CA Pooja Ketan Khatod
As per section 2(119) of Central goods and service tax Act,2017
“Works Contract means,
A contract for building, Construction, Fabrication, Completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods(whether as goods or in some other form) is involved in the execution of such contract.
As per Schedule III of CENTRAL GOODS AND SERVICE TAX ACT,2017 sale of land is not liable for GST.
For the above purpose, “total amount” means the sum total of,-
(a) consideration charged for aforesaid service; and
(b) amount charged for transfer of land or undivided share of land, as the case may be.
The rate of GST for Works Contract service has been prescribed in serial number 3 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 20/2017-Central Tax (Rate) dated 22.08.2017 & notification no. 24/2017-Central Tax (Rate) dated 21.09.2017 and is as under:
|(i)||Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier. (Provisions of paragraph 2 of this notification shall apply for valuation of this service)||9% CGST +
|(ii)||composite supply of works contract as defined in clause 119 of section 2 of Central Goods and Services Tax Act, 2017||9% CGST +
G.S.R……(E).- In exercise of the powers conferred by section 148 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on the recommendations of the Council, hereby notifies the following classes of registered persons, namely :-
(a) registered persons who supply development rights to a developer, builder, construction company or any other registered person against consideration, wholly or partly, in the form of construction service of complex, building or civil structure; and
(b) registered persons who supply construction service of complex, building or civil structure to supplier of development rights against consideration, wholly or partly, in the form of transfer of development rights,
as the registered persons in whose case the liability to pay central tax on supply of the said services, on the consideration received in the form of construction service referred to in clause (a) above and in the form of development rights referred to in clause (b) above, shall arise 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).
When GST Law was enacted as on 01.07.2017 it was not ample clear to the builders and developers as to whether the transfer of development rights attract GST ??
As It can be considered as a barter transaction, because Landowner is giving his land for development (Development rights)to the developer or builder in return of which developer providing construction service i.e, constructed area as a consideration to the landowner. And Barter transactions are supply U/s 7 OF CGST ACT,2017 hence, GST attract.
But, in between before publishing this notification in the official gazette landowner was not paying GST on development rights given to the developer as it is given in various decisions Chheda Housing Development Corporation vs. Bibijan Shaikh Farid (APPEAL NO.1081 OF 2005) (the “Hon’ble Bombay High Court”) that development rights are nothing but a benefits arising out of land
However, it would be important to consider the provisions of Section 3(p) of the Right to Fair Compensation, Transparency in Land Acquisition, Rehabilitation Act, 2013 (the “Fair Compensation Act”), which defines “land” as under:
““land” includes benefits to arise out of land, and things attached to the earth or permanently fastened to anything attached to the earth”
Hence, GST is not attracted.
Hence, for clearance on this issue government come up with this notification and attract GST on such type of transactions.
On which GST is payable 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).
On valuation part on such type of transactions no clear calculations has not been provided from the government.
One more point this notification can be raised whether GST is applicable in case of revenue sharing agreements? As this notification is only relating to area sharing, it is not yet clear. But, one view can be taken if area sharing is taxable then revenue sharing is also taxable, needs more clearance on this part.