Case Law Details

Case Name : In re Karma Buildcon (GST AAAR Gujarat)
Appeal Number : Advance Ruling (Appeal) No. GUJ/GAAAR/Appeal/2021/08
Date of Judgement/Order : 08/03/2021
Related Assessment Year :

In re Karma Buildcon (GST AAAR Gujarat)

In para 2 of Not No. 11/2017-CT (Rate), as amended vide Not. No. 01/2018-CT (Rate), there is deemed provisions that 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. Accordingly, the appellant contention to allow the deduction of actual value of land from the sale value on the grounds that their land value is ascertainable and other grounds is not legal in terms of para 2 of Not No. 11/2017-CT (Rate) as amended vide Not. No. 01/2018-CT (Rate).

We find that the reliance of Rule 18(A)(A) of the erstwhile Gujarat Value Added Tax Rules, 2006 is unjustified in the instant case since the Value Added Tax Act has been subsumed with GST Act. The Value Added Tax Act does not have any legal value in determination of GST liability since the value of supply is to be arrived in terms of the provisions of the GST Act.

In view thereof, we confirm the Advance Ruling No. GUJ/GAAR/R/33/2020 dated 02.07.2020 of the Gujarat Authority for Advance Ruling and reject the appeal filed by M/s. Karma Buildcon

FULL TEXT OF ORDER OF APPELLATE AUTHORITY OF ADVANCE RULING, GUJARAT

At the outset we would like to make it clear that the provisions of CGST Act, 2017 and SGST Act, 2017 are in pari materia and have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the SGST Act.

2. The present appeal has been filed under Section 100 of the Central Goods and Services Tax Act, 2017 and Gujarat Goods and Services Tax Act, 2017 (hereinafter referred to as CGST Act, 2017 and SGST Act, 2017) by M/s. Jayant Snacks and Beverages (hereinafter referred to as Appellant) against the Advance Ruling No. GUJ/GAAR/R/33/2020 dated 02.07.2020 .

3. The appellant has raised the following questions for advance ruling in the application for Advance Ruling filed by it.

1. What will be the value of supply for the transaction of sale of residential/ commercial property with undivided rights of land?

2. In the case of construction of residential/commercial complex, the builder charges an amount which is inclusive of land or undivided share of land. As per Not No. 11/2017-CT (Rate) and 08/2017-I.T (Rate) both dated 28.06.2017 the land value is deemed to be one third (33.33%) of the total amount (i.e. value including land value) and GST is payable on balance amount. But in applicant’s case the value of Land is clearly ascertainable.

In that case actual cost of Land can be deducted for the for the purpose of arriving at the taxable value of supply?

4. The appellant has submitted that they are engaged in the business of construction and buy land to develop residential/ commercial property on that land. They enter into the agreement with prospective buyers for such residential /commercial property and agreements entered into are for inclusive of land or undivided share of land basis. Their cost of land which is being transferred to the buyers on inclusive of land or undivided share of land basis, land value is ascertainable and is more than 33% of the total consideration received.

5. The appellant has further submitted that cost of land that is being transferred to the buyers on inclusive of land or undivided share of land basis need to be allowed to be deducted as a whole and not as provided in Not No. 11/2017-CT (Rate) and 08/2017-I.T (Rate) both dated 28.06.2017 as one third (33.33%) of the value, because in applicant’s case the cost of Land is distinctly determinable and is more than one third (33.33%) of the consideration value of sale of property.

6. The Gujarat Authority for Advance Ruling (herein after referred to as ‘the GAAR’), vide Advance Ruling No. GUJ/GAAR/R/33/2020 dated 08.07.2020 inter-alia observed that the appellant contention to allow the deduction of actual value of land from the transaction value instead of deduction, as defined in the Not No. 11/2017-CT (Rate), is not tenable and beyond the purview of legality. In para 2 of the Not No. 11/2017-CT (Rate), as amended by Not. No. 01/2018-CT (Rate), the value of land or undivided share of land required to be deducted from the total amount charged for the subject supply has been clearly provided and it is deemed to be one third of the total amount charged for such supply. In view of the foregoing, the GAAR ruled as follows :-

Question 1: What will be the value of supply for the transaction of sale of residential/ commercial property with undivided rights of land?

Answer : The value to be arrived in terms of deeming provision of Para 2 of Not No. 11/2017-CT (Rate), as amended by Not. No. 01/2018-CT (Rate), dated 25-1-2018.

Question 2: In the case of construction of residential/commercial complex, the builder charges an amount which is inclusive of land or undivided share of land. As per Not No. 11/2017-CT (Rate) and 08/2017-I.T (Rate) both dated 28.06.2017 the land value is deemed to be one third (33.33%) of the total amount (i.e. value including land value) and GST is payable on balance amount. But in applicant’s case the value of Land is clearly ascertainable. In that case actual cost of Land can be deducted for the for the purpose of arriving at the taxable value of supply?

Answer : Negative.

6. Aggrieved by the aforesaid advance ruling, the appellant has filed the present appeal.

7. During the course of personal hearing held on 11.2020, the appellant reiterated the submissions made in the appeal dated 31.08.2020.

8. The appellant in the ground of appeal has submitted as under:

(i) The Advance Ruling Authority has erred in deciding that the appellant is required to deduct one third value of land and not the actual full value of land on undivided shares basis from the total value charged for the subject supply.

(ii) The Authority of Advance Ruling by deciding that only 33% of the value of consideration received can be deducted has mechanically followed the provision of Para 2 of the Not No. 11/2017-CT (Rate) as amended vide Not. No. 01/2018-CT (Rate). Thereby they have not taken into consideration the spirit behind the intention of GST regime that intends not to tax Land and for the purpose exclude the land value.

(iii) Section 2 (102) of CGST Act, 2017 defines “Services” means anything other than goods. Thus sale of land and building can be service under GST Act, as it is not goods. As per Para 5 of Schedule III of CGST Act, 2017 sale of land is ‘neither supply of goods nor a supply of service’, therefore, GST cannot be imposed on sale of land.

(iv) By capping the deductible value of land to the extent of one third value and not the actual value of land on undivided share basis from the total value charged for subject supply is contrary to the GST’s design of taxing land out of the purview of GST.

(v) As per erstwhile Rule 18 (AA) of Erstwhile Value Added Tax Rules, 2006 when amount of labour is not ascertainable for works contract transactions, a prescribed ratio/percentage is applied to determine the amount to be deducted.

(vi) The deemed value as prescribed in the Not No. 11/2017-CT (Rate) and 08/2017-I.T (Rate) both dated 28.06.2017 can be applied when the value of land is not ascertainable. Whereas in the instant case value of land is ascertainable; therefore, value of land an immovable property which is not to be taxed under GST regime need to be allowed to be deducted as an entire whole amount.

(vii) The value of land cannot be the same at all places and it varies from place to place and even at different location in same city/town. In view of that, a uniform deduction for land @33% as prescribed by the notification is contrary to the ground realities. In the instant case the actual cost of land is distinctly ascertainable and much more than 33% of the total value to be realized of the constructed residential bunglow property therefore, actual amount of land ought to be deducted.

9. The appellant has prayed the following:

[1] The ruling order passed by the Hon’ble Advance Ruling Authority in appellant’s case, may kindly be quashed and set aside.

[2] Be held that, the appellant’s actual cost of land be allowed to be deducted as no tax on land is leviable under GST regime.

FINDINGS :-

10. We have carefully gone through and considered the appeal and written submissions filed by the appellant, submissions made at the time of personal hearing, Advance Ruling given by the GAAR and other material available on record.

11. The appellant has contended that in their case the actual value of land of undivided share is ascertainable therefore, they may be allowed the deduction of full value of land from the total value to be realized of the constructed residential bungalow property and not 33% as prescribed under Not No. 11/2017-CT (Rate) and 08/2017-I.T (Rate) both dated 28.06.2017.

12. We find that the applicant’s above grounds of contention, as stated in aforesaid para to allow the deduction of actual value of land from the transaction value instead of deduction, as defined in the Not No. 11/2017-CT (Rate), is not tenable and beyond the purview of legality. In para 2 of the Not No. 11/2017-CT (Rate), as amended by Not. No. 01/2018-CT (Rate), the value of land or undivided share of land required to be deducted from the total amount charged for the subject supply has been clearly provided. The relevant Paragraph 2 of the Not No. 11/2017-CT (Rate), is read as under :

2. In case of supply of service specified in column (3) of the entry at item (i) against serial no. 3 of the Table above, involving transfer of property in land or undivided share of land, as the case may be, the value of supply of service and goods portion in such supply shall be equivalent to the total amount charged for such supply less the value of land or undivided share of land, as the case may be, and the value 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 paragraph 2, “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.

13. The said Paragraph 2 of Not No. 11/2017-CT (Rate) was amended vide Not. No. 01/2018-CT (Rate). The amended Paragraph 2 is reproduced as under:

(ii) for paragraph 2, the following shall be substituted, namely :-

“2. In case of supply of service specified in column (3), in item (i); sub-item (b), sub-item (c), sub-item (d), sub-item (da) and sub-item (db) of item (iv); sub-item (b), sub-item (c), sub-item (d) and sub-item (da) of item (v); and sub-item (c) of item (vi), 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.”

14. In para 2 of Not No. 11/2017-CT (Rate), as amended vide Not. No. 01/2018-CT (Rate), there is deemed provisions that 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. Accordingly, the appellant contention to allow the deduction of actual value of land from the sale value on the grounds that their land value is ascertainable and other grounds is not legal in terms of para 2 of Not No. 11/2017-CT (Rate) as amended vide Not. No. 01/2018-CT (Rate).

15. We find that the reliance of Rule 18(A)(A) of the erstwhile Gujarat Value Added Tax Rules, 2006 is unjustified in the instant case since the Value Added Tax Act has been subsumed with GST Act. The Value Added Tax Act does not have any legal value in determination of GST liability since the value of supply is to be arrived in terms of the provisions of the GST Act.

16. Therefore, we find that various arguments put forth by the appellant in their appeal are devoid of any merit and the advance ruling given by the GAAR does not suffer from any infirmity.

17. In view thereof, we confirm the Advance Ruling No. GUJ/GAAR/R/33/2020 dated 08.07.2020 of the Gujarat Authority for Advance Ruling and reject the appeal filed by M/s. Karma Buildcon.

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