Except when sold in conjunction with a built complex, a building, or a civil construction, the sale of land is exempt from GST under Schedule III.
Facts and issues of the case
TIF Integrated Industrial Parks Pvt. Ltd., (TIFIIP P Ltd., ‘applicant’ for short), i.e., the applicant has stated that it is a company formed by industrialists as required by the Telangana State Industrial Infrastructure Corporation Limited (TSIIC) as a special purpose vehicle (SPV) representing the member industrialists with an objective of providing industrial infrastructure by development of land acquired by TSIIC. It is informed by the applicant that TSIIC issued final allotment letter conforming allotment of 377 acres of land for a cost of Rs.55.11 Cr. on Vijayawada Highway to setup an Industrial Corridor on 16-05-2018. A sale agreement was executed between applicant and TSIIC on 23-06-2018. It is informed by the applicant that a sale deed will be executed with TSIIC upon completion of development of internal infrastructure. Similarly the applicant is authorized in turn to sell to individual industrialists after each of his allottee commences commercial operation by executing individual sale deeds.
They seek to ascertain whether their activity is within the purview of GST and whether it qualifies the supply under Section 7 of the CGST/SGST Acts.
Observation of the case
The applicant have sample documentary evidence in form of sale agreement between itself as buyer and TSIIC as seller and then between itself as seller and an industrialist as buyer. The contention of the applicant regarding the nature of their business is as follows:
- TSIIC transfers the possession of the acquired land by way of a sale agreement to the applicant for development of the land in order to allot it to various industrialists under the condition that the sale deed would be executed only after such development is completed (clause 4(e) of the agreement of sale .
- The applicant would develop the land according to the requirement and directions of the TSIIC and enter into agreement with the individual industrialists for sale of land on his part. The sale deed by the applicant will be executed in favour of the individual industrialists on construction of factory shed and implementation of the project.
The discussion & conclusions are made from the copies of agreement for sale of land between the TSICC ltd and the applicant; & the applicant and M/s. Beaver tracks pvt ltd. As seen from the above there will be sale deeds one between TSIIC and the applicant and the second between the applicant and the individual industrialist. The peculiar circumstances obtaining from these transactions are due to the larger objective for development of industrial parks in pursuance of the industrial policy of the State. The TSIIC ltd executes an agreement for sale of land with the applicant and collects the full consideration for the cost of land but sets condition to execute the sale deed to transfer the title only after the applicant completes infrastructure development in the land. Similarly the applicant executes an agreement for sale of land with the individual industrialists by collecting the consideration for cost of plot but sets conditions to execute the sale deed for transfer of title only if such industry commences construction of factory within 6 months of handing over possession and complete the implementation of industry (project) i.e., construction of factory and erection of machinery within 2 years from date of transfer of possession. There is no agreement with the individual industrialist for development of infrastructure in the land.
Therefore the activity undertaken by the applicant for construction of the immovable property would qualify to be a “works contract” if
- It is executed in pursuance of a contract or agreement; and
- There is a transfer of property in goods in execution of works contract from the contractor to the contractee; and
- iii. There is a consideration paid by the contractee to the contractor
The perusal of the contract entered by the applicant with the TSIIC ltd clearly indicates that the property in land will be transferred to the applicant only when the applicant completes the development of infrastructure of schedule land. However, this clause in the agreement appears to have been made to meet the larger objective enumerated in industrial policy of the State. Though there is a contract for development of the land the other (2) conditions enumerated above are not fulfilled i.e., transfer of property in goods from the applicant to the TSIIC ltd and payment of consideration by TSIIC ltd to the applicant. The examination of the agreement between the applicant and one individual allottee M/s. Beaver tracks pvt ltd reveals that the applicant has taken up development of infrastructure as per the conditions of allotment set by TSIIC. And that M/s. Beaver tracks pvt ltd will get the title of the land only on commencement of industrial production. There is no clause in the agreement by which the applicant is obliged to develop the land for the industrialist like M/s. Beaver tracks pvt ltd. This obligation is only with TSIIC ltd. Thus even in the contract with individual industrialist like M/s. Beaver tracks pvt ltd the above (3) conditions for making such a supply as supply of works contract are not fulfilled. Further the applicant also indicates that it may take up certain infrastructure development after the title to land is transferred to M/s. Beaver tracks pvt ltd by way of sale deed. It is also indicated that consideration will be recovered for executing such works. Such development works executed after the sale deed is registered will necessarily amounts to works contract and the consideration received for the same will be liable to tax under CGST Act, 2017.
If the applicant sells the land after developing by way of erecting a civil structure or a building or a complex then such supply is liable to tax under CGST/SGST Acts. However if land is sold without any development involving any civil structure or building or complex such supply falls under paragraph 5 of schedule III to Section 7(2) of CGST Act, 2017 and hence is exempt from tax.
If the applicant executes works contracts involving transfer of property in goods for a consideration under an agreement of contract such consideration will be liable to tax. However if these elements are missing in execution of a construction it shall not be liable to tax.