Recently I happened to read in the newspapers that land, real estate and natural gas could soon come within the purview of GST. This made me to think, real estate apart, whether we can treat land as goods and levy tax on land under Good And Services Tax Act.
LAND AND ITS CHARACTERISTICS
First and important aspect of land is that it is a gift of nature. No human can create it and destroy it. It cannot be manufactured using human labour, tools and machines. Secondly – it is available in fixed quantity. Land cannot be changed into some other form and its mass cannot be increased and or decreased. Like commodities or goods supply of land cannot be increased or decreased based on demand and supply factor. Thirdly – land is permanent and is not a perishable product and land cannot be destructed and its shape cannot be altered / modified / changed. Land is tangible. Fourthly – land is immovable and it cannot be moved / transported from one place to another. There is no substitute for land. Fifthly, last but not the least – it is used for agriculture, for constructions of buildings, both, residential and commercial, infrastructure like roads, bridges, dams etcetera are created / constructed on land as the base and so on.
GOODS AND ITS CHARACTERISTICS
Goods can be tangible and intangible. They are manufactured by human beings by themselves using tools, plant and machinery and are perishable in nature. They are movable in nature and can be transported from one place to another. The supply of goods can be controlled keeping in view the market conditions. Goods will have substitutes. Goods can be destroyed.
GOODS VERSUS IMMOVABLE PROPERTY
Can immovable property be treated as goods.
Section 2(7) of The Sale Of Goods Act 1930 states that goods mean every kind of movable property other than actionable claims and money, and includes stocks and shares, growing crops, grass, and things attached to or forming part of land which are agreed to be severed before sale under or under the contract of sale. Immovable property has not been defined in the sale of goods act and as per the said act goods are only movable goods.
Section 2(z) of The Real Estate ( Regulation And Development ) Act 2016 states that immovable property includes land, buildings, rights of ways, lights or any other benefit arising out of land and things attached to the earth or permanently fastened to anything which is attached to the earth, but not standing timber, standing crops or grass. The said act has not defined the word / term goods since the said act extensively deals with the regulation of real estate business which deals in immovable property like land and buildings.
Section 3 of the Transfer Of Property Act 1882 states that immovable property does not include standing timber, growing crops or grass. The word property has not been defined in the said act. Section 5 of the said act defines the phrase ‘ transfer of property’. The word property has a very wide meaning and includes both movable and immovable.
Section 2(52) of The Central Goods And Services Tax Act 2017 states that goods mean every kind of movable property other than money and securities but includes actionable claims, growing crops, grass and things attached to or forming part of land which are agreed to be severed before supply or under a contract of supply. The said definition deals with only moveable property or goods and not immovable goods or properties.
Section 2(96) of The Central Goods And Services Tax Act 2017 states that removal in relation to goods, means (a) dispatch of the goods for delivery by the supplier thereof or by any other person acting on behalf of such supplier or (b) collection of goods by the recipient thereof or by any other person acting on behalf of such recipient. The said section deals with the removal of goods. Goods can be removed only when they are movable. Immovable goods / property like land and or buildings cannot be moved. The word immovable goods and or immovable property has not been defined in The Central Goods And Services Tax Act 2017.
Section 2( 102) of The Central Goods And Services Tax Act 2017 states that services means anything other than goods. Movable or immovable goods / property is not covered here in this definition.
Section 2(6) of the Registration Act 1908 states that immovable property includes land, buildings, hereditary allowances, rights to ways, lights, ferries, fisheries or any other benefit to arise out of land, and things attached to the earth or permanently fastened to anything which is attached to the earth, but not standing timber, growing crops nor grass. Section 2(9) of the Registration Act 908 states that moveable property includes standing timber, growing crops and grass, fruit upon and juice in trees, and property of every other description, except immovable property.
All these definitions / meanings of different acts make it clear that immovable property are not goods.
Sale Of Goods Act 1930 deals with goods. If the goods are manufactured then central excise is payable. If the goods are sold then sales tax / value added tax / central sales tax were applicable and payable. ( Central Excise, Sales Tax, Value Added Tax and Central Sales Tax have been subsumed by Goods And Services Tax Act 2017 ).
Transfer Of Property Act 1882 deals with immovable properties. When an immovable property is sold central excise is not applicable and payable since immovable properties like land and buildings cannot be manufactured. Without there being land buildings cannot come into existence. Buildings invariably have to be constructed on land. When immovable property is sold sales tax is not collected. However stamp duty is applicable and payable when an immovable property is transferred.
Nevertheless, the element of sales tax and service tax were introduced – VAT was charged from the builders. Service Tax was also levied. Ultimately all these taxes including stamp duty were collected from the buyer and were paid to the Government.
Under the Income Tax Act 1961 profit on transfer of immovable properties is taxed under the income head Capital Gains. Profit on sale of goods and or services is taxed under the income head Profits And Gains Of Business Or Profession.
Stamp duty is a type of levy or tax which is payable on documents involving sale of immovable property. Section 17 of the Registration Act 1908 deals with the documents which have to be registered under the said act. Through the sale deed document the ownership of an immovable property is transferred from one person to another. Stamp duty is payable under Indian Stamp Act 1989.
Sales tax is payable on sale of goods. In the case of movable goods also the ownership is transferred from one person to another and document which transfers the said ownership may be called as Invoice and or Tax Invoice. In the case of sale of movable goods only sales tax is payable and for transferring the ownership no stamp duty is payable.
Would it be correct to levy and or collect both stamp duty and sales tax on transactions involving transfer of immovable properties by treating them as goods. If so it will burden then individual and cost of acquisition of immovable property would increase.
Keeping in view the objectives of Pradhan Manti Awas Yojana In my opinion immovable properties should not be treated as goods. Even the services of builders should not be treated as a service.
Thank you And Regards
C V M Srinivas