1. The transaction in the nature of sale of land has been kept out of purview of GST, as these transaction are neither considered as supply of goods nor supply of services, and are termed as ‘no supply’ transaction in common parlance. As these transaction are not considered as supply under the ambit of GST law, thus there is no question which should bring the chargeability of GST on this transaction.
2. However, recently the Authority for Advance Ruling of Gujarat in the case of M/s Satyaja Infratech has given ruling that the activities of the sale of developed plot shall be covered under the ambit of supply of construction services and accordingly GST would be levied on such transaction. The said ruling has been followed by another ruling by the Gujarat AAR in the case of M/s. Shree Dipesh Anilkumar Naik & Authority for Advance Ruling, Indore (MP) in the case of M/s Vidit Builders wherein the similar view was affirmed and the sale of developed plot was poured back into the leviability of GST.
3. These two ruling have been most rumored amongst the masses dealing in real estate industry, and to clear the chaos we have tried to simplify the view of the ruling authority and classification of the transactions.
1. The transaction in the nature of sale of land has been excluded from the scope of supply by the virtue of Section – 7 of the CGST Act, 2017 read with the transaction covered under the Schedule – III of the CGST Act, 2017 which classifies the transaction as neither supply of goods nor supply of services. Thus the transaction of sale of land are ‘no supply’ transaction in simple terminology which is not chargeable to tax under GST law.
2. The Constitution of India is the foremost legislative blueprint for the judiciary of India, which promulgate the authority for levy of taxes and distributes the rights for levy and collection of taxes among the state and central government. As per the Seventh Schedule to Constitution of India, the levy of Taxes on Land is an exclusive domain of the State Government, and Central Government is not authorized to levy or collect the taxes on such transaction.
3. Thus, considering the aforementioned bar by the Constitution of India, the transaction of sale of land was not considered as the supply under the GST law and no taxes were levied on such transaction. Hence the levy of taxes on sale of land would be ultra-vires to the authority given by the judiciary of India.
Essence/Grounds on which the Authority has passed the order and our contentions/submissions on the basis of which it can be challenged:
Advance Ruling given by the Authority of Advance Ruling, Gujarat in the matter M/s Satyaja Infratech, followed by M/s. Shree Dipesh Anilkumar Naik has emphasized on the clause of agreement which deposes that the applicant is developing the plot and selling the plot on the super built up area bases.
In this case the core approach followed upon by the AAR was that the applicant was the absolute owner of the land, and he have undertaken the sale of such land after undertaking the necessary development work of drainage system, water supply, electricity etc. and in process of execution of sale of such land the applicant has demarcated/fragmented the property and executed the sale agreement on the basis of Super built area of the land.
As in the case the sale was executed on super-built up area bases, it was inferred upon that the sale of land in the impugned transaction was not a pure form of transaction covered under paragraph 5 of the Schedule – III, and instead it includes the service provision in the nature works contract services.
1. Ultra-Vires to the authority granted by the Constitution of India
As discussed in para supra, the Constitution of India has segregated the authority to levy the taxes on the classes of transaction and the state have exclusive right to tax the transaction of land and building and central government cannot exercise his jurisdiction on such transactions. Thus, the ruling which calls for integrated levy of GST by central and state government would be ultra-vires to the practices established by the Constitution of India.
2. Activities of providing basic amenities cannot be termed as development:
The activities in the nature of providing drainage system, water supply, sanitation, electricity are the basic amenities which cannot be disregarded to anyone at any stretch as these are the fundamental rights of the citizens. These are the essential activities which need to be undertaken by the developer of the plot in order to make the plot marketable and serviceable for the customer. Moreover, the development shall be construed in a broader terms, which should generate additional utility to ultimate consumer. Thus these petty functions are nothing but the extension of the principal transaction of sale of land and cannot be considered and taxed in isolation by the revenue department.
3. Sale of land in a piecemeal manner cannot change the nature of transaction:
That in the above mentioned rulings the inference has been drawn upon that the applicant has brought the land and after undertaking the necessary fragmentation work, it has sold the part and parcel of the plot on piece meal manner, thus the mere demarcation and fragmentation shall be considered as construction activites. However, the authority has erred to appreciate that even after the lots of fragmentation of the land, what has been sold is nothing but the part and parcel of the land and which could never be altered by manner and quatum of the sale of property. Thus, the piece meal sale of land should also be considered as sale of land only, and it should not be charged to GST.
4. Nomenclature of the transaction cannot be altered by the Artistic work upon them:
Mere development of the site to make it marketable and serviceable cannot change the principal nature of the transaction. In the transaction of sale of land the transaction made is for the principal proportion of land and in such a transaction the developed proportion cannot be subrogated and would automatically go hand in hand.
A very common question is that whether such a developed proposition is marketable is isolation, certainly never. Thus the principal transaction is the only transaction of sale of land and the development of such land shall be considered as the expenses to make the land as marketable.
For Instance: The stone works or embroidery does not bring in the changes in the nature of supply of clothes, the supply remains the supply of clothes only, and the consideration for such stone works are covered by the way of increased value of the product.
5. Failure to provide machinery provision for valuation:
In order to bring the transaction under the wise net of the charge or levy of taxes the authority levying such tax should brought in charging provision for such transaction and provide for the machinery provision for valuation of such transaction and levy of taxes in the statutory draft or act imposing such taxes. However, under the CGST Act, 2017 there is no provision which could bring the charge of GST on sale of developed land which could not be classified as a residential complex or dwelling unit.
However, in the above two cases the Authority for Advance Ruling has neither drawn a reference nor insisted upon on such a cautious point before ruling out with the charge of GST on such transaction, and failed to provide for valuation of such transaction in consonance with the statutory provision of the law.
Thus in absence of the machinery provision the revenue department cannot levy the taxes and the above ruling is contradictory in pure sense of statutory provision.
In our considered view, the sale of land is not a transaction itself which could be covered under the scope of supply, and hence the charging provision could never be extended to the transaction of sale of land. Further, the development of demarcated plot cannot change the nomenclature of the land and such sale would not partake its nature just by the activities undertaken to make it marketable. Thus, the levy of GST on developed land is not sustainable and it is contradictory to the provision of law.
Hope this helps,