GST in play at sale of developed plots

NEW DELHI: In a ruling that is likely to have far-reaching ramifications in the real estate market, Gujarat’s Authority of Advance Ruling (AAR) has ruled that the sale of developed plots of land with primary amenities like power or water connections should attract Goods and Services Tax (GST). The addition of such amenities should be seen as a ‘supply of service’, the authority held.

While AAR rulings are applicable only to the individual applicant and the jurisdictional tax officer in a particular case, industry experts say this ruling will likely be used as a precedent by other jurisdictions.
According to the quasi-judicial body, the sale of ‘developed plots’ where primary amenities like power, water pipelines or even access roads are included, is not the same as the sale of land.

The sale of land, an immovable property and exempt from GST, attracts only stamp duty— as is the case for a building that has received a completion certificate. But the AAR observed that such transactions would be out of the GST net only if they “exclusively deal with transfer of title or transfer of ownership of land”. In the case of a developed plot with amenities, the AAR held that GST should be applicable since clause 5(b) of Schedule-II of the CGST Act defines the ‘construction of a complex intended for sale to a buyer’ as a supply of service.

GST applicable on sale of developed plots: AAR

The AAR observed that many activities like levelling the land, construction of boundary walls and roads, and laying of underground cables and water pipelines is carried out during plot development. “The sellers charge the rates on super built-up basis and not the actual measure of the plot… (this) includes the area used for common amenities, roads, water tank and other infrastructure... Thus, in effect the seller is collecting charges towards the land as well as the common amenities..,” the ruling noted.

This was “tantamount to rendering of service”, the AAR pointed out, adding that a similar view had been taken by the Supreme Court in the case of M/s Narne Construction P Ltd. Thus, the said activity is covered under ‘construction services’ and GST is payable on the sale of developed plots in terms of CGST Act,” Gujarat state’s AAR ruled.

“The ruling is quite negative for developers since, so far, GST was not being levied on developed plots. Now, many will have to rethink pricing structures and sale strategies,” a sales manager at a top real estate firm said. GST on sale of affordable under-construction real estate is taxed at 1 per cent, and others at 5 per cent currently. This makes the substance of the agreement important, since the inclusion of amenities in the bill would attract GST, experts added.