ie) or (if) below, as the case may be, in the manner prescribed therein, 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. (Provisions of paragraph 2 of this notification shall apply for valuation of this service)

(ia) Construction of residential apartments other than affordable residential  apartments by a promoter in an RREP which commences on or after 1St April, 2019 or in an ongoing RREP in respect of which the promoter has not exercised option to pay central tax on construction of apartments at the rates as specified for item (ie) or (if) below, as the case may be, in the manner prescribed therein, 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. (Provisions of paragraph 2 of this notification shall apply for valuation of this service).

8.4. The rate of GST applicable for entry at Item (i) is 1.5% [0.75% – CGST + 0.75% – SGST] and for the entry at Item No. (ia) is 7.5% [3.75% – CGST + 3.75% – SGST[. The above rate of GST is subject to the conditions mentioned therein.

The conditions that are common for both the entries are as extracted below; “Condition: Provided that the central tax at the rate specified in column (4) shall be paid in cash, that is, by debiting the electronic cash ledger only;

Provided also that credit of input tax charged on goods and services used in supplying the service has not been taken except to the extent as prescribed in Annexure I in the case of REP other than RREP and in Annexure II in the case of RREP;

Provided also that the registered person shall pay, by debit in the electronic credit ledger or electronic cash ledger, an amount equivalent to the input tax credit attributable to construction in a project, time of supply of which is on or after 1s` April, 2019, which shall be calculated in the manner as prescribed in the Annexure I in the case of REP other than RREP and in Annexure II in the case of RREP;

Provided also that where a registered person (landowner- promoter) who transfers development right or FSI (including additional FSI) to a promoter (developer- promoter) against consideration, wholly or partly, in the form of construction of apartments, – (i) the developer-promoter shall pay tax on supply of construction of apartments to the landowner- promoter, and (ii) such landowner – promoter shall be eligible for credit of taxes charged from him by the developer-promoter towards the supply of construction of apartments by developer-promoter to him, provided the landowner-promoter further supplies such apartments to his buyers before issuance of completion certificate or first occupation, whichever is earlier, and pays tax on the same which is not less than the amount of tax charged from him on construction of such apartments by the developer- promoter.

Explanation. – (i) —developer– promoter is a promoter who constructs or converts a building into apartments or develops a plot for sale, (ii) landowner-promoter is a promoter who transfers the land or development rights or FSI to a developer- promoter for construction of apartments and receives constructed apartments against such transferred rights and sells such apartments to his buyers independently.

Provided also that eighty percent of value of input and input services, [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), electricity, high speed diesel, motor spirit, natural gas], used in supplying the service shall be received from registered supplier only;

Provided also that inputs and input services on which tax is paid on reverse charge basis shall be deemed to have been purchased from registered person;

Provided also that where value of input and input services received from registered suppliers during the financial year (or part of the financial year till the date of issuance of completion certificate or first occupation of the project, whichever is earlier) falls short of the said threshold of 80 per cent., central tax shall be paid by the promoter on value of input and input services comprising such shortfall at the rate of nine percent on reverse charge basis and all the provisions of the Central Goods and Services Tax Act, 2017 shall apply to him as if he is the person liable for paying the tax in relation to the supply of such goods or services or both;

Provided also that notwithstanding anything contained herein above, where cement is received from an unregistered person, the promoter shall pay tax on supply of such cement at the applicable rates on reverse charge basis and all the provisions of the Central Goods and Services Tax Act, 2017 shall apply to him as if he is the person liable for paying the tax in relation to such supply of cement;

Explanation. – 1. The promoter shall maintain project wise account of inward supplies from registered and unregistered supplier and calculate tax

payments on the shortfall at the end of the financial year and shall submit the same in the prescribed form electronically on the common portal by end of the quarter following the financial year. The tax liability on the shortfall of inward supplies from unregistered person so determined shall be added to his output tax liability in the month not later than the month of June following the end of the financial year.

2. Notwithstanding anything contained in Explanation 1 above, tax on cement received from unregistered person shall be paid in the month in which cement is received.

3. Input Tax Credit not availed shall be reported every month by reporting the same as ineligible credit in GSTR-3B [Row No. 4 (D)(2)].”

8.5. Para 4 of the Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 03/2019 Central Tax (Rate) dated 29.03.2019 provides the definition of the different terms used in the above entries. The relevant definitions are reproduced below;

(xiv) the term —apartment shall have the same meaning as assigned to it in clause (e) of section 2 of the Real Estate (Regulation and Development) Act, 2016;

(xv) the term — project shall mean a Real Estate Project or a Residential Real Estate Project;

(xvi) the term —affordable residential apartment shall mean, – (a) a residential apartment in a project which commences on or after 1s^t April, 2019, or in an ongoing project in respect of which the promoter has not exercised option in the prescribed form to pay central tax on construction of apartments at the rates as specified for item (ie) or (if) against serial number 3, as the case may be, having carpet area not exceeding 60 square meter in metropolitan cities or 90 square meter in cities or towns other than metropolitan cities and for which the gross amount charged is not more than forty five lakhs rupees.

(xvii) the term —promoter shall have the same meaning as assigned to it in clause (zk) of section 2 of the Real Estate (Regulation and Development) Act, 2016

(xviii) the term —Real Estate Project (REP) shall have the same meaning as assigned to it in clause (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016;

(xix) the term —Residential Real Estate Project (RREP) shall mean a REP in which the carpet area of the commercial apartments is not more than 15 per cent of the total carpet area of all the apartments in the REP.

(xxix) “Residential apartment” shall mean an apartment intended for residential use as declared to the Real Estate Regulatory Authority or to competent authority.

8.6. The relevant clauses of Section 2 of the Real Estate (Regulation and Development) Act, 2016 which contains the definition of the terms; “apartment”; “promoter” and “real estate project” are reproduced below;

(e) “apartment” whether called block, chamber, dwelling unit, flat, office, showroom, shop, godown, premises, suit, tenement, unit or by any other name, means a separate and self-contained part of any immovable property, including one or more rooms or enclosed spaces, located on one or more floors or any part thereof, in a building or on a plot of land, used or intended to be used for any residential or commercial use such as residence, office, shop, showroom or godown or for carrying on any business, occupation, profession or trade, or for any other type of use ancillary to the purpose specified.

(zk) “promoter” means,— (i) a person who constructs or causes to be constructed an independent building or a building consisting of apartments, or converts an existing building or a part thereof into apartments, for the purpose of selling all or some of the apartments to other persons and includes his assignees; or (ii) a person who develops land into a project, whether or not the person also constructs structures on any of the plots, for the purpose of selling to other persons all or some of the plots in the said project, whether with or without structures thereon; or (iii) any development authority or any other public body in respect of allottees of— (a) buildings or apartments, as the case may be, constructed by such authority or body on lands owned by them or placed at their disposal by the Government; or (b) plots owned by such authority or body or placed at their disposal by the Government, for the purpose of selling all or some of the apartments or plots; or (iv) an apex State level co-operative housing finance society and a primary co-operative housing society which constructs apartments or buildings for its members or in respect of the allottees of such apartments or buildings; or (v) any other person who acts himself as a builder, coloniser, contractor, developer, estate developer or by any other name or claims to be acting as the holder of a power of attorney from the owner of the land on which the building or apartment is constructed or plot is developed for sale; or (vi) such other person who constructs any building or apartment for sale to the general public.

(zn) “real estate project” means the development of a building or a building consisting of apartments, or converting an existing building or a part thereof into apartments, or the development of land into plots or apartment, as the case may be, for the purpose of selling all or some of the said apartments or plots or building, as the case may be, and includes the common areas, the development works, all improvements and structures thereon, and all easement, rights and appurtenances belonging thereto.

9. On a plain reading of the entries at Item (i) and (ia) of S1 No. 3 of the Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 as extracted above, it is evident that the rate of GST prescribed under the entry at Item (i) applies to construction of affordable residential apartments and under the entry at Item (ia) applies to construction of residential apartments other than affordable residential apartments by a promoter in a residential real estate project intended for sale to a buyer except where the entire consideration is received after issuance of completion certificate.

10. From the definition of the term “apartment”; “residential apartment” “real estate project” and “promoter” as above it is clear that the residential villas being constructed by the applicant fall within the definition of residential apartment and the projects undertaken by the applicant including the redevelopment projects fall within the definition of real estate project and the applicant fall within the definition of “promoter”. Further, on a conjoint reading of the above provisions of law, the facts as stated in the application and the terms and conditions in the agreements produced as Annexure A and C it is seen that the services of construction of villas provided by the applicant squarely fall within the description of services specified in Item (i) and (ia) of Sl No. 3 of the Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 03/2019 Central Tax (Rate) dated 29.03.2019 and accordingly the tax rates as prescribed in the said entries shall be applicable to the said services supplied by the applicant. Accordingly, the applicant is liable to pay GST at the rate of 1.5% [0.75% – CGST + 0.75% – SGST] in respect of the services of construction of affordable residential apartments as per entry at Item (i) and at the rate of 7.5% [3.75% – CGST + 3.75% – SGST] in respect of the services of construction of residential apartments other than affordable residential apartments as per entry at Item No. (ia) of Sl No. 3 of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 subject to the conditions prescribed under the respective entries.

11. The next question raised by the applicant is regarding the taxable value of the services of construction of residential villas rendered by them. Both the entries at Item (i) and (ia) of S1 No. 3 of the Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 specify that the provisions of Paragraph 2 of the said notification shall apply for valuation of the service. The provisions of Para 2 of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 is extracted below;

“2. In case of supply of service specified in column (3), in item (i), (ia), (ib), (ic), (id), (ie) and (if) against serial number 3 of the Table above, involving transfer of land or undivided share of land, as the case may be, the value of such supply shall be equivalent to the total amount charged for such supply less the value of transfer of land or undivided share of land, as the case may be, and the value of such transfer of land or undivided share of land, as the case may be, in such supply shall be deemed to be one third of the total amount charged for such supply.

Explanation. -For the purposes of this paragraph—”total amount” means the sum total of,-

(a) consideration charged for aforesaid service; and

(b) amount charged for transfer of land or undivided share of land, as the case may be including by way of lease or sublease.”

In terms of the above Para 2 of the said notification the taxable value in respect of the service specified at item (i) and (ia) of S1 No. 3 of the said notification is the total amount charged for the supply less the value of land or undivided share of land and the value of land or undivided share of land shall be deemed to be one third of the total amount charged for the supply. The CBIC in FAQ’s on Real Estate Sector issued under F.No. 354/32/2019 – TRU dated 07.05.2019 has clarified as follows;

“Question No. 36: Can a developer take deduction of actual value of land involved in sale of unit instead of taking deduction of deemed value of land as per Paragraph 2 to Notification No. 11/2017 – CTR?

Ans: No. Valuation mechanism prescribed in paragraph 2 of the notification No. 11 /2017 – CTR dated 28. 06. 2017 clearly prescribes one-third abatement towards value of land.”

Therefore, the value of land or undivided share of land is deemed to be one-third of the total amount charged for the supply irrespective of the actual value of land and accordingly the applicant is eligible to avail deduction of one-third of the total amount charged for the supply in arriving at the taxable value of the supply.

12. The next question raised by the applicant is whether the activity of purchase of land, development of the same in to plots and sale of the same to various customers without collecting any advance from the customers for undertaking the development activities attract GST. The contention of the applicant is that the activity is sale of land and it is neither a supply of goods nor a supply of services as per Schedule III of the CGST Act. As per Paragraph 5 (b) of Schedule II of the CGST Act,2017 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 shall be treated as a supply of services. In the instant case it is stated by the applicant that they are not receiving any advance from their customers for undertaking development activities in the plot and the plot is sold after development. Hence the transaction is in respect of sale of developed plots / land and is covered by Paragraph 5 of Schedule III of the CGST Act which stipulates that sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building shall be treated neither as a supply of goods nor a supply of service. Therefore, the transaction is not liable to GST.

In view of the observations stated above, the following rulings are issued;

RULING

1. Whether the rate of GST applicable with effect from 01.04.2019 on DLPL on promotion of villa projects for the villa buyers is 1.5% / 7.5% (effective tax rate 1%/5%) without benefit of Input Tax Credit?

The applicant is liable to pay GST at the rate of 1.5% [0.75% – CGST + 0.75% – SGST] in respect of the services of construction of affordable residential apartments as per entry at Item (i) and at the rate of 7.5% [3.75% – CGST + 3.75% – SGST] in respect of the services of construction of residential apartments other than affordable residential apartments as per entry at Item No. (ia) of Si No. 3 of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 subject to the conditions prescribed under the respective entries in the villa projects.

2. Whether the GST tax rate of 1.5% / 7.5% is applicable on DLPL in their redeveloped projects undertaken after 01.04.2019 which were uncompleted and already started by developers before 31.03.2019?

The applicant is liable to pay GST at the rate of 1.5% [0.75% – CGST + 0.75% – SGST] in respect of the services of construction of affordable residential apartments as per entry at Item (i) and at the rate of 7.5% [3.75% – CGST + 3.75% – SGST] in respect of the services of construction of residential apartments other than affordable residential apartments as per entry at Item No. (ia) of S1 No. 3 of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 subject to the conditions prescribed under the respective entries in the redeveloped projects undertaken by them after 01.04.2019 as stated above.

3. How the taxable value of construction of villa is to be calculated by DLPL on the projects developed and promoted by DLPL on the arrangement of agreement with landlord, landlord selling the plots directly to various villa buyers identified by DLPL. Whether out of the total value of the villa including land value, 2/3′ of the total value shall be taken for payment of GST at the rate of 1.5% / 7.5% (effective rate of 1% / 5% on the total value of villa)

The taxable value of the construction services supplied by the applicant shall be governed by the provisions of Para 2 of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 03/2019 Central Tax (Rate) dated 29.03.2019 and accordingly the applicant is eligible to avail deduction’ of one-third of the total amount charged for the supply in arriving at the taxable value of the supply.

4. We believe that GST will not be applicable when DLPL buy land and after development, sell the developed plots to various customers. Is it correct?

The sale of developed plots / land without receiving any advance from their customers for undertaking development activities is covered by Para 5 of Schedule III of the CGST Act and accordingly it is neither a supply of goods nor a supply of service. Therefore, such sale is not liable to GST.

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