Under the GST framework of India, no GST is charged on the sale of land or building GST as it is subject to stamp duty. Still, questions arose whether in case of the sale of a developed plot of land that comes with amenities including underground cables, roads, and water pipelines. Recently, the Gujarat Authorities for Advance Ruling (AAR) has held that the sale of a” developed plot” shall be regarded as “Supply of Services” and will consequently GST. It was also held that the sale of developed plots would be included under the sub-section that provided for “construction of a complex intended for sale to a buyer” and hence charged GST under the Act.
Previously, the sale of land or building was not chargeable to GST as it was covered under Schedule III of section 7 of the CGST Act 2017, where it has been described as neither a supply of goods nor the supply of services”. Instead, land or building is acknowledged as an immovable property that doesn't cause GST charging, and presently only a stamp duty is only payable on the abovementioned.
What was the matter?
In the case which came up to be decided by the Gujarat Authority for Advance Ruling, the applicant sought the advance ruling in respect of the matter whether GST will be leviable on the sale of a plot of the land that fulfills all the requirements approved by the authority concerned (i.e. ZillaPanchayat) and holding all the basic facilities like a drainage line, water supply, electricity connection, and land leveling are to be provided by the applicant.
Similarly, it was submitted by the applicant that it has been mandated by the Authority responsible for passing plans, that every seller of land is under an obligation to create and maintain such primary amenities that are necessary for a decent living such as proper drainage systems, water & electricity connections, land leveling for road, pipeline facilities for drinking water, street lights &telephone lines, etc.
What was held by the ruling authorities as a conclusion?
Consequently, it was held entry 5 of the Schedule III of the CGST Act 2017 has expressly kept the sale of land out of the purview of GST, but it shall continue to be covered in Schedule III only if the activity is exclusively related to transfer of title/ transfer of ownership of land that is either on immovable property or earth. The ruling stated-
“The definition provided under the Act makes it clear that a transaction shall be out of GST completely if the activity is exclusively related with either transfer of title or ownership of land, which is immovable property or earth, the determinant point being the constituents of agreement between the parties. Only such activity is associated with the sale of immoveable property of plot shall be excluded from the point of GST levy." It was also acknowledged that the activity of "sale of developed plot “ shall not be the same as the sale of land” but, equivalent to be identified as a rendering of service”.
Why the issue did come up?
Generally, the sellers of plots of land charge the property rates based on the built-up and not the basis of the actual measure of the plot. A super built-up area comprises such area utilized for providing common amenities like infrastructure facilities like roads, water tanks, etc. on a proportionate basis, which means in addition to the land the seller charges a price for such other amenities included. Thus, the sale of land is not equivalent to the sale of a developed plot and is a completely different transaction.
This view was also accepted by the Supreme Court in M/s Narne Construction P Ltd (2013). The Supreme Court gave the ruling that “an applicant who may be the owner of the land and improves such land with infrastructure facilities as a result of the obligations mandated by the Plan Passing Authority though sells such land as developed plots." And such sale price charged from the buyer comprises the cost of the land including the amenities attached to it. And schedule II of the CGST Act, 2017 relates to activities or transactions which could be to be treated as Supply of goods or supply of services if other conditions are fulfilled" stated as-
“ Clause 5(b) of the Schedule-II of the CGST Act, 2017 states that” the construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer is a Supply of service” is chargeable to the (GST).
Conclusion:
Consequently, it has been decided that as “sale of developed plots” is not the same as the “sale of developed property” the latter one would be attracted to GST under the clause ‘construction of a complex intended for sale to a buyer’ and the transaction comes under the ‘construction services’ on which GST could be charged on the sale of developed plots as per the CGST Act 2017”. It is expected to create a lot of changes for the real estate business and developers who will have to rethink their positions in the GST regimes.
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