In this article, an attempt has been made to simplify contents of AAR ruling for GST applicability on sale of TDR/ FSI, received in a specific case.
The case is specific as TDR/FSI was received as consideration for surrendering joint rights in land in terms of Development Control Regulations. The said TDR was granted in the light of agreement between the Applicant and Pune Municipal Corporation (PMC).
FACTS AND CONTENTION :- The Applicant was an owner of the land situated within the limits of Pune Municipal Corporation ( PMC ). He wanted to develop the land jointly in collaboration with M/S Amar Builders and Developers ( Developer) and share the profits. Sharing of the profit is through distribution of sales proceeds after development of the land by way of construction of residential / commercial projects.
Both the application and the developer entered into an agreement for the purpose and were enjoying jointly the rights in the land.
Pune Municipal Corporation has reservation on the said land in light of Draft Development Plan for Pune City sanctioned by the Municipal Corporation of Pune City (PMC). Both the applicant and the developer realized that vacating / removing reservation may not be possible and they decided to surrender the rights in the said land in favour of the PMC against which PMC awarded TDR/ Additional FSI as compensation vide issue of Development Right Certificates.(DRCs).
Both the parties later decided to sell a part of TDRs/ Additional FSI to Vamona Developers Pvt Ltd ( VDPL) and share the sale proceeds in agreed ratio. Consequently, the Applicant entered into agreement / deed of assignment with VDPL.
Initially at the time of said agreement, applicant did not charge GST and later on raised invoice on VDPL and requested them to pay GST on the said transaction along with interest.However, VDPL informed applicant that GST is not leviable on the transaction of sale of TDR/ Additional FSI.
Applicant has filed an application seeking an advance ruling in respect of the following questions :-
(a) Whether GST is leviable on sale of Transferable Development Rights(TDR) / Floor Space Index ( FSI) received as consideration for surrendering the joint rights in land in terms of Development Control Regulations
(b) What will be classification under GST and what will be applicable rate of GST.
APPLICANT’S SUBMISSION BEFORE AAR
The applicant submitted that Sale of TDR / Additional FSI does not amount to taxable supply under GST being in nature of sale of land / immovable property and covered under Clause 5 of schedule III of CGST Act.
The applicant has further referred to various other legislations to explain the term ‘Immovable property’ and has arrived at the conclusion that Immovable property includes land and land includes the benefits arising out of land also. Referring to the various case laws in support of their arguments, applicant submitted that TDR/Additional FSI in the present transaction can be said to be a transaction of sale of land and covered under Schedule III of the CGST Act and can neither be treated as supply of goods nor supply of services to be taxable under CGST Act.
However, he has also made alternate submissions stating that their supply may be taxable under GST as the scope of supply under GST is wide. Hence a view can be formed that supply of TDR/Additional FSI will be considered as supply.
CONTENTION – AS PER JURISDICTIONAL OFFICER ;- The submissions made by jurisdictional officer is as follows :-
Transaction of TDRs could be treated as service :- The jurisdictional officer has reproduce the definitions of ‘ goods’ and ‘services’ and has submitted that the scope of supply of services is very wide. The transaction of TDRs could be treated as ‘ service’.
Transfer of TDRs/ FSIs are specified services under Reverse Charge
The RCM notification 13/2017 has been amended to notify the services provided by the land owner to the developer by way of Transfer of development rights/ FSI/ Long term lease for the residential projects as specified services under reverse charge i.e. under Sec 9(3). (Notification fn 04/2018-Central Tax (Rate) dated 25.01.2018)
Incidence of Taxable event :- GST is leviable on supply of Development Rights and liability to pay Central Tax arises at the time of transfer of the constructed structure to the person supplying Development Rights. ( Notification No. 04/2018- (CT Rate) dated January 25, 2018 )
Services by way of transfer of development rights / Additional FSI are exempt subject to condition
The exemption notification 12/2017 has been amended to include the services provided by the land owner to the developer by way of Transfer of development rights/ FSI/ Long term lease for the residential projects.
Services by way of transfer of development rights / Additional FSI are made exempt subject to condition that promoter shall be liable to pay tax on reverse charge Basis.
The promoter has to pay tax on such proportion of development right as is attributable to the residential apartments, which remain unbooked on the date of issuance of completion certificate. (Notification No. 4/2019-Central tax (Rate) dated 29th March 2019)
Time for discharging the liability under RCM
The time of supply for discharging the liability under RCM on TDR/FSI/Long term lease received and construction services provided to landowner on or after 1st April 2019 would be the date of issuance of completion certificate or occupancy certificate whichever is earlier. Notification No. 6/2019-Central tax (Rate) dated 29th March 2019
OBSERVATIONS :-
AAR has gone through the facts of the case, documents on record and submissions made by both the applicant and Jurisdictional officer and refer Government of India FAQ (GST on Real Estate: CBIC release FAQs (Part II) vide Circulars F. No. 354/32/2019-TRU dated 07.05.2019 and 14.05.2019} They reproduce Sl No. 7 of the said circular which highlighted the following points :-
(a) GST on transfer of TDRs or FSIs( including addl FSI) is payable @ 18% ( 9% CGST+9%SGST) with ITC.
(b) There is no exemption on TDR or FSI ( Addl FSI) for construction of commercial apartments.
(c) GST shall be payable on TDR/FSI or both used in respect of :-
(i) Carpet area of commercial apartment
(ii) Unbooked residential apartments as on the date of issuance of Completion Certificate or first occupation of the project,
ORDER:– AAR passed following order after considering extensive deliberations :-
(a) GST is leviable on sale of TDR/FSI as consideration for surrendering the joint rights in land. in terms of Development Control Regulations.
(b) The classification will be under Heading 9972.
(c) Applicable rate of GST is 18% ( 9%CGST+9% SGST)
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