2018 (10) TMI 599 - AAR - GST

Classification of Supply - sale of building - development charge - whether classified as supply of goods or supply of services? - Input tax credit - Is it correct to structure agreement by fixing the land cost by absorbing the development charges? - Whether the ITC availed has to be paid back on pro rata basis, on plots sold after completion? Held that - As per Paragraph 5 (b) of Schedule II, 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 shall be treated as a supply of services. In the instant case, the Completion Certificate in respect of the project has been issued on 31.052018 and the proposed transaction is in respect of sale of developed plots/ land with civil structures after the issuance of Completion Certificate. Therefore the transaction is covered by Paragraph 5 of Schedule III of the GST Act. Hence the sale deed executed for plot as well as undivided share in common area attracts only stamp duty and registration charge - The Input Tax Credit availed in respect of the GST paid on goods and/ or services used / consumed for the development of the land is liable to be reversed on pro rata basis in respect of the plots sold after the issuance of completion certificate. Ruling - It is lawful to structure agreement by fixing the land cost after absorbing the development charges. The Input Tax Credit availed in respect of the GST paid on goods and/or services used/consumed for the development of the land, in respect of the plots sold after the issuance of Completion Certificate is liable to be reversed on pro rata basis.

Summary

Issues:
1. Structuring agreement by fixing land cost after absorbing development charges.
2. Reversal of Input Tax Credit (ITC) on pro rata basis for plots sold after completion.

Analysis:
1. Structuring agreement by fixing land cost after absorbing development charges:
The applicant sought an advance ruling on whether it is permissible to structure agreements by fixing the land cost after absorbing the development charges. The Authority for Advance Rulings examined the issue in detail. Referring to Paragraph 5 of Schedule III of the GST Act, it was noted that the sale of land and buildings, except in certain circumstances, is not considered a supply of goods or services. However, Paragraph 5(b) of Schedule II specifies that the construction of a complex or building intended for sale is treated as a supply of services unless the entire consideration is received after the issuance of a completion certificate. In this case, as the completion certificate for the project was issued, the sale of developed plots with civil structures falls under the purview of Paragraph 5 of Schedule III. Consequently, the sale deed for the plot and undivided share in common areas is subject only to stamp duty and registration charges.

2. Reversal of Input Tax Credit on pro rata basis for plots sold after completion:
The second issue pertained to the reversal of Input Tax Credit (ITC) on a pro rata basis for plots sold after the issuance of the completion certificate. The Authority ruled that the ITC availed on GST paid for goods and services used in the development of the land must be reversed on a pro rata basis for plots sold post-completion. This means that the ITC should be adjusted according to the proportion of plots sold after the issuance of the completion certificate.

In conclusion, the Authority for Advance Rulings issued the following rulings: 1) It is permissible to structure agreements by fixing the land cost after absorbing the development charges, and 2) The Input Tax Credit availed for goods and services used in land development must be reversed on a pro rata basis for plots sold after the issuance of the completion certificate.