Introduction:
47th GST Council Meeting came up with a number of developments that are going to provide a far-reaching impact on the various segments of industries and their stakeholders.
We hereby put our analysis on the issues addressed by the Press Release pertaining to the real estate sector. This is part 1 of the series.
This article is meant to analyse for the clarification provided that the sale of land after leveling, laying down of drainage lines, etc. is the sale of land and does not attract GST.
Disclaimer:
It is stated that the Press Release contains the gist of certain matters for clarification. Of course, these matters will be crystallized with the publication of the circular. This article is authored based on the reading of the Press Release only. Authors and publishers shall not be responsible for the decisions taken based on this document.
Background:
Schedule III of CGST Act/ State GST Act states that the sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building shall be treated neither as a supply of goods nor a supply of services and thereby GST is not leviable on the sale of land.
GST law has got this issue in legacy from service tax regime about the Sale of land after the development of land* into plots / Sale of plotted land and has been debated a lot whether the development activities would be subject to GST or not in such a case.
*Development of land consists of leveling, road construction, drainage, electricity, water line, demarcation of plots, laying the underground cables, fencing etc.
This issue was also debated before Gujarat Authority for Advance Ruling in the case of Shree Dipesh Anil Kumar Naik where it is held that sale of developed plot is not equivalent to sale of land a treated as construction services under para 5(b) of Schedule II of CGST Act/Gujarat GST Act.
Post this advance ruling, the department aggressively started to issue the show cause notices in various corners of the country by alleging that the sale of the developed plot is subject to GST.
GST Council took up this matter to provide the clarity that the sale of land after leveling, laying down of drainage lines etc. is the sale of land and does not attract GST.
Observations:
- This issue has arisen because of the element of the development of the land contained in the transaction.
- Policymakers are expected to clarify by bifurcating the subject matter for various types of models including own project, JDA, and JV and Partnership models separately. It may be noted that the issue of sale of land after the development of land into plots / Sale of plotted land under JDA has been held chargeable for the construction services (based on the facts) by the Karnataka Authority for Advance Ruling in the case of Maarq Spaces Pvt. Ltd. and Madhya Pradesh Authority for Advance Ruling in the case of Vidit Builders.
Impact:
- Those who have paid the GST on the said transaction will be entitled to get the refund u/s 54 of CGST Act/Respective State GST Act. In the authors’ view, the same shall not be treated as a payment of tax, and thereby the limitation period mentioned as 2 years from the relevant date for applying for the refund u/s 54(1) shall also not be applicable in such cases.
- In view of the authors, this issue should be looked into as per the facts and nothing can be concluded blindly in this manner as if everything in the context of the sale of a developed plot is out of the net of GST.
- Needless to state the contractor charging for supplying the services (pure labour services/ works contract services, as the case may be) of the development of the land will be
- subject to GST and the person selling the developed plot shall not be entitled to ITC in such cases.
Sale of the developed plot being kept aside from the purview of GST as per above will carry the implication for reversal of common credit as per section 17(2) and section 17(3) read with rule 42 and rule 43 for the registered person who is engaged in the taxable supply.