Telangana Authority for Advance Ruling has decided various issues related to Development & Sale of Developed Plots by the Developer both related to its own land and land belongs to others.
Brief Facts of the Case
The applicant, Vaishnaoi Infratech and Developers Private Limited, is a company registered
under The Companies Act, 1956 and is a registered taxpayer (hereinafter referred to as applicant) engaged in the business of real estate development.
It is submitted that, the applicant is engaged in the business of development of plots by purchasing the land from land owners or/and taking the land from other land owners by entering into development agreement.
Applicant has owned 10 acres of land at Mamidipally Village near Shamshabad Airport, Hyderabad and in addition to that, they have taken another 12 acres of land located besides their land from other land owners by entering the joint development agreement.
i. Whether sale of developed plots by applicant to various customers after development is taxable under the GST Acts or not.
ii. Whether development of plots’ service provided to the land owners is taxable under GST and if so under which Notification and under which entry?
iii. Whether transfer of development rights by the land owner in consideration of land development services received is taxable or not under the provisions of the GST Acts?
If taxable, whether the applicant is liable to pay GST under RCM basis on the development rights received from the land owners or whether the land owner is only liable to pay GST on such transfer of development rights. What is the applicable Notification and entry in the Notification?
iv. If transfer of development rights and development of plot service are liable for GST, how to arrive at the value of supply of such services for payment of GST. How much value of land has to be deducted for levying tax?
v. If Transfer of development rights are liable for GST, can developer claim ITC of the same while discharging the liability to pay tax on development services provided, if such rights are received from the registered land owners?
vi. If tax is payable on TDRs on RCM basis and on development service, what is the time of payment and what is the applicable Notification?
Discussion Over the Questions
Question-1: Whether sale of developed plots by applicant to various customers after development is taxable under the GST Acts or not?
The applicant is engaged in the business of development and Sale of plots. These plots are developed on the land purchased by them or the land for which they have entered into a development agreement with the land owner.
The activity of sale of land is covered as item (5) of the Schedule III to the CGST Act. The Circular No. 177/09/2022 dt: 03.08.2022 issued by Government of India, Ministry of Finance, Department of Revenue ( Tax Research Unit) at para-14.3 states that “Land may be sold either as it is or after some development such as leveling, laying down of drainage lines, water lines, electricity lines, etc. It is clarified that sale of such developed land is also sale of land and is covered by Sr. No. 5 of Schedule III of the Central Goods and Services Tax Act, 2017 and accordingly does not attract GST”.
Therefore the value of Land is not taxable either sold as undeveloped land or selling it after the land is developed.
Question-2: Whether development of plots’ service provided to the land owners is taxable under GST and if so under which Notification and under which entry?
Clarification: The above circular No. 177/09/2022 dt:03.08.2022 at para-14.4 enumerates as follows:
“However, it may be noted that any service provided for development of land, like leveling, laying of drainage lines (as may be received by developers) shall attract GST at applicable rate for such services”.
Thus a tax payer is liable to pay tax on the supply of the aforementioned works contract service if such service is supplied to any recipient of these services viz.
i. A Land owner with whom the tax payer has entered into a development agreement.
ii. An owner of Land property other than tax payer.
iii. A Land property in respect of which “contract of sale” is made by the tax payer under Sec 54 of the Transfer of property Act 1882 where in the purchaser has obtained an equitable interest in such land.
The applicant is engaged in supply of service of works contracts on the above 3 accounts as seen from their submissions. “Works contract” is defined in the CGST Act in Sec 2 (119) i.e.,
‘ “works contract" means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract’.
The supply of works contract service to customers as well as land owners, who have transferred the development rights to the applicant, is taxable at the rate of 9% CGST & 9% SGST as sub entry – xii of entry at serial no.3 with SAC 9954 of the notification 11/2017.
Question-3: Whether transfer of development rights by the land owner in consideration of land development services received is taxable or not under the provisions of the GST Acts?
If taxable, whether the applicant is liable to pay GST under RCM basis on the development rights received from the land owners or whether the land owner is only liable to pay GST on such transfer of development rights.
What is the applicable Notification and entry in the Notification?
Notification 12/2017 is amended vide notification 4/2019 dt: 29.03.2019 to inserted Sl.No.41A in the exemption for the purpose of exempting “Transfer Of Development Rights” for construction of residential apartments. This is an exemption given to a specific category of taxable persons i.e., developers of residential apartments only.
As the category of the works contracts under taken by the applicant, who develops plots by leveling or altering land are not included in the above notification 04/2019, this exemption is not applicable to the transactions made by them.
Further the Notification 13/2017 was amended vide Notification 5/2019 dt:29.03.2019 to include services supplied by way of “transfer of development rights” by any person to a promoter for construction of a project; and thus this supply attracts liability on reverse charge.
The term project is defined in the notification as a Real estate project or a residential real estate project as defined under Sec 2 (zn) of the Real-estate (regulation and development) Act 2016.
In Sec 2 (zn) of the Real estate Act 2016 :“real estate project” means
“the development of a building or a building consisting of apartments, or converting an existing building or a part thereof into apartments, or the development of land into plots or apartments, as the case may be, for the purpose of selling all or some of the said apartments or plots or building, as the case may be, and includes the common areas, the development works, all improvements and structures thereon, and all easement, rights and appurtenances belonging thereto”;
The term promoter is defined to have same meaning as assigned to it in Sec 2 (zk) of the Real-estate (regulation and development) Act 2016:
In Sec 2 (zk) of the Real estate Act 2016 : “Promoter” means,—
(ii) a person who develops land into a project, whether or not the person also constructs structures on any of the plots, for the purpose of selling to other persons all or some of the plots in the said project, whether with or without structures thereon”;
Thus the Transfer of Development Rights by the land owner to the applicant is taxable under the CGST & SGST Acts at the hands of the recipient promoter, i.e., the applicant, of these rights under RCM.
The rate of tax is 9% on CGST & SGST respectively as residuary entry as mentioned in circular no.164/20/2021 dt: 06.10.2021 at Para no. 9.3.2. The applicant can claim input tax credit of the same while discharging the liability to pay tax on development services provided by him.
Question-4: If transfer of development rights and development of plot service are liable for GST, how to arrive at the value of supply of such services for payment of GST. How much value of land has to deducted for levying tax?
Where the value of works contract is separately specified w.r.t development undertaken on land by way of altering the immovable property, such amount shall be the value of supply exigible to tax as determined under Sec 15 of the CGST Act. However if the value of the works contract is not separately specified then Rule 30 of the CGST Rules read with Sec 15 of the CGST Act shall be applied for arriving at value of supply of such services.
Question-5: If Transfer of development rights are liable for GST, can developer claim ITC of the same while discharging the liability to pay tax on development services provided, if such rights are received from the registered land owners?
Yes. Please see response to the question 3 above.
Question 6: If tax is payable on TDRs on RCM basis and on development service, what is the time of payment and what is the applicable Notification?
Notification 4/2018 dt: 25.01.2018 has notified time of supply of development rights and construction service w.r.t. constructed complex, building or civil structure, however, there is no reference to development of plots in the notification. Therefore the time of supply in the case of the applicant is discerned from the CGST Act as follows:
i. Time of supply Transfer of Development Rights which are recognized as service under notification no. 13/2017 as amended by notification no. 5/2018, is determined under Sec 13 (3) (b) of the CGST Act read with Sec 31 (3) (f) or (g). Thus time of supply is the date immediately following 60 days from the date of issue of invoice or voucher or any other document in lieu thereof by the supplier.
ii. Development Services are given in continuity over a period of time, therefore they are “Continuous Supply of Services” hence the time of supply of development services is determined by Sec 13 read with Sec 31 (5). Therefore the time of supply will be due date of payment by the recipient or when due date is not ascertainable then the actual date on which payment is received and when such payment is linked to the completion of an event then the time of supply will be date of completion of that event.
Please connect with us @Linkedinfor regular updates.
Disclaimer: We did interpretation of Respected Authority Decision for purely academic purpose. In case, there is any mistake in understanding of the order, we are apologised to the Authority.