Applicability of GST on Sale of developed Plots (where developer is owner of Land) Before completion Certificate
In general practice many developers treating it as sale of Land by taking an assumption that basic facilities provided such as Roads, drainage system, Electrical work, etc along with land as an ancillary services and sale of land is a principal supply [Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building (Clause 5 of Schedule III read with clause (30) of Section 2 of CGST Act, 2017]
From the above definition, sale of developed plots neither treated as a supply of goods nor supply of services. Therefore, GST is not applicable if it treats as sale of land.
After receipt of Rulings of AARs in some states, Land owners are under confusion that whether GST is applicable on sale developed plots or not?
Let us see whether GST applicable on Sale of developed plot, developed by land owner.
The following are the Ruling under various AARs:
1. PPD Living Spaces Private Limited (GST AAR Kerala) dated 26-09-2018:
a. Facts: In this case Lad owner charged separately for Land and development of roads up, water and electricity supply to each plot, water drains, trees, party hall, health club, play courts, compound wall and collected GST at the rate of 18% only on development charges. Applicate have taken ITC received on development of said facilities.
b. Applicant questions before Authority are
i. Is it correct structure agreement by fixing the land cost by absorbing the development charges?
ii. Whether the ITC availed on goods/services used for development of land has to be paid back on pro rata basis, on plots sold after completion.
c. Decision of Authority:
i. It is lawful to structure agreement by fixing the land cost after absorbing the development charges.
ii. ITC availed is liable to be reversed on pro rata basis, on plots sold after completion.
2. Satyaja Infratech (GST AAR Gujarat) dated 20-09-2019:
a. Facts: In this case applicant treated sale of developed plot as sale Land as per para 5 of schedule III of CGST Act, 2017.
b. Applicant questions before Authority are
i. Whether the activity of purchase of land and selling the said land by converting in to integrated residential sub plots of varying sizes under name of “Bliss Homes” with basic facilities prescribed is liable to GST or not ?
ii. If the same is liable for GST then under which category of supply it will fall and what will be the rate of GST on it?
c. Decision of Authority:
i. Sale of developed land with the basic facilities is liable to GST.
ii. The activities fall under clause (b) of paragraph 5 of schedule II of CGST Act, 2017 (i.e., treated as construction of complex, building, civil structure or part thereof intended for sale to a buyer). GST rate attracts as per serial no 3 of Notification No 11/2017 Central Tax (Rate) [i.e., 12% or 1% or 5%]
3. Shree Dipesh Anilkumar Naik (GST AAR Gujarat) dated 19-05-2020:
a. Facts: In this case applicant develops land into plots with facilities as per the plan approved by local authority and treated as sale of land as per para 5 of schedule III to CGST Act, 2017. Applicant also pointed out that the transaction shall be out of GST net only if the activity is exclusively dealing with transfer of title or transfer of ownership of land, which is immoveable property or earth. Here the substance of agreement between the parties is important. Where the nature of activity is that of only sale of immoveable property of plot, it is excluded from GST levy.
b. Applicant questions before Authority are
i. Whether GST is applicable on sale of plot of land for which, as per the requirement of approved by the respective authority (i.e. Jilla Panchayat), Primary amenities such as, Drainage line, Water line, Electricity line, Land levelling etc. are to be provided by the applicant?
c. Decision of Authority:
i. The above indicates that sale of developed plot is not equivalent to sale of land but is a different transaction. Sale of such plotted development tantamount to rendering of service. This view has also been taken by the Supreme Court in the case of M/s Narne Construction P Ltd. reported at 2013 (29) STR 3 (SC)
ii. Sale of developed plot is liable to GST.
Conclusion: From the above rulings concluding that department is under view that “sale of developed plots cover under supply of services”. On the other hand, in case of Maarq Spaces Private Limited (In case of Joint Development Agreement), GST AAR Karnataka has taken different view that in case land owner it is sale of Land as per para 5 of Schedule III of CGST Act, 2017 as he has title to the land and in case of developer it is supply of service. Department should bring proper provisions & rules in this regard.
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Disclaimer: This article is only for reading purpose of the reader and has no legal validity. Hence no liability shall arise to the author whatsoever for relying on the above article.
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