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GST is chargeable on Land Owner for sale of Flats Received from Developer under JDA

Karnataka Advance Ruling in the case of M/s Vinod Kumar Goyal has held that GST is chargeable on Sale of Flats Received from the Developer under Joint Development Agreement. (Copy of Advance Ruling is provided at the end of the Article).

In this article, we will discuss following aspects of the issue:


1. Question Raised by the Taxpayers

2. Brief Facts of the Case

3. Submissions of the Taxpayer

4. Discussion about Legal Issues by the Authority

5. Decision about the queries.


Question Raised by the Taxpayer


i. Whether Taxpayer being land owner not executing construction work is liable to pay tax in respect of agreements to be entered with customers for sale of apartments (other than affordable) belonging to the Taxpayer’s share before issuance of Completion Certificate in the project under JDA, area sharing model, where construction work is executed by developer and the developer is liable to pay tax on the portion of apartments to be handed over to the Taxpayer on or before issuance of Completion Certificate?

ii. If Taxpayer is liable for tax, applicable rate of tax on sale of apartments before issuance of completion certificate?

iii. If Taxpayer is liable for tax, whether Applicant can claim credit of tax charged by developer on the portion of apartments belonging to the Applicant where developer has opted for payment of tax under old scheme i.e., 18%.

iv. If Applicant is liable for tax, Whether Taxpayer can claim input tax credit on other expenses, other than tax charged by Developer for supply of apartments?


Brief Fact of the Case


The applicant states that they are the owner of land. They have entered into a joint development agreement (JDA} on 30.03.2007 and Supplementary Agreement on 12.05.2008 with developer in respect of 5 Acres of land for development of residential apartments.


The important terms and conditions of JDA as below:

a) Cost of construction shall be borne by Developer;

b) Both the parties have agreed to share the apartments in the ratio of 32% (for Applicant} : 68% (for Developer).

c) Apartments belonging to their share shall be the sole and absolute properties of the Applicant and Developer respectively;

d) The Applicant has agreed to pay the applicable tax on Applicant’s share of construction activity, which is liable to pay tax in the hands of developer at the time of handing over apartments;

e) The Applicant has also agreed to pay the statutory deposits and fees payable to the statutory authorities / local authorities i.e., BESCOM 8s BWSSB etc.,in respect of Applicant’s share of apartments.


The applicant states that with effect from 01.04.2019 onwards GST structure on real estate services relating to residential apartments has been altered by giving an option to the dealers to continue with old rate of tax with ITC for an ongoing project and new rate of tax i.e., 1% {for affordable residential apartment} / 5% (other than affordable residential apartments} without ITC. Developer has exercised an option to pay tax under old scheme i.e., 18% with ITC as envisaged under Notification No.3/20 19 dated: 29.03.2O19.


Submissions of the Taxpayer (As per our interpretation)

On Question-1

In Joint Development Agreement, there are two kind of supply involved i.e. Supply of Development Rights by Land Owner to the Developer and Supply of Construction service by Developer to the Land Owner.


The Taxpayer submits that under GST, the activity of construction of apartments to the extent of applicant’s share in lieu of transfer of development right by the Applicant to the developer amounts to supply of service, which attracts tax in the hands of developer on or before the issuance of Completion Certificate in terms of Notification No. 6/2019, Dated: 29/03/20 19. (Under RCM).


The applicant submits that in the present case, developer who is executing work for construction of an apartment, is the person who transfers property in goods (whether as goods or in some other form), therefore the transaction between developer and Applicant amounts to Works Contract’ which attracts tax under GST Law in the hands of developer in terms of Notification No. 6/2019, Dated: 29/03/20 19 on or before issuance of Completion Certificate in respect of apartments to be handed over to the Applicant.


The applicant submits that, once the transaction is liable to tax in the hands of developer the same transaction cannot be made taxable in the hands of applicant when applicant sells the apartment to his customer even if agreements are entered with customers before issuance Completion Certificate which sans transfer of property in goods (whether as goods or in some other form} from Applicant to the prospective customers.


The applicant submits that, in the absence of transfer of property in goods (whether goods or in some other form) in the execution of contract, transaction cannot be to pay tax on sale of apartments to the customers belonging to her share even if such sale happens before issuance of Completion of Certificate.

On Question-2

The applicant is of the view that, if their transaction i.e., sale of residential apartments (other than affordable) to the prospective customers before issuance of Completion Certificate, attracts tax, the rate of tax shall be 7.5% as prescribed at item (ia) SI.No. 3 of 1 1/2017 (Central Tax Rate) Dated: 28.06.20 17 as amended vide Notification No. 3/2019 (Central Tax Rate) Dated 29/ 03/ 2019.


On Question-3

The applicant submits that under New Tax Regime, ITC is blocked to the Developer and not to the Land Owner. Accordingly, they are eligible for ITC of the tax charged by the Developer.


On Quesiton-4

The applicant submits that they will be incurring expenses towards brokerage, marking and furnishing etc., for sale of apartments. As per input & input service definition u/ s. 2{59) and 2(60) of the CGST & KGST Act, 2017, these are the goods or services used or intended to be used in the course or furtherance of business. Accordingly, ITC should be available to them against these services.


Discussion about Legal Issues by the Authority

On Question-1


The developer is providing construction services to the applicant and the applicant is providing again the construction services to the prospective customers. Hence there are two supplies involved, first from the developer to the applicant and the second from the applicant to the prospective customers.

It is also pertinent to note that the agreements for supply of constructed apartments with the prospective purchasers are entered by the applicant which is a supply of service as per section 7 of the CGST Act and there is no direct supply of construction services to the prospective purchasers by the developer. The developer is only providing services to the applicant and not to the prospective purchasers.

The applicant is acting as a supplier of works contract service to the prospective purchasers of apartments and hence he is a supplier under Section 7(l) of the CGST Act, 2017 liable to pay tax under Section 9(l) of the CGST Act, 2017.

On Question-2


It will depend upon nature of apartment and project in terms of Notification No. 3/2019.

On Question-3


The applicant is eligible to claim input tax credit on the tax charged by the developer for supply of construction services subject to the two conditions

(a) he is a registered dealer on the date the time of supply of construction services falls

(b} the amount of tax payable by the applicant for his supply of apartments is more than the amount of tan charged by the developer from the applicant for the supply of construction services.

On Quesiton-4


Regarding the fourth question, if the applicant is liable for tax, whether the applicant can claim input tax credit on other expenses, other than tax charged by developer for supply of apartments† the following points are observed:


The first proviso to entries 3(i} to 3(id) clearly mentions that the central tax shall be paid in cash, that is, by debiting the electronic cash ledger only.

Further, the second proviso clearly mentions that the credit of input tax charged on goods and services used in supplying the service has not been taken except to the extent as prescribed in Annexure I in case of REP other than RREP and in Annexure-II in the case of RREP.


It is also stated in the third proviso that the registered person shall, pay, by debit in the electronic credit ledger or electronic cash ledger, an amount equivalent to the input tax credit attributable to construction in a project, time of supply of which is on or after 1st April, 20 19, which shall be calculated in the manner as prescribed in the Annexure I in the case of REP other than RREP and in Annexure II in the case of RREP.


All the above, point out to the fact that input tax credit is not eligible to be claimed on any of the expenses other than the tax charged by the developer for the construction services subject to its eligibility if all other conditions are satisfied.


Decisions about the Queries.

Quesiton-1

The applicant is acting as a supplier of works contract service to the prospective purchasers of apartments and hence he is a supplier under Section 7(1 ) of the CGST Act, 2017 liable to pay tax under section 9(1 ) of the CGST Act, 2017.


Question-2

The applicant is liable to pay GST dependent upon nature of apartment (Residential (affordable or not) or Commercial) and nature of project (Residential Real Estate Project or a Real Estate Project other than Residential Real Estate Project).


Question-3

The applicant is eligible to claim input tax credit on the tax charged by the developer for supply of construction services subject to the two conditions

(a) he is a registered dealer on the date the time of supply of construction services falls

(b} the amount of tax payable by the applicant for his supply of apartments is more than the amount of tan charged by the developer from the applicant for the supply of construction services.


Question-4

Input tax credit on other expenses, other than tax charged by developer for supply of apartments, is not eligible to be claimed.


Copy of the Order



Vinodkumari30823
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