Sale of developed plots with primary amenities not to be considered as ‘sale of land’ so Liable for GST : AAR
Under the GST regime, the classification of various items which are the subject matter of tax, be it goods or services, is an essential and integral part of the whole levy and collection mechanism. It is important both from the taxpayer’s perspective and tax collector’s perspective to have a definite class or group under which subject matters of tax can be divided. The primary intention of classifying them is to determine whether or not the same would be restricted by the levy of these taxes and if so, under which category the tax liability would arise.
Schedule III of the GST Act states the supplies which shall be classified as neither goods nor services. The below mentioned activities are beyond the scope of GST (no GST will be levied on the same):-
- Services by an employee to the employer in relation to his employment
- Court/Tribunal Services including District Court, High Court and Supreme Court
- Duties performed by:
- Members of Parliament, State Legislature, Panchayats, Municipalities and other local authorities
- Any person who holds a post under the provisions of the Constitution
- Chairperson/Member/Director in a body established by the government or a local body and who is not an employee of the same
- Services of a funeral, burial, crematorium or mortuary including transportation of the deceased
- Sale of land and sale of building
- Actionable claims (other than lottery, betting and gambling)
- Supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering into India
- Supply in Customs port before Home consumption
Now, as we can see above, sale of land and sale of building is exempt under the purview of GST. However, will sale of plots be exempted under GST, if the supplier is also providing Primary amenities such as, Drainage line, Water line, Electricity line, Land levelling etc in accordance with the mandatory requirements of the ‘Plan Passing Authority’? Let us refer to the Advance Ruling passed by the Gujarat Authority of Advance Ruling (AAR) in the case of Shree Dipesh Anilkumar Naik to understand the same.
Facts of the Case
- The applicant is having a vacant land outside the municipal area of town on which he has some proposed business activity.
- The applicant is having all the necessary approvals for the proposed project from the Plan Passing Authority (i.e. Jilla Panchayat).
- The applicant has submitted that as per the Plan Passing Authority, the seller of land is required 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 applicant further submitted that they will sell the individual plots to different buyers without any construction on the same but by providing the primary amenities as mentioned above, which are mandatory requirement of the approved Plan Passing Authority (i.e. Jilla Panchayat).
Ruling sought for
Whether GST is applicable on sale of plot of land for which, as per the requirement of approved by the respective authority (i.e. Jilla Panchayat), Primary amenities such as, Drainage line, Water line, Electricity line, Land levelling etc. are to be provided by the applicant?
Proceedings of AAR
Provisions of Schedule III
- GST is a tax is levied on supply of goods/services. Schedule III to GST Law sets out the activities or transactions which are treated as neither a supply of goods nor as supply of services.
- Entry 5 covers sale of land, which is excluded from GST levy. From Schedule III, it is clear that 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, which is immoveable property or earth. Here the substance of agreement between the parties is important.
- Where the nature of activity is that of ONLY sale of immoveable property of plot, it is excluded from GST levy.
- As per the applicant, he is the owner of the land, who develops the land with an infrastructure such as Drainage line, Water line, Electricity line, Land levelling etc. as per the requirement of the approved Plan Passing Authority (i.e. Jilla Panchayat).
- After the development of the land, there are no building constructions and all. Only the developed land is sold as plots.
Features of Development Scheme
- The plotted development is a scheme which involves forming land into layout after obtaining necessary plan approval from the Development Authority, get all other permission required, commence and complete what would be the layout, comprised of individual sites.
- In the activity of plot development, the following activities are done-
- levelling the land
- construction of boundary wall
- construction of roads
- laying of underground cables and water pipelines
- laying of underground sewerage lines with sewer treatments plant
- development of landscaped gardens
- drainage system
- water harvesting system
- demarcation of individual plots
- construction of overhead tanks
- other infrastructure works.
- Further common amenities like garden, community hall, etc. are also offered in some schemes. Sale of such sites is done to end customers who may construct houses/villas in the plots.
- The sellers charge the rates on super built-up basis and not 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.
- Thus, 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, such common amenities, roads, water tank and other infrastructure is an intrinsic part of the plot allotted to the buyer.
- This indicates that sale of developed plot is not equivalent to sale of land but is a different transaction. Sale of such plotted development amounts to rendering of service.
Classification according to Schedule II
- In present case, we also find that the applicant is the owner of the land, who develops the land with an infrastructure such as Drainage line, Water line, Electricity line, Land levelling etc. as per the requirement of the approved Plan Passing Authority (i.e. Jilla Panchayat).
- After this development of the land, he sells the developed land as plots. His sales price includes the cost of the land as well as the cost of common amenities, Drainage line, Water line, Electricity line, Land levelling charges, etc. on a proportionate basis.
- Schedule II of the CGST Act, 2017 pertains to activities or transactions to be treated as “Supply of goods or supply of services”. As per clause 5(b) of the Schedule-II of the CGST Act, 2017, 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” and, hence, is liable to the Goods and Services Tax (GST).
The AAR concluded 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’ and GST is payable on the sale of developed plots in terms of CGST Act / Rules and relevant Notification issued time to time.
The Apex Court had provided a similar judgement that Sale of such plotted development tantamounts to rendering of service in the case of M/s Narne Construction P Ltd. reported at 2013 (29) STR 3 (SC).