GST UPDATE ON TREATMENT OF JOINT DEVELOPMENT AGREEMENTS - PART III

[Pradeep Jain]

In past two updates, we have discussed the various aspects of Joint Development Agreements in GST regime. In these updates, we have analyzed the provisions which state that GST is payable by the builder even on the flats transferred to land owner even though no consideration is received in cash. It will be taxable as the consideration is received in kind in form of land development rights. We have also done the valuation aspect of such flats that are being transferred to the land owner. In this update, we shall discuss the liability arising on part of land owner, when he further sells these flats. In normal parlance, in tri-partite agreements; the under-construction flats are transferred by the builder to the land owner. The tax on these flats is paid as and when the pre-defined level of construction is reached. Thus, the builder pays the tax on these flats just like he pays the tax on the flats sold to independent buyers. However, if the land owner further sells these under construction flats; he shall also be liable to pay the tax as it will be treated as an independent transaction. Also, the value at which builder pays the tax (notional value on transfer of these flats) will be on lower side as compared to the sale price receivable by the land owner. Further, the taxability of transaction between land owner and buyer is clearly visible in view of Schedule II to CGST Act, 2017. This schedule provides the list of activities that will be treated as "supply of goods" or "supply of services". Clause 5(b) to this schedule reads as follows:- "(b) 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."

The above language clearly speaks that the construction of complex, building or civil structure or a part thereof for sale to buyer except where the entire consideration has been received after issuance of completion certificate or after its first occupation whichever is earlier. Therefore, the above language is clear and it does not distinguishes between the actual service provider or one who actually sales. The only thing to be taken care of is that the entire consideration should not be received after completion certificate or after its first occupation whichever is earlier. Therefore, in such cases, the land owner is also required to take the registration under GST and pay the tax accordingly. However, he can claim the Input tax credit on the invoices raised by the developer.

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