There were various grey areas in GST, where chargeability or rate of tax is a matter of constant debate and discussion. The contradictory rulings issued by various Advance Ruling Authorities on a same nature of transaction adds up to the confusion. As a welcome step, the 47th GST Council meet, held on 28th & 29th of June in Chandigarh, provided clarity on some of these issues.
In the press release, issued on 29th June 2022 with respect to recommendations of 47th GST Council meet, clarification with respect to chargeability of GST on sale of land was also provided. As per the press release:
“Sale of land after leveling, laying down of drainage lines etc. is sale of land and does not attract GST.”
Background:
1. Business of developing and selling plotted area takes place in three ways i.e.
2. The land owner develops a large piece land on his own account, divide it into small developed plots and sells such small pieces of land.
3. The land owner hires a developer to develop a large piece of land into small plots and the later is provided consideration for his construction services in money.
4. The land owner and a developer (providing development services on a large piece of land to make it marketable into small plots) enters into a contract where:
5. Either the consideration received on sale of final plots are divided into a predetermined ratio between the land owner and the developer, or
6. The ownership of developed plots are divided in a pre-determined ratio between the land owner and the developer.
Section 9 read with section 7 of the CGST Act 2017, defines the scope of supply of goods or services or both, on which GST shall be applicable. Further Schedule III of the CGST Act, read with section 7 of the said act, specifically excludes 8 activities which shall not be considered as a supply of goods or service or both and hence, GST shall not be applicable on same. As per the entry no. 5 of Schedule III i.e.:
Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
specifically excludes sale of land from the preview of GST. Further, as per LIST – II of the Constitution of India which specifies exclusive power to make laws to the state, the power to collect tax on land are reserved to the states and hence tax on land is anyways excluded from the scope of GST.
Confusion started when few advance rulings and authorities namely:
The AAAR, Gujarat in the matter of Shree Dipesh Anilkumar Naik [Advance Ruling No. GUJ/GAAAR/APPEAL/2021/35, dated December 12, 2021] affirmed the order passed by the AAR holding that GST is leviable on sale of plot of land, where primary amenities such as water line, electricity line, and other infrastructure are being constructed/developed. Held that, it is a sale of developed plots and will be covered under the scope of supply of taxable service falling under the head of ‘Construction services’. Hence liable to 18% GST. As a result, various GST authorities started demanding tax on the sale of developed land.
Conclusion:
Holding our final opinion until the legal draft with respect to said matter is issued by the Ministry and relying on the text of press-release, we can conclude that:
Sale of land after performing basic development services like leveling, laying down of drainage lines ETC… will still be treated as sale of land and no GST shall be charged on same. Hence sale of plot as mentioned in point 1 & 2 above, shall not be chargeable to GST. However, works contract service provided by the developer to land owner in case no. 2 shall be taxable.
However, taxation with respect to services provided by:
- The Land Owner to Developer i.e. TDR (Transfer Of Development Right) and
- Services provided by developer to land owner (Development Services)
- Are still a subject of debate and taxability on same is still in question. Further, relying on few Advance Rulings like M/s Vidit Builders by AAR-Madhya Pradesh, case number – 19/2019, order number – 02/2020, tax shall be payable on TDR and development services provided by land owner to developer and vie a versa.
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