News: Sale of developed plots not the same as land sale; will attract GST: Authority for Advance Rulings-21-06-2020

https://www.thehindubusinessline.com/news/real-estate/sale-of-developed-plots-not-the-same-as-land-sale-will-attract-gst/article31881926.ece

Provision of water, electricity, other primary amenities constitutes rendering of services, says AAR

The sale of ‘developed plots’ with primary amenities is not equivalent to ‘sale of land’ and, accordingly, it will attract Goods & Services Tax (GST), the Authority for Advance Rulings (AAR) has said.

This ruling is critical, as a listing in Schedule III of the CGST Act says that sale of land and sale of building will be treated neither as supply of goods nor as supply of services. However, the law terms as ‘supply of services’ the 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.

Similar to sale of land, there is no GST on sale of building provided all payments have been made or completion certification issued. However, if the building is under constriction or there is no occupancy certificate, any transaction for such an asset will attract GST. GST rates for such transactions are 1 per cent and 5 per cent and assesses do not get input tax credit.

Chartered accountant Pawan Arora said the issue is under litigation in the High Court. “We are of the view that sale of developed land is not leviable to GST. However, we always suggest an alternative tax efficient model for such transactions to keep it free from unnecessary litigation,” he said.

The case

Surat-based Dipesh Anil Kumar Naik had moved the Gujarat AAR, seeking an advance ruling on whether GST is applicable on the sale of a plot of land for which, as per the requirement of approval by the respective authority (i.e. jilla panchayat), primary amenities such as drainage, water, electricity and land levelling are to be provided by him. Naik owns vacant land that he plans to divide into smaller plots and sell to different buyers. These would be without any construction but provide primary amenities that are mandatory for approval by the plan passing authority.

According to the AAR, the transaction will be out of GST net only if the activity deals exclusively with the transfer of title or ownership of land, which is immoveable property or earth. Here, the substance of agreement between the parties is important. Where the nature of activity is that of only sale of immoveable property of plot, it is excluded from GST levy. The Authority observed that plot development is a scheme which involves developing a land layout after obtaining necessary approval from the development authority and subsequent sale of such sites.

The ruling

The sellers charge the rates on a super built-up basis and not the actual measure of the plot. The super built-up area includes those used for common amenities, roads, water tank and other infrastructure on a proportionate basis — these are an intrinsic part of the plot allotted to the buyer. This indicates that sale of developed plot is not equivalent to sale of land but tantamount to rendering of service. Taking note of the Supreme Court expressing a similar view in a matter, the AAR said sale of developed plots will attract GST.