To understand the provisions relation to joint development agreement under GST, I have divided the provisions under 3 categories –
A) Levy of GST
a) Taxability of Transfer Development Rights (TDR) a) Transfer of land development rights by the landowner to the builder/ developer: –
TDRs being a benefit arising from the land, thus the same shall be considered as a benefit arising out of an immovable property as defined under Section 3(26) of General Clause Act, 1987, therefore the same is neither taxable under the Service Tax Law nor taxable under VAT regime. Now, as per entry no. 5 of the Schedule –III to the CGST, 2017, only sale of land and building is neither supply of goods nor supply of services. Thus, it needs to be clarified by the Government whether the benefit arising out of such land and building would be covered under the ambit of entry no. 5 of the Schedule –III to the CGST, 2017. As per Notification No. 4/2018-Central Tax (Rate) dated 25th January, 2018(discussed below), government intent to tax the same and do not want to cover the same under entry no. 5 of Schedule III.
b) Construction service provided by the builder/developer:-
The builder/developer receives consideration for the construction service provided by him from two categories of service receivers:
1. from landowner, in the form of land/development rights:–
In this case the builder/ developer has already received the consideration in the form of transfer of development rights prior to the issuance of completion certificate by the competent authority, same will not covered under entry no. 5 of Schedule II which provides that in the case where entire consideration received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier shall not be a supply of goods or services..
2. from other buyers:-
In this case, if the builder/ developer receive any consideration prior to the issuance of completion certificate by the competent authority, then the same is taxable as per entry no. 5 of Schedule II.
B) Time of Supply
Section 13 of the CGST Act, 2017 deals with the provisions relating to the determination of time of supply of services.
The time of supply shall be –
1. Date of issue of invoice or the date of receipt of payment whichever is earlier
2. In cases where the invoice is not issued within 30 days of completion of service, it shall be the date of completion of service or the date of receipt of payment whichever is earlier.
3. In cases where the time of supply cannot be determined as per the above two clauses, then it shall be the date on which the recipient shows the receipt of services in his books of accounts.
It may be observed that the builder would not be raising any invoice and would not claim any payment from the landowner. The service being provided by the builder is a continuous supply of service. It may be observed that clauses (a) and (b) of sub section (2) of section 13 are not applicable in this case, as neither any invoice is raised by the builder on landowner, nor any payment received. As per clause (c) the time at which the landowner shows the receipt of service in his books of accounts would be the time of supply. If the landowner is retaining such units for his own use, he would recognise the same as his capital assets and if the landowner is going to again sell such units, he would recognise the same as his stock in trade. So it can be taken that the builder would be liable to pay GST at the time, when the landowner recognises the receipt of units from the builder. However from builder’s point of view it would be very difficult to conclude when the landowner recognises receipt of service. Thus the determination of time of supply was no less than a mystery.
These confusions have been resolved by Notification No. 4/2018-Central Tax (Rate) dated 25th January, 2018. The clarification brought out in this notification is similar to what existed in the Pre GST Era. As per the notification, the time of supply in case of issue of development rights and construction services in its consideration shall rise at the time when the said developer, builder, construction company or any other registered person, as the case may be, transfers possession or the right in the constructed complex, building or civil structure, to the person supplying the development rights by entering into a conveyance deed or similar instrument (for example allotment letter)
Value of Supply –
Now comes the valuation aspect, which is given under Section 15 of CGST Act,2017 read with Rule 27 to 35 of CGST Rules. It is pertinent to note that there is no explicit provision as regards the valuation under of flats given to land owner under joint development agreement.
Consequently the most appropriate Rule is to be applied. Rule 27 of CGST rules states that where the value of supply of goods or services is for a consideration not wholly in money, the value of supply shall be the open market value of such supply. If the open market value is not available, it will be determined as total consideration received in money or its equivalent. If value cannot be determined by this formulae, it will be the value of supply of like goods/services.