Sale of Developed Plot Tantamounts to Construction Service – AAR Gujarat
by ReinHeads Team | Jun 23, 2020
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AAR Gujarat* – Sale of Developed Plot Tantamounts to Construction Service
| Facts |
- Dipesh Anil Kumar Naik (‘the Applicant’) is seller of a vacant land (‘the Plot’) outside the municipal area of town and is having all the necessary approvals from the Plan Passing Authority i.e. Jilla Panchayat (‘the PPA’)
- The PPA requires that the Applicant needs 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 primary amenities’)
- The Applicant will sell the Plot without any construction on the same but by providing the primary amenities (which are mandatory requirements)
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| Issue before the AAR |
- Whether GST is applicable on sale of the Plot for which, as per the requirement of the PPA, the primary amenities are to be provided by the Applicant?
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| Discussion and Findings of the AAR |
- Entry 5 of Schedule III of the Central Goods and Service Tax Act, 2017 (‘the CGST Act’) specifies that “Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building” shall neither be treated as a supply of goods nor supply of services and thereby excluded from GST
- The substance of agreement between the parties is important as 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
- Development of land into plots is a scheme which involves forming land into layout, obtaining necessary approval, providing the primary amenities along with construction of boundary wall, roads, overhead tanks, laying of underground cables, development of landscaped gardens, demarcation of individual plots, and other infrastructure works. Further common amenities like garden, community hall, etc. are also offered in some schemes
- Sellers charge the rates on super built-up basis and not the actual measure of the plot. Thus in effect, the seller would collect charges towards the land as well as the common amenities on a proportionate basis (an intrinsic part of the plot)
- Sale of developed plot is not equivalent to sale of land but tantamounts to rendering of service
- As per clause 5(b) of the Schedule-II to the CGST Act, “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 liable to GST
- Activity of the sale of developed plots would be covered under the clause ‘construction of a complex intended for sale to a buyer’ and liable to GST as ‘construction services’
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*Advance Ruling No. GUJ/GAAR/R/2020/11 dated 19 May 2020 (The Authority for Advance Ruling, Gujarat) |
