Goa Authority for Advance Ruling (AAR) in its recent ruling in the case of M/s Shantilal Real Estate Services has in complete reversal of the ruling of Gujarat AAR has ruled that GST is not applicable on sale of plots as it is not a supply under the GST law.
Facts of the Case
The Applicant M/s. Shantilal Real Estate Services is a real estate developer carrying on the business of construction of residential apartments, shops and development of plots.
The applicant has acquired by sale deeds certain parcels of Land at Dabolim & Chicalim in Mormugao, Goa and is currently the Owner of the Land and the applicant is currently undertaking certain plotting schemes on these parcels of lands.
The project undertaken by the applicant comprises of land wherein the land will be sub-divided into plots and new roads and drains will be constructed in line with the subdivision plan approved by Govt. Authority. Further, electricity poles will be realigned and added as necessary. No construction of building or structures will be done. The roads, open spaces etc. are being transferred to the Authority being the nature of public utility.
The sale is only of the plots of land the applicant being the owner. The price charged is based on the actual area of the plot and there is no built-up area, super built-up area or constructed structure which is being sold.
Issues on which ruling was sought
The applicant is seeking through the advance ruling for the purpose of determination of the following questions:-
(a) Whether sale of plots is a supply.
(b) If yes, whether it is a supply of goods or services and under which category it falls.
(c) The valuation of the supply, if applicable.
(d) Rate of tax as applicable.
(e) Abatement if any.
Order of Goa AAR on GST on sale of plots: Deliberation and Ruling
AAR noted firstly, that the roads, poles or drainages constructed by seller of land are at no time transferred to the purchaser of sub divided developed plot. These amenities will be available for use to every plot holder without any title to it. Further, these amenities in turn will be gifted to the local authority as mentioned by applicant and thereafter, the local authority will be the owner of such road and/ or electricity poles. Moreover, this can be better understood from position that no plot owner or collectively all plot owners will be in a position to sell these polls or roads or drainages nor they will be in a position to sell only plots without having these poles or roads on it. Here probable plot buyer cannot opt to buy only plot without these amenities. In future, in case plot owner among these buyers intends to sell plot which he purchases, it will be sold as plot of particular sq. mts.
Secondly the AAR noted that, the sub divided plots sold will be merely on the basis of rate per sq. mts. of land being the actual land area of the plot and not on built up or super built-up area.
Third important fact noted by AAR is that no structure is being erected nor construction of facilities such as gyms, clubhouse etc. in the nature of complex, building, civil structure or part thereof are being undertaken. So, from above discussion, it can be concluded that the object for sale is land.
AAR observed that in the instant case, the entry 5(b) of Schedule II, cannot be applied as these roads, poles or drainages are not for sale to probable buyers of plot. Neither their ownership nor their exclusive possession shall be passed on the probably buyers of plots, rather these are intended to be eventually vested with local authorities. The principal transaction is the sale of land and these amenities are a natural part of the sale of the plot of land and these do not, in anyway, change the nature of the land or of the transaction or activity being that of sale of land.
AAR adjudged that as per entry 5 of Schedule III of SGST Act, sale of land and, subject to clause(b) of paragraph 5 of Schedule II, Sale of building, is the activity or transaction which shall be treated neither as a supply of goods nor a supply of services. Here it will be important to note that, the sale of building has conditions for the qualification to be covered in clause (b)of paragraph 5 of Schedule II. However, for sale of land, there is no such condition. Thus, land is excluded in entirety and in all circumstances whereas building is includable within the scope of supply only upon meeting certain specific criteria.
In view of the above deliberations, the AAR held that sale of plots is not supply under GST Law and accordingly no GST will be applicable on such sale of plots.
Above ruling is reversal of earlier ruling of Gujarat AAR
It is important to note here that, Gujarat AAR in the case of Dipesh Anil Kumar Naik had held that that the sale of a developed plot (i.e., sale of land/plot after developing common facilities like water line, telephone line, electricity line, garden, common areas, water harvesting system, drainage system, water pipelines, laying of underground cables, demarcation of individual plots and other facilities as mandated by the development authority) is not equivalent to the sale of land but tantamount to the rendering of service and would be subject to levy of GST.
Relevant Statutory Provisions:
Serial no. 5 to schedule III of the GST Act dealing with “Activities or transactions which shall be treated neither as supply of goods nor a supply of services” provided for “sale of land and, subject to clause (b) of paragraph 5 of Schedule II, Sale of building”.
Further, sale of building is also excluded subject however to Paragraph 5b of schedule II. Paragraph 5b of schedule II provides for “construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or before its first occupation, whichever is earlier.
Explanation. – For the purposes of this clause-
(1) the expression “competent authority” means the Government or any authority authorized to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely:-
(i) an architect registered with the Council of Architecture constituted under the Architects Act, 1972; or
(ii) a chartered engineer registered with the Institution of Engineers (India]: or
(iii) a licensed surveyor of the respective local body of the city or town or village or development or planning authority;
(2) the expression “construction” includes additions, alterations, replacements or remodelling of any existing civil structure; The development of the plots does not include the construction of a complex, building, civil structures or any part thereof.
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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.
