CA Ayush Kedia
Development of plot is ‘A scheme where the owner of land obtains the necessary permission/ approval from the local municipal bodies/ development Authority to make land marketable by adding the supporting infrastructure facility to it.
Such plot development can be done on the owner’s land as well under Joint development agreement.
The common activity performed under the development of plot includes:
1. Leveling the land,
2. Construction of boundary wall,
3. Construction of roads,
4. Laying of underground cables and water pipelines,
5. Laying of underground sewerage lines with sewer treatments plant,
6. Development of landscaped gardens,
7. Drainage system,
8. Water harvesting system,
9. Demarcation of individual plots,
10. Construction of overhead tanks and other infrastructure works.
This developed plot are sold to end customer, who may can build house/ complex etc or can further sale to any other person. Further, this plot can be sold before the development of infrastructure or later on or on installment bias.
Till date, the general understanding was that the sale of land/ developed plot is out of the scope of GST net. As the owner of land is just adding to the value of land and making it marketable is still it is sale of Land. This understanding has received a jolt when in a recent decision, Gujarat AAR has held that sale of developed plot is ‘service’ and taxable.
Legally, decision of AAR is only is binding only on the applicant and not others. However, mostly, this decision will be used by department to issue show cause notices and demands all over India. Hence, the issue needs discussions.
SHREE DIPESH ANILKUMAR NAIK – ADVANCE RULING NO.GUJ/GAAR/R/2020/11
Facts of the case
The applicant was the owner of land and has obtain the necessary permission from the local municipal body ( i. e Jilla Panchayat) for the development of the infrastructure like drainage line, common road, boundary wall etc.
The applicant want to sell the individual plot to different buyer without any construction on the same but by providing the primary amenities only.
Applicant the asked the following question:
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?
Discussion and finding
GST is levied on supply of goods/services. Schedule III to GST Law sets out the activities or transactions which are treated as neither a supply of goods nor as supply of services. Therein entry 5 covers sale of land, which is excluded from GST levy.
Serial Number 5 to Schedule III of the CGST Act:
“5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.”
From the above definition, it is clear 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.
The sellers charge the rates on super built-up basis and not the actual measure of the plot. The super built-up area includes the area used for common amenities
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).
Schedule II of the CGST Act, 2017 pertains to activities or transactions to be treated as “Supply of goods or supply of services”. As per clause 5(b) of the 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 is a “Supply of service” and, hence, is liable to the Goods and Services Tax (GST).
SALE OF LAND IS SPECIFICALLY EXCLUDED FROM GST NET
Section 2 (102) of CGST Act, 2017– Services- Service means anything other than GOODS. Hence, sale of land can be sale of service under the provision of CGST Act, as sale of land is not Goods.
“Composite supply” means a supply made by a taxable person to a recipient comprising of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply
“Principal supply” means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary – section 2(90) of CGST Act.
The tax liability on a composite or a mixed supply shall be determined in the following manner —
(a) A composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply
(b)A mixed supply comprising two or more supplies shall be treated as supply of that particular supply which attracts the highest rate of tax – section 8 of CGST Act.
Technically, GST can be livable on sale of land. However sale of land is excluded from the GST net via Para no 5 of Sch-III of CGST Act. Hence, GST cannot be imposed on sale of land.
Development of land into plots is only a value addition been done by the owner of the land to make it marketable. Further, for development of land no completion certificate is been issued by any local municipal body.
Sale of develop plot in my opinion comes under the composite supply as the principal element under the present transaction under review is the sale of land. It is a general trade practice in the market to develop the plot and sale it to different buyer.
As per above discussion and conclusion drawn, it can been seen in Gujarat AAR has classified the sale of developed plot as “ Supply of Services”
However in my view, sale of develop plot is nothing more than sale of land. Hence it is out of GST net.