We Indians are going to witness the biggest tax revolution ever in independent India. The long awaited GST will be rolling out on 1 July 2017. Though everything is set for GST there are certain issues that require attention. One of such is GST on immovable property.
In this article I will take you to certain provisions of the act which will help us understand the tax ability of sale of immovable property in GST.
First of all let us see what se movable and what is immovable. Both the definition has not been defined in the act. So we have to take reference of various case laws that we have in excise regime that have defined movable. Like Supreme Court in case of Municipal Corporation of greater Mumbai held “if article can be moved to another place as such without any dismantling then it is movable”. In Sirpur Paper Mills Ltd. [1998 (97) ELT 3 (S.C.)] apex court held that “if a machine is embedded to the earth only to ensure wobble-free functioning, that would not be considered as immovable”. And we know everything which is not movable is immovable.
Definition of goods as per GST act says that “goods mean every movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply”, so it is clear that goods does not include immovable property.
But definition of service in the same act says “Service means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged”
Looking to both the definition one can conclude that definition of service include Immovable property. But will tax be levied on sale of immovable property? Is our question. Now let’s see scope of supply as GST is levied of supply of goods or service or both.
Sec 7 of the GST act says supply include all form of supply of goods or service or both such as sale, barter, exchange lease, renting etc. and also include activities specified as supply of goods or supply of service as per schedule II GST act. But sec 7 does not treat activities listed in schedule III of the GST act, as supply of goods or service or both.
As per paragraph 5 of schedule III activities or transaction relation to sale of land and subject to clause b of paragraph 5 of schedule II, sale of building shall not be treated as supply.
Clause b of paragraph 5 of schedule II reads as “construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier”.
Now it is quite clear that sale of land will not attract GST and sale of building after obtaining completion certificate or after its first occupation will not attract GST. Sale of building before its first occupation or before issuance of completion certificate will be taxed under GST, and shall be treated as supply of service. But what is the meaning of Building? What will happen on supply of other immovable property which is not covered under the definition of building?
Building is nowhere defined in the act. As per oxford definition of building is “A structure with roof and walls” This definition has very limited scope and will raise various litigation, like, is mobile tower a building? It doesn’t have roof and walls. If it is not a building then it will be taxed in case of sale and will be considered as supply of service. Same is the case of sale of big plant and machinery, which have to be dismantled for moving.
Next issue is if this supply is supply of service then under which code we should classify them? Current service account code and proposed codes for classification of service don’t have any code to consider such type of supply. So can we argue that this supply is not taxable? But rate schedule for services issued by council contain a residuary entry which says “All other service not specified elsewhere”.
As of now supply of any immovable property which is not a building will taxed under GST and will be treated as supply of services.
These are the view of the author himself. In no case this should be treated as consultancy. Readers are advised to get professional advised before acting.