2020 (9) TMI 544 - AAR - GST

Valuation of supply - transaction of sale of residential/ commercial property with undivided rights of land - construction of residential/commercial complex - deduction of actual cost of land or not - amount of land to be deducted is not ascertainable - HELD THAT - Applicant's contention to allow the deduction of actual value of land from the transaction value instead of deduction, as defined in the Notification No. 11/2017-CT (Rate) dated 28.06.2017, is not tenable and beyond the purview of legality. In para 2 of the Not. No. 11/2017-Ct (Rate) dated 2017, as amended by Not. No. 01/2018-CT (Rate), the value of land or undivided share of land required to be deducted from the total amount charged for the subject supply has been clearly provided. In para 2 of Notification No. 11/2017-CT (Rate) dated 28.06.2017, as amended vide Notification No. 1/2018-C.T. (Rate), dated 25-1-2018, there is deemed provisions that the value of transfer of land or undivided share of land, as the case may be, and the value of such transfer of land or undivided share of land, as the case may be, in such supply shall be deemed to be one third of the total amount charged for such supply. Accordingly, the applicant contention to allow the deduction of actual value of land from the sale value on the grounds that their land value is ascertainable and other grounds is not legal in terms of para 2 of Not. No. 11/2017-CT (Rate) dated 28.06.2017 as amended vide Notification No. 1/2018-C.T. (Rate), dated 25-1-2018. Further, the reliance of Rule 18(A) (A) of the erstwhile Gujarat Value Added Tax Rules, 2006 is not warranted in the instant case since the Value Added Tax Act is no more in existence. The Value Added Tax Act does not have any legal value in determination of GST liability since the value of supply is to be arrived in terms of the provisions of the GST Act. Thus, applicant is required to deduct one third value of land or undivided shares from the total value charged for the subject supply in terms of Para 2 of 11/2017-CT (Rate) dated 28.06.2017, as amended vide Not. No. 1/2018-C.T. (Rate), dated 25-1-2018.

Summary

Issues:
1. Determination of the value of supply for the transaction of sale of residential/commercial property with undivided rights of land.
2. Whether the actual cost of land can be deducted for the purpose of arriving at the taxable value of supply in the case of construction of a residential/commercial complex where the land value is ascertainable.

Analysis:

Issue 1:
The applicant, engaged in construction business, sought an Advance Ruling on the value of supply for the sale of property with undivided rights of land. They contended that the cost of land being transferred should be allowed to be deducted as a whole, contrary to the prescribed deduction of one third (33.33%) as per relevant notifications. The applicant argued that the actual value of land is determinable and varies based on location, thus the uniform deduction percentage is not suitable. However, the Authority found the applicant's contention not legally tenable. The relevant notification clearly states that the value of land or undivided share of land to be deducted is one third of the total amount charged for the supply. The reliance on the erstwhile Value Added Tax Rules was deemed irrelevant as the determination of GST liability is governed by the GST Act. Therefore, the Authority ruled that the applicant must deduct one third of the land value from the total value charged for the supply.

Issue 2:
Regarding the deduction of the actual cost of land for arriving at the taxable value of supply in construction projects where land value is ascertainable, the Authority negated the applicant's request. The deeming provision in the relevant notification specifies that the value of land or undivided share of land to be deducted is one third of the total amount charged for the supply. The Authority emphasized that the applicant is required to adhere to this provision, and the actual cost of land cannot be deducted for determining the taxable value of supply.

In conclusion, the Authority ruled that the value of supply for the sale of residential/commercial property with undivided rights of land must be determined as per the deeming provision in the notification, and the actual cost of land cannot be deducted for arriving at the taxable value of supply in construction projects where land value is ascertainable.