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2019 (2) TMI 1905 - AAR - GSTLevy of GST - grant of Development rights - Valuation Modus Operandi to tax in GST - whole argument of the applicant regarding exemption of development rights from levy of GST hinges on its belief/ contention that the transfer of development rights amounts to sale of land - HELD THAT - The term immovable property as defined in the CGST/SGST Act includes land, benefits to arise out of land, and things attached to the earth, or permanently fastened to the earth. Section 54 of Transfer of Property Act 1882 defines sale as transfer of ownership in exchange for a price paid or promised or part paid and part promised. The application for seeking license from the Government for the development of developable land is to be made by RBIPL along with the applicant. EDPL is authorized to communicate with the Govt. on behalf of the RBIPL. The EDPL shall obtain the necessary governmental approval on behalf of RBIPL and associates. All municipal taxes, cesses and other public dues with respect to the developable land shall be paid and discharged by RBIPL. Further, the RBIPL has agreed to deposit the original titled documents of the developable land as guarantee for the performance of secured obligations, meaning thereby that RBIPL is the owner of the developable land - these terms of MOU make it crystal clear that the title of ownership of land vests with the RBIPL. Since RBIPL is the owner of the developable land, mere transfer of certain rights i.e. the development rights does not confer any title or ownership in the developable land upon the applicant. Hence, the argument that the transfer of Development rights amounts to sale of land under Entry No. 5 of Schedule III appended to CGST Act (Activities or transaction which shall be treated neither as a supply of goods nor a supply of services) is outrightly rejected. Value and time of supply - HELD THAT - Notification 4/2018-CGST(Rate), dated 25.01.2018 notified that the liability to pay tax in case of transfer of development rights in exchange of constructed space shall be the date of allotment of constructed complex, i.e., the letter of allotment issued by the developer after the construction is complete. The notification clearly suggests the liability to pay tax on transfer of Development Rights - the value of supply has to be determined in accordance with Notification No. 11/2017 Central Tax (Rate), dated 28 June, 2017 read with notification No. 4/2018 Central Tax (Rate), dated 25 January 2018. The relevant entry for valuation is Sr. No. 3, Heading 9954 read with Para No. 2 of Notification No. 11/2017 Central Tax (Rate), dated 28 June, 2017.
Issues Involved:
1. Whether the grant of Development Rights attracts the levy of GST. 2. If liable to GST, what shall be the valuation modus operandi for taxation under GST. Issue-wise Detailed Analysis: 1. Whether the grant of Development Rights attracts the levy of GST: The applicant, a real estate developer, entered into an MOU with another company (RBIPL) to acquire development rights for a piece of land. The applicant argued that the transfer of development rights should be treated as a sale of land, which is not taxable under GST. The applicant presented several interpretations to support this claim, including that the transaction is akin to the sale of land, which is exempt from GST under Entry No. 5 of Schedule III of the CGST Act. However, the Authority for Advance Ruling (AAR) examined the terms of the MOU and concluded that the title of ownership of the land remains with RBIPL. The MOU terms indicated that the applicant (EDPL) is only granted certain rights to develop the land but does not acquire ownership. Therefore, the transfer of development rights does not amount to the sale of land. The AAR referred to the definitions of "goods" and "services" under the CGST Act and concluded that the transfer of development rights is a supply of service, thus attracting GST. 2. Valuation Modus Operandi for Taxation under GST: The AAR referred to Notification No. 4/2018-Central Tax (Rate), dated 25th January 2018, which provides a special procedure for the timing of payment of taxes for both landowners and developers. According to the notification, the liability to pay tax on the supply of development rights arises at the time when the developer transfers possession or the right in the constructed complex to the person supplying the development rights. The notification clearly indicates that the transfer of development rights in exchange for constructed space is taxable under GST. For determining the value of supply, the AAR referred to Notification No. 11/2017-Central Tax (Rate), dated 28 June 2017, read with Notification No. 4/2018-Central Tax (Rate), dated 25 January 2018. The valuation should be done as per Sr. No. 3, Heading 9954, read with Para No. 2 of Notification No. 11/2017-Central Tax (Rate). Findings: 1. The grant of Development Rights is currently taxable under the GST Act. 2. The valuation modus operandi for taxation is as contained in Para 5 of the order, referring to the relevant notifications and entries under the CGST Act. Conclusion: The AAR ruled that the grant of development rights is a taxable supply of services under GST, and the valuation should follow the specified notifications. The ruling clarified that the transfer of development rights does not equate to the sale of land and is therefore subject to GST.
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