2020 (5) TMI 415 - AAAR - GST

Levy of GST - activity of development and sale of land - Applicability of provision of Rule 31 in ascertaining the value of land and supply of service - challenge to AAR decision - HELD THAT - In the instant case there are two activities involved, viz development of land and sale of plots. The transaction relating to the sale of land is not a supply of either goods or service under GST (entry 5 of Schedule III of the CGST Act refers). This activity of sale of land cannot be considered as an 'exempt supply' for the reason that the activity is not at all a supply and hence the question exempting it under Section 11 of the Act does not arise. On the other hand, the activity of development of land is a supply in terms of Section 7 of the CGST Act. A combination of two activities one of which is not a supply under GST cannot be said to be a composite supply - this contention of appellant cannot be agreed upon. The landowner shall obtain all required licences, sanctions, consents, permissions, no-objections and such other orders as are required to procure the Sanctioned Plan. Further, in case the Appellant-Developer intends to modify the plans, the landowner shall obtain the required modifications to the sanctioned plan. The Appellant-Developer shall develop the project on the property subject to the obtaining of the sanctioned plan by the owners. Therefore, it is evident that the onus is on the landowner to comply with the provisions of Section 32 of the Karnataka Urban Development Authorities Act. It is the owner of the schedule property who agrees to transfer the ownership of the roads, drains, water supply mains, parks and open spaces, civic amenity areas to the Urban Development Authority. The Appellant-Developer has no role to play in obtaining the sanctions and in transfer of ownership. Therefore, this argument of the Appellant does not hold good. While the Joint Development agreement is entered into for the two parties to jointly reap the benefits of the sale of the land to customers, there is a clear rendering of a service by the developer to the landowner in developing the land which belongs to the landowner. Therefore, the activity of developing the land is a supply of service by the Appellant. The findings of the lower Authority on the question of taxability of the activity of development and sale of land and also the finding on the question relating to the value of supply is upheld - decision of AAR upheld.

Summary

Issues Involved:
1. Whether the activity of development and sale of land attracts tax under GST.
2. Whether Rule 31 can be applied to ascertain the value of land and supply of service.
3. Condonation of delay in filing the appeal.

Detailed Analysis:

Condonation of Delay:
The appellant sought condonation of a 21-day delay in filing the appeal. The delay was attributed to the Director and Consultant being occupied with filing annual GST returns and accounts. The authority, considering the reasons provided, condoned the delay under the proviso to Section 100(2) of the CGST Act.

Taxability of Development and Sale of Land:
The primary issue was whether the development and sale of land by the appellant constituted a taxable supply under GST. According to Section 7 of the CGST Act, "supply" includes all forms of supply of goods or services for consideration. However, entry 5 of Schedule III treats the sale of land as neither a supply of goods nor services. The appellant argued that their activity was primarily the sale of land, with development being incidental, thus falling under Schedule III and not attracting GST.

Upon examining the Joint Development Agreement (JDA), it was found that the appellant was responsible for significant development activities such as surveying, fencing, leveling, and laying infrastructure, with costs borne by the appellant. The revenue from the sale of plots was shared between the landowner and the developer in a 75:25 ratio. The authority concluded that the agreement was not a simple sale of land but included substantial development services, making it a supply of services under GST.

Composite Supply Argument:
The appellant contended that the transaction was a composite supply where the principal supply was the sale of land, which is outside the purview of GST. The authority disagreed, stating that a composite supply involves two or more taxable supplies naturally bundled together. Since the sale of land is not a supply under GST, it cannot form part of a composite supply with the development activity, which is a taxable supply.

Compliance with Karnataka Urban Development Authorities Act:
The appellant argued that under the Karnataka Urban Development Authorities Act, they were required to transfer ownership of infrastructure to the authority, implying they could only sell land. The authority found that the responsibility to transfer ownership lay with the landowner, not the developer, and thus this argument did not affect the taxability of the development activity.

Service Supply to Landowners:
The appellant claimed there was no service supply to the landowners, as the JDA was a mutual agreement for joint development and revenue sharing. The authority held that the developer provided a clear service of developing the land, which belonged to the landowner, thus constituting a taxable supply of services.

Conclusion:
The authority upheld the lower Authority's ruling that the development and sale of land by the appellant constituted a supply of services liable to GST. The appeal was dismissed on all accounts.