2024 (1) TMI 500 - AAR - GST

Classification of supply - rate of GST on sale of Land and construction of Duplex over the same land on execution of two separate Agreements by the Applicant - admissibility of input tax credit of tax paid or deemed to have been paid - HELD THAT - Going by the mandates of the Memorandum of Agreement Power of Attorney, it is crystal clear that the land owner M/s Arnav Constructions has not authorized the Applicant to sale land/plot; rather to construct Duplex /Multi Stories buildings over the land in question. The Applicant started development of a land into plotting and other development activities like electricity, drainage, water facilities, parks, club house etc . Further, from the Circular No. 177/09/2022-TRU Dated 3rd August, 2022, we observe that Plot/ Land may be sold either as it is or after some development such as leveling, laying down of drainage lines, water lines, electricity lines, etc. - the contention/view of the Applicant not differed upon, to the extent that sale of land/ developed land is also sale of land and is covered by Sr. No. 5 of Schedule Ill of the Central Goods and Services Tax Act, 2017 and accordingly does not attract GST. The Applicant has developed the land for the project at the behest of the buyer(s). The development of land undertaken by the Applicant is an activity preceding and in relation to construction of project, as evident from the Memorandum of Agreement Power of Attorney both dated 27.02.2019. Here, the project means the building and the land appurtenant thereto and all passages, the parking space, amenities thereto etc as provided in BDA plan. he Applicant has relied upon Ruling of Haryana AAR in case of M/s Informage Realty Private Limited 2018 (10) TMI 1868 - AUTHORITY FOR ADVANCE RULING, HARYANA , in case of M/s Shantilal Real Estate Services 2022 (1) TMI 659 - AUTHORITY FOR ADVANCE RULING, GOA and in case of of M/s Rabia Khanum 2022 (9) TMI 785 - AUTHORITY FOR ADVANCE RULINGS, KARNATAKA . Wherein it has been held that sale of plots/developed plots is not taxable in terms of Entry 5 of Schedule III. In this regard, it is stated that the ratio of the rulings on the cases cited by the applicant are found different to be facts and situation of the case in hand. There is no law that those decisions will have universal application. It is ruled by the Hon'ble Supreme Court in the case of Escorts Ltd vrs CCE, Delhi, 2004 (10) TMI 91 - SUPREME COURT that one additional or different fact may make a world of difference between conclusion of two cases. It would be relevant to mention here that the facts of the cases cited by the Applicant are different from the case under discussion. In those cases, the owner of the land has developed the land not at the behest of the buyer and not because the buyer has requested for any service from him. The development of land undertaken by the owner was an activity incidental to the sale of land. The transaction between the purchaser and the owner of the land was a transaction purely for the sale of land. Thus, the activity undertaken/proposed to be undertaken by the Applicant towards sale of plot/land and construction of Duplex/Flats over the said land amounts to taxable service under GST in view of the Schedule II, Para 5 Clause (b) definition of the CGST Act. In view of Notification No. 03/2019-C.T. (Rate) dated 29.03.2019, the Applicant is liable to pay GST @7.5% after deducting 1/3rd towards land cost from the total consideration i.e. effective rate of 5% GST on the full consideration received towards land and Duplex and is not eligible for ITC on any inward supply of goods and services.

Summary

Issues Involved:
1. Applicability of GST rate on sale of land and duplex constructed on the same land on execution of two separate agreements.
2. Admissibility of input tax credit (ITC).

Issue 1: Applicability of GST Rate on Sale of Land and Duplex Constructed on Same Land on Execution of Two Separate Agreements

The Applicant, engaged in real estate and construction, intends to sell land and construct duplex houses through two separate agreements. The key argument from the Applicant is that as per Schedule III of the CGST Act, the sale of land is neither a supply of goods nor a supply of service, hence GST is not applicable on the sale/transfer of land. They further cite Circular No. 177/09/2022-TRU, which clarifies that the sale of developed land is also considered a sale of land and does not attract GST.

However, the Authority found that the transaction in question is not limited to the sale of land. The Applicant is also engaged in the construction of duplex/multi-storied buildings, which involves development activities like electricity, drainage, and water facilities. The Memorandum of Agreement and Power of Attorney indicate that the Applicant is authorized to develop the land and construct buildings, not merely sell plots. Thus, the sale of plot/land and construction of duplexes is considered a taxable service under GST. As per Schedule II, Para 5 Clause (b) of the CGST Act, the activity attracts GST.

Issue 2: Admissibility of Input Tax Credit (ITC)

The Applicant contended that the construction service is in the nature of a "works contract" and would attract 18% GST, making them eligible for ITC. However, the Authority ruled that in view of Notification No. 03/2019-C.T. (Rate) dated 29.03.2019, the Applicant is liable to pay GST at an effective rate of 5% on the total consideration received for land and duplex construction, and is not eligible for ITC on any inward supply of goods and services.

Ruling:

The activity undertaken by the Applicant towards the sale of plot/land and construction of duplexes amounts to a taxable service under GST. The Applicant is liable to pay GST at an effective rate of 5% on the total consideration received and is not eligible for ITC on any inward supply of goods and services.

Appeal:

The Applicant or jurisdictional officer, if aggrieved by the ruling, may appeal to the Odisha State Appellate Authority for advance ruling under Section 100 of the CGST/OGST Act, 2017 within 30 days from the date of receipt of the advance ruling.