Understanding GST on Sale of Developed Plots: Clarity from CBIC vs. Divergent Advance Rulings
Introduction: The GST Dilemma for Developed Land Sales
The applicability of Goods and Services Tax (GST) on the sale of developed land plots in India has been a matter of ongoing debate. Despite statutory provisions and clarifications from the Central Board of Indirect Taxes and Customs (CBIC), conflicting interpretations by Advance Ruling Authorities (AARs) have led to uncertainty in the real estate sector.
Legal Framework: What the CGST Act Says
According to Schedule III of the Central Goods and Services Tax (CGST) Act, 2017, the sale of land is deemed neither a supply of goods nor a supply of services. This means such transactions are explicitly excluded from the purview of GST.
CBIC Clarification: Sale of Developed Plots Still Exempt
CBIC Circular No. 177/09/2022-GST, issued on August 3, 2022, provides further clarity. It states that the sale of developed land—even with facilities such as roads, water pipelines, drainage systems, and electricity connections—should still be considered a sale of land and, therefore, not subject to GST.
However, the circular also notes that GST will apply to the services procured by developers for undertaking the land development. This includes construction, civil work, and related services used to add infrastructure to the raw land.
Conflicting AAR Rulings: A Challenge to Uniform Interpretation
Despite the CBIC’s stance, some state-level AARs and Appellate AARs (AAARs) have issued rulings that diverge from the central interpretation. In notable cases such as Sukhjit Commerce LLP and Shree Construction (Gujarat), the authorities held that GST is applicable on the development portion of the sale, particularly when those charges are specified separately in the sale agreement.
These rulings have caused confusion among developers, even though such decisions are legally binding only on the specific parties involved and within the jurisdiction of the respective authority.
Legal Hierarchy: CBIC Circular vs. AAR Rulings
It’s essential to understand that CBIC circulars carry wider authority and are binding on all tax officers across India. In contrast, AAR decisions, though persuasive, are limited in scope and do not establish a binding precedent beyond the case in question. Therefore, in the event of a conflict, developers are generally safer relying on the CBIC’s guidance.
Practical Industry Guidance: Avoiding GST Disputes
To avoid GST liability on the development portion of land sales, tax experts suggest a practical approach: developers should quote a single, all-inclusive price for the sale of developed plots rather than separately itemizing development charges. This strategy aligns with the concept of composite supply, where the principal supply is the sale of land, which remains GST-exempt.
At the same time, developers must still account for GST on the procurement of development services and materials used during the infrastructure work.
Conclusion: Proceeding with Caution and Clarity
In summary, while the legislative provisions and CBIC clarification favor GST exemption on the sale of developed plots, divergent AAR rulings have led to interpretative conflicts. Until a higher court or legislative amendment provides definitive resolution, developers are advised to structure transactions carefully—bundling development costs into a single sale price to mitigate GST exposure and avoid unnecessary tax disputes.
