Gujarat AAR in its ruling dated 19.05.2020 (Advance Ruling No. GUJ/GAAR/R/2020/11) in case of Shree Dipesh Anilkumar Naik has adjudged that sale of developed plot is not equivalent to sale of land and same shall be subject to GST as supply of construction services.
Facts of the Case
The applicant 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).
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..
The applicant 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).
Question on which Advance Ruling is sought
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?
Highlights and Ruling of Gujarat AAR
- 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.
- 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.
- The 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).
- 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.
- 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).
In light of above the Gujarat AAR adjudged 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.
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.
The order of Gujarat AAR is given below for ready reference of our readers:
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