The AAR has clarified that sale of land transaction shall be out of GST net only if the activity is exclusively dealing with transfer of title/ transfer of ownership of land.
Selling land does not attract GST. But, what happens in case a developed plot is sold to the buyer with amenities such as roads, underground cables and water pipelines? The Gujarat Authorities for Advance Ruling (AAR) has stated that sale of a developed plot is a 'supply of service' and will attract GST.
The state AAR has ruled that sale of developed plots would be covered under the clause ‘construction of a complex intended for sale to a buyer’ applicable to GST.
GST is not applicable to the sale of land because it is neither treated as supply of goods nor the supply of services as per Schedule III of the CGST Act, 2017. The land is identified as immovable property, and so, it does not attract GST, only stamp duty is payable on land purchases.
In a matter that came up before the Gujarat AAR, the applicant had submitted that as per the Plan Passing Authority, the seller of land is mandated to develop the primary amenities like sewerage and drainage line, water line, electricity line, land levelling for road, pipeline facilities for drinking water, street lights, telephone lines.
The applicant had sought for an advance ruling in respect of 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 are to be provided by the applicant.
The AAR has clarified that as per Serial Number 5 to Schedule III of the CGST Act sale of land transaction shall be out of GST net only if the activity is exclusively dealing with transfer of title/ transfer of ownership of land, which is immovable property or earth.
"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," it ruled.
The AAR said that sale of developed plot is not equivalent to sale of land but, tantamount to rendering of service.
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, it ruled.
"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," it said.
This view has also been taken by the Supreme Court in the case of M/s Narne Construction P Ltd in 2013.
The applicant may be the owner of the land, who develops the land with infrastructure as per the requirement of the approved Plan Passing Authority but after this development of the land, he sells the 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," it ruled.
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).
"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," it ruled.
Tax experts said that real estate developers may now have to re-think their tax positions.
"The general practice is to not pay GST on such transactions treating the same as sale of land. This ruling would come as a surprise to many developers and they would now need to re-think on their tax position,” said Harpreet Singh, Partner, KPMG.
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