Even If agreement between the applicant and the buyer is entered after part of the construction is already completed, whole of the consideration would be liable for GST.

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Even If agreement between the applicant and the buyer is entered after
part of the construction is already completed, whole of the consideration
would be liable for GST.

 

(In re Shri Sanjeev Sharma (AAR Delhi))

Facts of the case:

The applicant plans to engage itself in the development and sale of residential houses, generally floors/ flats in India.

Acquisition of Land

The proposed modus operandi shall be that the applicant shall either purchase land or it shall enter into collaboration agreements with various land owners whereby the applicant shall acquire the right to develop the property and further sell the units developed thereon.

  1. In case of purchased land: the applicant shall be entitled to sell all the units developed thereon,
  2. In cases of development and sale rights: the applicant shall be entitled to sell the flats/ unit falling to the applicant’s share, in terms of the collaboration agreement.

Development and construction of Project

  1. Post purchase of land/ acquisition of land rights:
  2. The applicant shall apply for the requisite approvals.
  3. The applicant plans to get the construction work done by contractors as well as on its own.
  4. Following agreements would be entered into by the Applicant:
  5. One for sale of undivided and impartible share in land; and
  6. Another agreement for sale of superstructure.

 

Details of Question on which Advance Ruling is requested:

In case where there are two transactions each represented by a separate Agreements i.e.

  1. One for sale of undivided and impartible share in land @ say Rs. 100; and
  2. Another agreement for sale of superstructure @ say Rs. 15

Following are the questions on which the applicant is seeking advance ruling

  1. a) Whether GST will be applicable on the sale of undivided and impartible share of land represented by Agreement to sell the land?
  2. b) Whether GST shall be applicable on sale of superstructure (which is under construction)?
  3. c) If yes:-
  4. What will be the value on which tax is payable?
  5. What would be the applicable rate for charging GST?

Held:

On the basis of following observations ruling was held:

  • Sale of land is out of the scope of the definition of Supply under GST, as the same has been prescribed under Entry 5 of Schedule III of the CGST Act, 2017. Consequently, transfer of undivided and impartible share in land would not be leviable to GST.
  • Accordingly, all transactions provided under Schedule III of the CGST Act are out of the purview of GST and no GST is leviable on the said activities/ transactions.
  • Construction of superstructure would attract tax. Further, even in respect of superstructure, GST should be imposed only on the value of construction on or after the agreement with the buyer i.e. after deducting the value of construction already completed till the date of agreement consideration charged for aforesaid service; and amount charged for transfer of land or undivided share of land, as the case may be.
  • It is observed that as per Section 7(2)(a) of the CGST Act, 2017, activities or transactions specified in Schedule Ill of the said Act shall be treated neither as a supply of goods nor a supply of services. Further, Paragraph 5 of the said Schedule III specifically covers sale of land. Hence, sale of land is not covered under the scope of supply under GST hence on the sale of land, no GST is payable. Similarly, sale of undivided portion of land upright sale of immovable property and hence outside the scope of GST.
  • However, the Section 7(1)(d) of the CGST Act, 2017 read with Paragraph 5(b) of Schedule II of the said Act specifically provides that supply of goods or supply of services Include “construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a 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”. Hence, if construction activity is done on behalf of the buyer i.e. as a supply of goods or services to the buyer, GST is payable.
  • It is also observed that during the construction of a complex, building etc., the land and its superstructure becomes inseparable and hence, separate sale of land and its superstructure does not appear to be permissible.
  • The supply in this case is a composite supply consisting of three components, namely (i) land on which the complex or building is constructed, (ii) goods which are used in construction activities and (iii) services undertaken by the applicant directly or through other contractors.
  • According to GST Notification No. 11/2017 – Central Tax (Rate) dated 28.06.2017– S. No. 3 r/w Paragraph 2, the deemed value of land or undivided share of land has been fixed at one-third of the total amount charged. Hence, in GST, the machinery provisions to ascertain the value of land is available in the notification which has been issued under Sub-Section (5) of Section 15 of the CGST Act, 2017 regarding value of taxable supply.
  • Hence, the value of land, or the undivided share of land, as the case may be, would be deemed to be one-third of the total amount, which is excluded from the value for the purposes of payment of GST.
  • Even if agreement between the applicant and the buyer is entered after part of the construction is already completed, whole of the consideration would be added for payment of GST. The applicable rate of GST on the said two-third of total amount is 9% (CGST) and 9% SGST under S. No. 3(i) of Notification No. 11/2017 – Central Tax (Rate) dated 28.06.2017and parallel SGST notification.

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