2020 (9) TMI 1145 - AAAR - GST

Levy of GST - taxable supply or not - sale of Transferable Development Rights (TDR)/ Floor Space Index (FSI) received as consideration for surrendering the joint rights in land in terms of Development Control Regulations - Agreement entered between the Appellant and Pune Municipal Corporation (PMC) read with Development Control Regulations - classification under GST - Applicable rate of GST. Whether TDR in itself is land and Building or Immovable property other than Land Building ? HELD THAT - The Appellant has referred to various definitions of the term land occurring under other legislations where the term land has been defined to include benefits arising out of land and as TDR is a benefit arising out of land it will also come under Clause 5 of schedule III to the CGST Act 2017. We do not agree with the argument of the Appellant as the Clause 5 speaks only of land and building . Neither the GST Act nor the schedules define land or choose to do that. In that case there is no need to qualify the term land by ascribing any meaning to it or defining it by borrowing definitions from other laws. The CGST law does not make a reference to any other law while mentioning land in Schedule III. Also if it had wanted to widen the scope of land to include benefits arising out of land it could have very well done so. Schedule III to the CGST Act 2017 is so to speak an exemption notification and exemption notifications have to be strictly interpreted - The term land has to be interpreted strictly and cannot be extended to cover benefits arising out of land . W hether supply of TDR is supply of service or supply of Goods ? - HELD THAT - The transferable development right that is TDR is an immovable property and hence not covered under the definition of goods. But the transfer of development right which is an immovable property is covered under the definition of service as the definition of service is very wide and it covers anything other than goods under its ambit. Hence as per the definition of supply under Section 7 of the CGST Act 2017 the transfer of TDR made for consideration in the course or furtherance of business is supply of service and taxable as per the provisions of CGST Act 2017. It is again made clear that levy of a tax is not on land but levy of tax is on the benefits arising out of the land which are in the nature of service - The definition of service is broadened so as to cover all commercial transactions within its ambit and sale of TDR is a commercial transaction. There is no section under the Act which explicitly prohibits the taxation of TDR. The Schedule Ill to the CGST Act 2017 only mentions land to be outside the ambit of GST and not benefits arising out of land. TDR is a benefit arising out of land and not land itself - Therefore it is liable to tax. As the Act casts a liability on the supplier to pay tax on supply or transfer of TDR the Central Government in exercise of the powers conferred by sub-section (1) of section 9 sub-section (1) of section 11 sub-section (5) of section 15 and sub-section (1) of section 16 of the Central Goods and Services Tax Act 2017 (12 of 2017) on the recommendations of the GST Council notified the rate as 9% (CGST) covered under Si. No. 16 item (iii) of Notification No. 11/2017 - Central Tax (Rate) dated 28-06-2017 (heading 9972). Therefore the effective rate of GST on TDR/FSI is 18% . Further the Central Government issued Notification No. 4/2018 - C.T. (Rate) dated 25.01.2018 thereby postponing the time of supply till the time of supply of the developer arises. The Government presupposes a liability to pay tax before the time of supply arises. The subject transaction would adequately get classified under the Heading 9972. Now the Notification No. 11/2017- C.T.(Rate) dated 28.06.2017 to ascertain the exact entry and the GST rate thereto. On perusal of the aforesaid Notification it is observed that the subject transaction would be covered under entry at SI. No. 16 (iii) of the Notification No. 11/2017-C.T. (Rate) dated 28.06.2017 bearing description Real estate services other than (i) and (ii) above and accordingly would attract GST at the rate of 18%. The sale of TDR/FSI would be leviable to GST under Heading 9972 at the rate of 18% as prescribed under the entry at St. No. 16 (iii) of Notification No. 11/2017 - Central Tax (Rate) dated 28-06-2017 - advance ruling upheld.

Summary

Issues Involved:
1. Maintainability of the Advance Ruling Order.
2. Taxability of the sale of Transferable Development Rights (TDR)/Floor Space Index (FSI) under GST.
3. Classification and applicable rate of GST on TDR/FSI.
4. Definition and scope of "land" and "service" under the GST Act.
5. Applicability of various notifications and legal precedents.

Detailed Analysis:

1. Maintainability of the Advance Ruling Order:
The appellant contended that the Advance Ruling order is not maintainable since Advance Ruling can only be given on a transaction proposed to be undertaken and not on one already undertaken. However, the appellate authority rejected this argument, citing the legal principle "Quod Approbo Non Reprobo" which means one cannot both approbate and reprobate. The appellant had willingly approached the Advance Ruling Authority and participated in the proceedings, making it inappropriate to challenge the maintainability at the appellate stage.

2. Taxability of the Sale of TDR/FSI under GST:
The appellant argued that the sale of TDR/FSI is akin to the sale of land/immovable property and thus should not be subject to GST, as per Clause 5 of Schedule III of the CGST Act, 2017. However, the appellate authority held that TDR/FSI is not "land" but a "benefit arising out of land" and thus does not fall under the exemption provided for the sale of land. The authority referenced the ITAT ruling in the case of Income-tax Officer v. Shri Prem Rattan Gupta, which clarified that TDR is an immovable property but not land itself.

3. Classification and Applicable Rate of GST on TDR/FSI:
The appellate authority upheld the classification of TDR/FSI under Heading 9972, attracting GST at the rate of 18% (9% CGST + 9% SGST) as per Notification No. 11/2017-C.T. (Rate), dated 28.06.2017. The authority also referenced various notifications, including Notification No. 4/2018-C.T. (Rate) and Notification No. 13/2017-C.T. (Rate), to support the taxability of TDR/FSI under GST.

4. Definition and Scope of "Land" and "Service" under the GST Act:
The appellant referred to definitions of "land" under other statutes, arguing that TDR/FSI should be considered land and thus exempt from GST. However, the appellate authority emphasized that the CGST Act does not define "land" and that Schedule III should be interpreted strictly. The authority also clarified that the definition of "service" under the CGST Act is broad and includes anything other than goods, money, and securities, thereby encompassing TDR/FSI.

5. Applicability of Various Notifications and Legal Precedents:
The appellant cited various court judgments and notifications to argue against the taxability of TDR/FSI. However, the appellate authority found these references inapplicable or insufficient to alter the ruling. The authority noted that the explanatory notes to the notifications serve as guiding tools but do not override the notifications themselves. The authority also dismissed the appellant's argument that TDR is akin to money, reiterating that TDR does not fall under the definition of money as per the CGST Act.

Conclusion:
The appellate authority upheld the ruling of the Maharashtra Advance Ruling Authority, confirming that the sale of TDR/FSI is subject to GST under Heading 9972 at the rate of 18% (9% CGST + 9% SGST). The authority found no merit in the appellant's arguments and maintained that TDR/FSI is a taxable supply of service under the CGST Act, 2017.