Joint Development Agreement for land, Goods and Services Tax - GST

[VENU K]

An unregistered partnership firm entered into a land development agreement with another unregistered individual landowner. The consideration as per the development agreement for the two acre plot as per the registered agreement is 54 percent for land owner and 46 percent for developer. A refundable deposit of Rs.40,00,000/- was paid at the time of signing of the agreement. This is a fully refundable deposit. Only the preliminary works have been started now. There is absolutely no plans for construction of units in the plot. The agreement is to just develop the plots and sell it. No plot sale has as yet happned. The agreement was registered on 15 Feb 2024.

The doubts here are

1. Is the partnership firm liable for registration as of today, assuming there are no other turnover. The developer firm has not made any supplies so far.

2. Can a liability be imposed on the firm under Reverse Charge for transfer of development rights as the firm is an unregistered firm.

3. If there is an RCM liability , then, what is the time of supply ?

The Managing Partner is being summoned by the Department now.

Posts / Replies

[Shilpi Jain]

It is a plotting arrangement

1. Is the partnership firm liable for registration as of today, assuming there are no other turnover. The developer firm has not made any supplies so far.

It would be providing works contract services to the landonwer for which liability will arise near completion. At such time registration would be required. Though, for this firm to avail credit on expenses, it could consider taking registration now.

2. Can a liability be imposed on the firm under Reverse Charge for transfer of development rights as the firm is an unregistered firm.

Yes. Liability does not depend on whether the firm is registered or otherwise. Further as mentioed above registration would be required, if not now but near completion

3. If there is an RCM liability , then, what is the time of supply ?

Interpretational issue but can consider near completion of the activity of plotting in the project.

[VENU K]

Thank you Silpi Madam for the expert opinion. In this case the Managing Partner of the firm has been summoned in connection with payment of RCM with reference to Joint Development Agreement.

Does it actually fall under JDA as no construction is being planned. The plan is to just sell the plots after development.

[Sadanand Bulbule]

Dear querist

Also refer issue ID No.119294 for additional inputs.

[Alkesh Jani]

Shri,

I hope the relevant portion of Circular No. 177/2022 may be of your help and same is reproduced below:-

"14. Whether sale of land after levelling, laying down of drainage lines etc., is taxable under GST

14.1 Representation has been received requesting for clarification regarding applicability of GST on sale of land after levelling, laying down of drainage lines etc.

14.2 As per Sl no. (5) of Schedule III of the Central Goods and Services Tax Act, 2017, ‘sale of land’ is neither a supply of goods nor a supply of services, therefore, sale of land does not attract GST.

14.3 Land may be sold either as it is or after some development such as levelling, laying down of drainage lines, water lines, electricity lines, etc. It is clarified that sale of such developed land is also sale of land and is covered by Sr. No. 5 of Schedule III of the Central Goods and Services Tax Act, 2017 and accordingly does not attract GST.

14.4 However, it may be noted that any service provided for development of land, like levelling, laying of drainage lines (as may be received by developers) shall attract GST at applicable rate for such services."