GST IMPLICATION ON SALE OF DEVELOPED PLOT OF LAND

We are of the view that Sale of Developed Land is not leviable to GST. However, we always suggest an alternative tax efficient model for such transactions to keep it free from unnecessary litigation.

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 immovable property or earth. Here the substance of agreement between the parties is important. Where the nature of activity is that of ONLY sale of immovable property of plot, it is excluded from GST levy.
  • We find that the plotted development is a scheme which involves forming land into layout after obtaining necessary plan approval from the Development Authority, get all other permission required to take up, commence and complete what would be the layout, comprised of individual sites. In the activity of plot development, the following are done-levelling the land, construction of boundary wall, construction of roads, laying of underground cables and water pipelines, laying of underground sewerage lines with sewer treatments plant, development of landscaped gardens, drainage system, water harvesting system, demarcation of individual plots, construction of overhead tanks, other infrastructure works. Further common amenities like garden, community hall, etc. are also offered in some schemes. Sale of such sites is done to end customers who may construct houses/villas in the plots.
  • In case of Shree Dipesh Anilkumar Naik (ADVANCE RULING NO. GUJ/GAAR/R/2020/11 ) the AAR held that that the applicant is the owner of the land, who develops the land with an infrastructure such as Drainage line, Water line, Electricity line, Land levelling etc. as per the requirement of the approved Plan Passing Authority (i.e. Jilla Panchayat). After this development of the land, he sales developed land as plots. His sales price includes the cost of the land as well as the cost of common amenities, Drainage line, Water line, Electricity line, Land levelling charges, etc. on a proportionate basis.

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).

We find that the activity of the sale of developed plots would be covered under the clause ‘construction of a complex intended for sale to a buyer’. Thus, the said activity is covered under ‘construction services’ and GST is payable on the sale of developed plots in terms of CGST Act / Rules and relevant Notification issued time to time.

  • Similar view has been by SC M/s. Narne Construction Pvt. Ltd. etc. Vs. Union of India & Ors.[Civil Appeal Nos. 4432-4450 of 2012 arising out of S.L.P. (C) Nos.3499-3517 of 2011] in which they held that The opposite party has undertaken the obligations to develop the plots and obtain permissions/approvals of the lay outs. The opposite party itself pleaded in its counters that the plots were developed by spending huge amounts and subsequent to the amounts paid by the complainants also plots were developed. It pleaded that huge amounts were spent towards protection of the plots from the grabbers and developed roads, open drains, sewerage lines, streetlights etc. It is therefore, manifest that the transaction between the parties is not a sale simplicitor but coupled with obligations for development and provision of infrastructure. Inevitably, there is an element of service in the discharge of the said obligations.”.

Efficient Model under GST for Sale of Developed Plot (Tax Efficient and Free from Litigation): OUR COMMENTS

  • If we consider the entire value of land as exempted being sale of Developed Land under GST, ITC on goods or service procured for development of land shall not be allowed.
  • It would be tax efficient model under GST if we segregate the value of land and development activities.
  • Development charges become leviable to GST. No Exposure on development activity as Company will pay taxes on it.
  • ITC on goods or services procured for development of land shall be allowed and net tax cost impact will be on value addition only.
  • The department is itself segregating these two and holding a view that development of land is a separate service from Sale of Land.

For any further query please feel free to reach at us at bklegaladvisors@gmail.com. 

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