GST: Major set back for the real estate Industries – Sale of developed plot now liable for GST
Shree Dipesh Anilkumar Naik – AAR Gujarat – Order No. GUJ/GAAR/R/2020/11, dated 19-05-2020
Real estate sector is likely to get a major setback by the Advance Ruling Authority (AAR) rendered by Gujarat AAR which has ruled that
“GST is applicable on sale of plot of land if the seller is providing primary amenities such as drainage, water and electricity lines and land levelling etc as per the requirement of the development authorities such as a Jila Panchayat”.
Gujarat AAR held 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’.
If further observed that the sale of developed plot is covered under ‘construction services’ and GST should be payable on sale of such plots.
It may be noted that sale of land has been kept outside the ambit of GST, and the buyer of a plot of land has to pay only registration charges. But after the ruling by the Gujarat AAR, a buyer will have to pay both GST and registration charges.
Majority of the people believe that present ruling is not in line with the tax position taken under current tax laws vis a vis erstwhile tax laws and is sure to lead to ambiguities in the real estate industry.
Present ruling is issued in a case wherein owner of the land had developed the basic infrastructure and amenities like drainage, water and electricity lines and then sold the ‘developed’ land as plot. According to the advance ruling authority, the sale of developed plots is a scheme which involves forming the land into layout after obtaining necessary plan approval from the development authority, collecting all other required permissions, and completing the layout comprising individual sites. Besides, such plots are developed after levelling of land, construction of boundary wall and roads, laying of underground cables, water pipelines and sewerage lines apart from other developments such as landscaped gardens, drainage system, water harvesting system, demarcation of individual plots and construction of overhead tanks, etc. AAR categorically noted that the seller of such plots charges the rates on super built-up basis and not as per 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. AAR concluded that 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, these are an intrinsic part of the plot allotted to the buyer
Key observation were as under:
- 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).
- 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.
- Activity of the sale of developed plots would be covered under the clause ‘construction of a complex intended for sale to a buyer’.
- 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.