9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2022 (7) TMI 411 - AAAR - GSTLevy of GST - sale of developed plot of land - activities undertaken for developing a barren land into a developed land with provision of amenities essential to make it inhabitable and fit for construction of a complex on the said land is a service or not - part of the service of construction of the complex or not - applicability of entry 5(b) of Schedule II of the CGST Act, 2017. Whether Land, and developed Land are two different things? - HELD THAT - The obvious answer to this question is yes. This is because a barren plot of land, and a plot of land on which certain basic development works which suits the requirement of daily life of people, making it suitable for inhabiting, has been done, like making of roads, electricity infrastructure, drainage and sewerage systems etc, are clearly two distinct things; one is suitable for inhabitation by humans and other is not suitable for inhabitation - The contention of the respondent that value addition in the sale price of the plot of land does not alter the basic character of transaction of sale of land is also not valid and is not supported by any logical reasoning. In fact value addition of the scale, as seen in this case, substantially magnifies the usability of land. The respondents have also placed reliance on certain rulings of AAR in different cases but in terms of Section 103 of the CGST Act, such rulings cannot be relied upon as they are applicable to the applicant and the jurisdictional officer only. It is evident that for the development of plots, the respondent has undertaken the activities of Grading and leveling of ABD area, construction of roads, modular rain water harvesting, water supply system, automated solid waste management system, ICT and street lighting and sewage line/ water supply/ electricity/ transit house. On account of these activities relating to development of barren land into developed land, huge sum of money amounting to Rs. 301.84 crores has been spent, which appears to be a major and substantial chunk of the cost of project. The complex which is going to be built on this land either for residential or commercial use cannot be imagined without these basic development activities. Thus it would be apt to derive that these activities have been undertaken with the aim of developing the land into a complex and these activities are therefore part of construction of the complex being developed. In light of the provisions of clause 'b' of para 5 of Schedule II of the CGST Act, 2017 and also in light of the above discussions, we are of the opinion that this transaction squarely falls under clause 'b' of para 5 of Schedule II of the CGST Act, 17 as the process of developing a plot of land by providing amenities such as age line, water line, electricity line, land leveling, and common facilities viz. road and street light etc. are preparatory part of the activity of construction of whatever structure that is proposed to be constructed on that piece of land. The AAR has not given due consideration to the crucial issues related to the difference between sale of barren land and developed land. Thus, the AAR in its order No 16/2021 dt. 22.11.2021 has erred in ordering that the sale of developed land, by the applicant as per the facts provided by him where the development work is limited to providing common amenities (common drainage, water line, electricity line, land levelling, road and street light) and no development work will be done by the applicant after the sale of the developed land and if no advance from the customer for undertaking development activities is taken then it does not constitute a supply within the meaning of Section 7 of the GST Laws and therefore GST is not applicable on such sale . Accordingly we quash the order No 16/2021 dt. 22.11.2021 passed by AAR, Madhya Pradesh, Indore. The activity of the sale of developed land is covered under 'construction of a complex intended for sale to a buyer' and is thus covered under 'construction services' and GST is payable on the sale of such developed land in terms of CGST Act / Rules and relevant Notification issued from time to time.
Issues Involved:
1. Applicability of GST on the sale of developed plot of land. 2. Rate of GST on the supply. 3. HSN or SAC code for the supply. 4. Relevant entry number of the notification for the supply. 5. Exclusion of land value from the total consideration for GST calculation. 6. Availability of 1/3rd abatement on account of the value of land. Detailed Analysis: Issue 1: Applicability of GST on the Sale of Developed Plot of Land The Appellate Authority for Advance Ruling (AAAR) overturned the AAR's decision that GST is not applicable on the sale of developed land. The AAAR concluded that the development activities (e.g., drainage, water line, electricity line, land leveling, road, and street light) change the character and value of the land, making it a supply of services under clause (b) of paragraph 5 of Schedule II of the CGST Act, 2017. The AAAR emphasized that these activities are preparatory parts of constructing a complex on the land, thus falling under "construction services." Issue 2: Rate of GST on the Supply The AAAR determined that the activities of selling developed land are liable to GST under "construction services." The applicable GST rate is CGST @ 9% and SGST @ 9% as per serial no. 3 of Notification No. 11/2017-Central Tax (Rate) dated 28-06-2017, as amended. Issue 3: HSN or SAC Code for the Supply The AAAR did not explicitly mention the HSN or SAC code for the supply. However, it falls under "construction services," which is typically classified under Heading 9954. Issue 4: Relevant Entry Number of the Notification for the Supply The AAAR referred to serial no. 3 of Notification No. 11/2017-Central Tax (Rate) dated 28-06-2017, as amended, which pertains to "construction services." Issue 5: Exclusion of Land Value from the Total Consideration for GST Calculation The AAAR confirmed that the value of supply of service and goods portion in such supply shall be equivalent to the total amount charged for such supply less the value of land or undivided share of land. The value of land or undivided share of land in such supply shall be deemed to be one third of the total amount charged for such supply. Issue 6: Availability of 1/3rd Abatement on Account of the Value of Land The AAAR upheld the provision in Notification No. 11/2017-Central Tax (Rate) which allows for the value of land to be deemed as one third of the total amount charged for the supply. This provides a mechanism for quantifying the service portion in transactions involving the transfer of property in land. Conclusion: The AAAR quashed the AAR's order and ruled that the sale of developed land by the respondent is liable to GST under "construction services." The activities fall under clause (b) of paragraph 5 of Schedule II of the CGST Act, 2017, attracting CGST @ 9% and SGST @ 9%. The value of supply should exclude the deemed value of land, which is considered one third of the total amount charged for the supply.
|
