GST is a tax on the supply of goods or services or both. Goods, as defined under Section 2(52) of the CGST Act, 2017, includes every kind of movable property but includes growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply. Thus it is clear that sale of land being an immovable property cannot be taxed as supply of goods for applicability of GST.
However, the term services has been defined under Section 2(102) in a broad manner and mean anything other than goods, money and securities. Thus one can say that land would be covered under ‘services’ and its supply exigible to GST. However, the sale of land is not regarded as supply under GST as per Schedule III, due to which GST would not be applicable on sale of land. However, this position will not hold good in the case of sale of a developed plot along with facilities/amenities. Let’s discuss both the situations in succeeding paras:
GST on sale of Land:
Land is an immovable property. As per Para 5 of Schedule III of the CGST Act,2017 sale of land is neither considered a supply of goods or services or both. The sale of land attracts stamp duty only which is levied by State Government and has not been subsumed under GST. Accordingly sale of land does not come under the purview of GST and is not exigible to GST.
GST on sale of developed Land / Plots of Land:
As discussed above the sale of land is not subject to GST as it is not regarded as a supply as per Schedule III. Now the question arises as to whether the sale of a developed plot would be chargeable to GST or not.
In this regard a Gujarat AAR ruling in the case of Shree Dipesh Anilkumar Naik is relevant wherein the applicant was the owner of the land, who develops the land with an infrastructure such as Drainage line, Water line, Electricity line, Land levelling etc. as per the requirement of the approved Plan Passing Authority (i.e. Jilla Panchayat). After this development of the land, he sales developed land as plots. His sales price includes the cost of the land as well as the cost of common amenities, Drainage line, Water line, Electricity line, Land levelling charges, etc. on a proportionate basis.
The AAR held in this case that the activity of the sale of developed plots would be covered under the clause ‘construction of a complex intended for sale to a buyer’. Thus, the said activity is covered under ‘construction services’ and GST is payable on the sale of developed plots in terms of CGST Act / Rules and relevant Notification issued time to time.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, GUJARAT
BRIEF FACTS
The applicant has submitted that he is having a vacant land outside the municipal area of town on which he has some proposed business activity. The applicant is having all the necessary approvals for the proposed project from the Plan Passing Authority (i.e. Jilla Panchayat).
2. The applicant has further submitted that as per the Plan Passing Authority, the seller of land is required to develop the primary amenities like Sewerage and drainage line, Water line, Electricity line, Land levelling for road, Pipe line facilities for drinking water, Street lights, Telephone line etc..
3. The applicant further submitted that they will sell the individual plots to different buyers without any construction on the same but by providing the primary amenities as mentioned above, which are mandatory requirement of the approved Plan Passing Authority (i.e. Jilla Panchayat).
4. In view of the above, the applicant has sought for an advance ruling in respect of the following question:-
Whether GST is applicable on sale of plot of land for which, as per the requirement of approved by the respective authority (i.e. Jilla Panchayat), Primary a.menities such as, Draina.ge line, Water line, Electricity line, Land levelling etc. are to be provided by the applicant?
5. At the time of personal hearing, the Authorised Representative of the applicant reiterated the facts as stated in the Application and as mentioned herein above.
DISCUSSION & FINDINGS:
6 We have considered the submissions made by the applicant in their application for advance ruling as well as at the time of personal hearing.
7. In this case, a moot point is to be decided as to whether GST is applicable on sale of plot of land for which, as per the requirement of approved by the respective authority (i.e. Jilla Panchayat), Primary amenities such as, Drainage line, Water line, Electricity line, Land levelling etc. are to be provided by the applicant?
8. Coming to GST, tax is levied on supply of goods/services. Schedule III to GST Law sets out the activities or transactions which are treated as neither a supply of goods nor as supply of services. Therein entry 5 covers sale of land, which is excluded from GST levy.
8.1 For the sake of understanding, the relevant provisions are reproduced herein below:
Serial Number 5 to Schedule III of the CGST Act:–
“5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building. “
9. From the above definition, it is clear that the transaction shall be out of GST net only if the activity is exclusively dealing with transfer of title or transfer of ownership of land, which is immoveable property or earth. Here the substance of agreement between the parties is important. Where the nature of activity is that of ONLY sale of immoveable property of plot, it is excluded from GST levy.
10. As per the applicant, he is the owner of the land, who develops the land with an infrastructure such as Drainage line, Water line, Electricity line, Land levelling etc. as per the requirement of the approved Plan Passing Authority (i.e. Jilla Panchayat). After this development of the land, he will not do any building constructions and all. He sales only developed land as plots.
11. We find that the plotted development is a scheme which involves forming land into layout after obtaining necessary plan approval from the Development Authority, get all other permission required to take up, commence and complete what would be the layout, comprised of individual sites. In the activity of plot development, the following are done-levelling the land, construction of boundary wall, construction of roads, laying of underground cables and water pipelines, laying of underground sewerage lines with sewer treatments plant, development of landscaped gardens, drainage system, water harvesting system, demarcation of individual plots, construction of overhead tanks, other infrastructure works. Further common amenities like garden, community hall, etc. are also offered in some schemes. Sale of such sites is done to end customers who may construct houses/villas in the plots.
11.1 The sellers charge the rates on super built-up basis and not the actual measure of the plot. The super built-up area includes the area used for common amenities, roads, water tank and other infrastructure on a proportionate basis. Thus, in effect the seller is collecting charges towards the land as well as the common amenities, roads, water tank and other infrastructure on a proportionate basis. In other words, such common amenities, roads, water tank and other infrastructure is an intrinsic part of the plot allotted to the buyer.
11.2 The above indicates that sale of developed plot is not equivalent to sale of land but is a different transaction. Sale of such plotted development tantamount to rendering of service. This view has also been taken by the Supreme Court in the case of M/s Narne Construction P Ltd. reported at 2013 (29) STR 3 (SC).
12. In present case, we also find that the applicant is the owner of the land, who develops the land with an infrastructure such as Drainage line, Water line, Electricity line, Land levelling etc. as per the requirement of the approved Plan Passing Authority (i.e. Jilla Panchayat). After this development of the land, he sales developed land as plots. His sales price includes the cost of the land as well as the cost of common amenities, Drainage line, Water line, Electricity line, Land levelling charges, etc. on a proportionate basis.
13. Schedule II of the CGST Act, 2017 pertains to activities or transactions to be treated as “Supply of goods or supply of services”. As per clause 5(b) of the Schedule-II of the CGST Act, 2017, construction of a complex, building, civil structure or a part thereof including a complex or building intended for sale to a buyer is a “Supply of service” and, hence, is liable to the Goods and Services Tax (GST).
14. We find that the activity of the sale of developed plots would be covered under the clause ‘construction of a complex intended for sale to a buyer’. Thus, the said activity is covered under ‘construction services’ and GST is payable on the sale of developed plots in terms of CGST Act / Rules and relevant Notification issued time to time.
15. In light of the foregoing, we rule as under –
RULING
Ques. 1: Whether GST is applicable on sale of plot of land for which, as per the requirement of approved by the respective authority (i.e. Jilla Panchayat), Primary amenities such as, Drainage line, Water line, Electricity line, Land levelling etc. are to be provided by the applicant?
Answer: Answered in the Affirmative, as discussed above.
Our view:
The ruling of Gujarat AAR is replica of the earlier ruling given by Gujarat AAR in the case of ‘Satyaja Infratech’ and in our view, the facts of the case and legal position has not been properly considered by Gujarat AAR while pronouncing its Ruling, in view of following:
- The sale of developed land has been adjudged to be covered under clause construction service as per para 5(b) of Schedule II without appreciating that there is no construction of complex, civil structure involved in this case. Also when sale of land is excluded from levy of GST as per para 5 of Schedule III, Schedule II becomes inoperative.
- How the consideration is charge viz super built up area in this case cannot effect the taxability.
- The Supreme Court Judgment as cited by AAR is issued in regard to Consumer Protection Act, 1986 and thus cannot be referred to in perspective of GST Law which in itself is a self contained law.
- Even if sale of developed land is considered as supply, no valuation provisions for splitting the basic value of land from the total consideration, have been prescribed under GST Law and thus tax cannot be levied. Charging of GST on full value of developed land is absurd and goes against the basic principle of GST Law that no GST will be applicable on sale of land.
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
