2022 (9) TMI 778 - AAR - GST

Levy of GST - time of supply - transfer of land or transfer of 'development rights' to the developer by the landowner is to be considered as receipt of consideration by the developer - Applicability of N/N. 04/2018-CT (Rate) dt.25.01.2018 - liability to pay GST or service tax as applicable arises on the developer immediately on receipt of development rights or immediately on conveyance of the flats to be constructed by way of an allotment letter. HELD THAT - Transfer of development rights by the landowner to the developer is consideration received by such developer for supply of construction service. - The liable to pay GST by the developer-promoter shall arise at the time of transfers possession or right in the constructed complex or constructed flats and not at the time of receipt of development rights. The tax on the portion of constructed area shared with the land owner-promoter has to be paid by developer-promoter . The applicant i.e., the land owner-promoter will claim such tax as ITC as described above whenever he makes further sale of such property before issuance of completion certificate. Further according to the conditions laid down in Notification No. 04/2018 the liability to pay tax on consideration received by the developer-promoter in form of development rights shall arise at a time when such developer-builder transfers possession or right in the constructed complex. That is after the completion of the construction of a civil structure the time of supply arises when the right or possession in such constructed complex is transferred to the land owner-promoter.

Summary

Issues:
1. Clarification on whether transfer of land or transfer of development rights to the developer constitutes consideration for construction services.
2. Determination of the liability to pay GST or service tax by the developer in relation to the transfer of development rights or conveyance of constructed flats.

Issue 1 - Consideration for Construction Services:
The applicant, a landowner, entered into a joint development agreement with a developer in 2016. The Authority for Advance Ruling (AAR) discussed the altered GST structure for real estate services effective from April 1, 2019. As per relevant notifications, the liability for CGST and SGST lies with the developer for supplying constructed apartments to the landowner. The landowner, if further supplying the apartments before receiving the completion certificate, is liable to pay CGST and SGST and can claim input tax credit. The tax on the shared constructed area must be paid by the developer, and the landowner can claim ITC upon further sales. The liability to pay tax on consideration received by the developer in the form of development rights arises upon transferring possession or right in the constructed complex to the landowner after completion of construction.

Issue 2 - Liability to Pay GST or Service Tax:
The AAR ruled on the questions raised by the applicant as follows:
1. Transfer of development rights by the landowner to the developer constitutes consideration for construction services, as per Notification No. 04/2018-CT (Rate).
2. The liability to pay GST by the developer arises at the time of transferring possession or right in the constructed complex or flats, not upon receipt of development rights. The ruling clarifies the timing of GST liability for developers in such scenarios.

This comprehensive analysis of the judgment provides detailed insights into the issues regarding the transfer of development rights, consideration for construction services, and the timing of GST liability for developers and landowners in real estate projects.