2020 (10) TMI 1325 - AAR - GST

Levy of GST - activity of development and sale of land - Classification of the activity - taxable value of the supply - admissibility of ITC - HELD THAT - In the present case, it is found that the applicant has proposed to undertake the required project and therefore has filed the application for clarification on the questions under the Act. Therefore, the application is covered under Section 95(a) of the Act. The issue is sale of developed land for which no testing is required. Further we find support of admitting the present application in the judgment of Hon'ble Supreme Court given in the case of NATIONAL CO-OPERATIVE DEVELOPMENT CORPORATION VERSUS COMMISSIONER OF INCOME TAX, DELHI-V 2020 (9) TMI 496 - SUPREME COURT . The Court was of the opinion that a vibrant system of Advance Ruling can go a long way in reducing taxation litigation. This is not only true of these kinds of disputes but even disputes between the taxation department and private persons, who are more than willing to comply with the law of the land but find some ambiguity - thus, in terms of Section 97(2) of the Act, the present application is admitted. Whether the activity of development and sale of land is taxable under GST or otherwise? Ruling as per Amit Gupta, Member - HELD THAT - In the present case since there is no construction of any civil structure on the developed plot by the applicant there is no need of completion certificate by the applicant. For the area as a whole there will be development activities as per local bye laws but the same is not a part of sale to the end customer. There is absolutely no provision of completion certificate by any competent authority in respect of sale of land - there is no contractual relationship between the applicant and the end customer. In paragraph 5 (b) of schedule H there is intention for sale to buyer and therefore there is agreement between the parties. In the present case the entire consideration is to be received at the time of sale deed for the sale of land upon payment of applicable stamp duty. So, the sale of developed plot cannot fall under paragraph 5(b) of schedule II - since the sale of developed plot does not constitute supply of goods or services, there is no question of tax (CGST/SGST) on the sale of land. All other questions are not required to be answered since there is no tax on the sale of land. Ruling as per Shri Anurag Mishra, Member - HELD THAT - The applicant is going to undertake substantial development of the land before giving it out for sale to the end customers. Since these development activities are covered in clause (b) of paragraph 5 of schedule II therefore the sale of developed land will be treated as supply of service in terms of paragraph 5 of schedule II and thus, taxable in the eye of law. Since both the members have different views on the taxability of 'sale of developed land/plot', the other issues related to it becomes irrelevant and hence, the ruling cannot be given to such related issues. Since there are different views, a reference is made to the Appellate Authority for hearing and decision on said issue in terms of Section 98 (5) of the Act ibid which provide that where the members of the Authority differ on any question on which the advance ruling is sought, they shall state the point or points on which they differ and make a reference to the Appellate Authority for hearing and decision on such question.

Summary

Issues Involved:
1. Taxability of the activity of development and sale of land under GST.
2. Classification of the activity if taxable.
3. Determination of the taxable value of the supply.
4. Admissibility of Input Tax Credit (ITC) if the activity is taxable.

Detailed Analysis:

1. Taxability of the Activity of Development and Sale of Land under GST:
The applicant sought clarification on whether the activity of purchasing land, developing it with infrastructure, and selling it as plots is taxable under GST. The application was admitted under Section 97(2) of the CGST/SGST Act, 2017, which allows advance rulings on matters such as classification of supply, determination of value, admissibility of ITC, and determination of tax liability.

The applicant argued that the sale of land is excluded from the scope of supply under Entry No. 5 of Schedule III of the Act, which treats the sale of land as neither a supply of goods nor services. The applicant also contended that the development activities are incidental and naturally bundled with the sale of land, thus falling under the same exemption.

Ruling per: Amit Gupta, Member:
The member opined that the sale of developed plots does not constitute a supply of goods or services, as the development activities are ancillary and aimed at making the land livable. The sale transaction involves only the land, and no separate charges are made for the development activities. Therefore, the sale of developed plots falls under Entry No. 5 of Schedule III, making it non-taxable under GST.

Ruling per: Anurag Mishra, Member:
Contrarily, this member observed that the sale of developed plots involves substantial development activities, which are not merely incidental but integral to the transaction. Citing the Supreme Court's ruling in the case of M/s. Narne Construction P. Ltd. Vs. Union of India & Ors., it was argued that the sale of developed plots with assured facilities constitutes a supply of service. Therefore, the sale of developed plots should be treated as a supply of service under Clause (b) of Paragraph 5 of Schedule II and is taxable under GST.

2. Classification of the Activity if Taxable:
Given the differing views on the taxability, the classification of the activity remained unresolved. If taxable, the activity would likely be classified under services related to land development.

3. Determination of the Taxable Value of the Supply:
The applicant suggested that if the activity is taxable, the value should be determined as per Rule 31 of the CGST Rules, as Rules 27 to 30 do not apply to this transaction. However, this issue was not conclusively addressed due to the differing views on the primary issue of taxability.

4. Admissibility of Input Tax Credit (ITC) if the Activity is Taxable:
The applicant argued that if the activity is taxable, they are entitled to ITC under Section 16(1) of the Act. This issue also remained unresolved due to the differing views on the taxability of the activity.

Conclusion:
Due to the differing opinions of the members on the taxability of the sale of developed land/plots, the ruling could not be conclusively provided. The matter was referred to the Appellate Authority for Advance Ruling for a final decision, as per Section 98(5) of the CGST/SGST Act, 2017. The Appellate Authority will address the points of difference and provide a definitive ruling on the issues involved.