In re Experion Developers Pvt. Ltd. (GST AAR Haryana)
Whether grant of Development rights in the current situation would attract the Levy of GST? If liable, what shall be valuation modus Operandi to tax in GST?
Notification 4/2018-CGST(Rate), dated 25.01.2018 notified that the liability to pay tax in case of transfer of development rights in exchange of constructed space shall be the date of allotment of constructed complex, i.e., the letter of allotment issued by the developer after the construction is complete. The notification clearly suggests the liability to pay tax on transfer of Development Rights.
As regards the second point for determination, the value of supply has to be determined in accordance with Notification No. 11/2017 Central Tax (Rate), dated 28 June, 2017 read with notification No. 4/2018 Central Tax (Rate), dated 25 January 2018. The relevant entry for valuation is Sr. No. 3, Heading 9954 read with Para No. 2 of Notification No. 11/2017 Central Tax (Rate), dated 28 June, 2017.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, HARYANA
1. Facts in Brief:
1.1 The applicant, Experion Developers Private Limited, is a company registered under The Companies Act, 1956 and a registered taxpayer (hereinafter referred to as “Developer”/ “First Party”/ “Company”/ “Applicant”/ “EDPL”) is in the business of real estate development. The Company is 100% subsidiary of Singapore based Holding Company. EDPL is engaged in the business of undertaking construction development projects including construction of residential apartments, commercial complexes, plotted townships, hotels etc.
1.2 The applicant entered into Memorandum of Understanding dated 23.07.2013 (hereinafter referred to as “MOU”) with M/s Ragnor Buildtech India Private Limited along with its Associates companies and shareholders, collectively hereinafter referred to as “IOC/ “RBIPL”). RBIPL is engaged in the business of acquiring and developing land for the purpose of real estate projects by either itself or through contractors and developers.
1.3 RBIPL acquired land pursuant to MOU and consequently became owner of the land in District Panipat, Haryana (“hereinafter referred to as Developable Land”).
1.4 Further RBIPL (acting for itself and the Associated) has offered to grant Development Rights to EDPL for the Developable Land.
1.5 As per Clause 1.1 of MOU, Development Rights have been defined as under:-
1.5.1 “Development Rights” shall mean all the rights for development granted under any license to develop or change of land use or any consent/ permission of a similar nature granted by the concerned Governmental Authority and inter-alia include the following development, construction and marketing rights, with respect to the Developable Land;
1.5.1(a) enter upon and take possession of the Developable Land for the purpose of developing a commercial and/ or residential project;
1.5.1(b) apply to the relevant Governmental Authority for obtaining sanction and / or modification of the layout plans and architectural plans in connection with the execution of the project;
1.5.1(c) make necessary applications and/ or revise, modify, renew or amend applications on behalf of RBIPL, under any Applicable Law, as may be required;
1.5.1(d) get the plans of the proposed buildings to be constructed on the Developable Land prepared and sanctioned in accordance with the rules and regulations of the Governmental Authority for their approval and sanction and make applications and/ or revise or modify applications for the change of user of the Developable Land;
1.5.1(e) appoint architects, surveyors, engineers, contractors, consultants and other Person(s) with respect to the development;
1.5.1(f) make applications to the concerned Governmental Authority for obtaining water and electricity connection and permits for cement, steel, sewerage, internet, phone line, gas pipe and other controlled building materials, if any;
1.5.1(g) file applications, declarations, certificated and submit information, as may be required under the Applicable Law, before the Department for Town and Country Planning, Haryana and/ or other statutory authorities, on behalf of RBIPL;
1.5.1(h) demolish any existing structures on the Developable Land and to level the same;
1.5.1(i) construct buildings, including residential units, villas, office premises, sheds, warehoused and the like and to sell and/ or lease out the same and/ or transfer the same in any manner whatsoever;
1.5.1(j) subdivide the Developable Land or portion thereof into plots;
1.5.1(k) construct internal roads, drainage facilities, water supply facilities, sewage disposal facilities, electricity supply lines and equipments;
1.5.1(l) manage, directly or indirectly, the Developable Land and the property and facilities constructed upon it;
1.5.1(m) acquire floor space index as is known currently or by whatever name it may be called in future (“FSI”) and use the same for the purpose of development of the project and all benefits, whether present or future, arising out of the Developable Land, including but not limited to the FSI arising out of the Developable Land;
1-5.1(n) sell, mortgage, lease, transfer, license, etc. the premises and/ or the buildings constructed and/ or port-ions thereof and to enter into agreements in the regard, at EDPL’s sole discretion, on behalf of RBIPL and for EDPL’s own benefit in any manner EDPL may deem fit and proper;
1.5.1(o) file objection(s) against land acquisition and/ or any land acquisition proceedings by the Government and institute any writ/ petition for compensation etc. in the court of law and receive compensation thereof or settle the same in any manner;
1-5.1(p) enter into collaboration agreement/ joint venture for development of the Developable Land with any Third Party;
1.5.1(q) Receive sale consideration, i.e. to say receive all the monies payable by the prospective purchaser(s) on allotments of developed plots and/ or built up areas and on execution of the pre-sale agreements and other documentation, of the built up areas;
1-5.1(r) right to enter into agreements, as may be required, in connection with any of the aforesaid rights and obtain registration of such agreement and;
1-5.1(s) accept the service of any writ of summons or other legal process or notice, to appear and represent RBIPL before any court, judicial magistrate, tribunal or any Governmental Authority in connection with any portion of the Developable Land, to commerce or file suits, legal actions or other proceedings in any court, before any judicial magistrate, tribunal or any Governmental Authority for partition of the Developable Land, the recovery of possession over the Developable Land, for enforcement of title to the Developable Land and/ or to sign, execute, deliver or file all necessary vakalatnamas, warrants, claims, plaints, orders, applications, affidavits and/ or other documents, papers and writings.
1.6 Further, as per Clause 2.6 of MOU,
“Pursuant to the Agreement, the Development Rights will be automatically, irrevocably and unconditionally granted, without the requirement of execution of any further deed, upon issuance of license to develop the Developable Land by the appropriate Government Authority”.
1.7 Hence, by virtue of intended Development agreement (hereinafter referred to as “DA”) which is yet to be executed, Applicant will be granted irrevocable and unconditional development rights to the Developable Land. The main purpose of the entire process is to acquire the required amount of land in a hassle free manner.
1.8 Subsequent to the DA when executed, LOC cannot sell land and will also give power of attorney for sale to the developer. The developer will be entitled to possess, develop and market the plots in the proposed township.
1.9 Further DA will be duly registered and stamp duty of 2% on value of land as applicable in Haryana on DA will be paid.
1.10 Further, it is noteworthy that the project will have industrial plots with some residential and commercial plots as per policy in Haryana. There is no construction service by Developer to LOC.
1.11 Further, sale of developed plots is not taxable under GST as it is sale of land.
1.12 Now, this Application for Advance Ruling is filed to Hon’ble Advance Ruling Authority to obtain ruling on applicability of GST on grant of these irrevocable development rights along with other queries as detailed hereunder.
2. Issue for Ruling:
2.1 Whether grant of Development rights in the current situation would attract the Levy of GST?
2.2 if liable to GST, what shall be Valuation Modus Operandi to tax in GST?
3. Discussion:
3.1 The applicant has equated the transfer of development rights with the sale of land or transfer of title in Land. Based on its submissions, the applicant has derived the following interpretations:-
