This question has been raised on various occasions whether GST would be applicable on the sale of land during the development of township or not and what will be the impact and value of the services performed by the developer promoter.
In the recent judgment of the Hon’ble AAR Haryana in M/s. Informage Reality Private Limited [Advance Ruling No. HAR/HAAR/R/2018-19/15 dated October 5, 2018] has held that booking/ selling of plots to be done by the Applicant and the Landowners during the development of the township will remain a transaction of sale/transfer of land and thus, will not attract GST as per the co-joint reading of Section 7 and Paragraph 5 of Schedule III of the CGST Act.
However, the transfer value of the plots will be considered as the consideration paid by the Landowners for the services of development of land rendered by the Applicant and will be regarded as Works contract services, hence, attracting 18% GST.
Facts of the case:-
M/s. Informage Realty Private Limited (“Applicant”) and various Landowners own a land. There was a proposal to develop a residential plotted township on the land in which the Applicant was also the technical partner. The Landowners entered into a collaboration agreement with the Applicant for getting license and development of residential plotted township to fulfill the condition of getting a license of the residential plotted township. The Landowners gave 20% of the licensed plotted area to the Applicant as consideration for obtaining a license, laying roads, sewerage, stormwater, etc. As per the prevailing provisions of the concerned authority, for granting the license to develop a residential plotted township, approximately 55% of the total area entitled should be developed as a residential plotted area and approximately 3% of the total area should be developed as a commercial area. The rest of the area would be covered under roads, parks, and other facilities.
Thus, the saleable area would be approximately 55% as residential plots and 3% as commercial plots. As per the collaboration agreement the Applicant (Developer) will receive 20% out of the residential plots and 20% out of the commercial plots from the Landowners in consideration of providing work contract services of development of the township.
- Whether GST will be applicable on booking/selling of the plots to be done by the Applicant and the Landowners during the development of the township?
- Whether share of the licensed plotted area agreed to be provided by the Landowners to the Applicant is exigible to GST?
The Hon’ble AAR Haryana has held as under:
- Observed that, the nature of the proposed agreement as described by the Applicant is a Joint Development Agreement in which the Landowners and the Applicant entered into an agreement for the development of the land to make it saleable.
- Further observed that the Applicant will be responsible for obtaining a license from the concerned authority, to lay the roads, sewerage, stormwater, etc. The Landowners will transfer 20% of their share of the developed property as consideration towards the works contract services provided by the Applicant to the Landowners on completion or during the development work.
- Noted that, there were two kinds of transactions involved: 1. Booking/selling of plots done by the Applicant and the Landowners during and after the development (before completion of the development work) of the township. 2. Transfer of 20% share of developed plots by each of the Landowners to the Applicant.
- Held that, the first transaction amounts to the sale of land. From the conjoint reading of Section 7 and Paragraph 5 of Schedule lll of the CGST Act, any transaction in the nature of “sale of land” is not covered within the preview of GST, hence no GST is payable on the transaction resulting in the sale of land.
- Further held that the second transaction is a works contract service. The transfer value of the plots will be considered as the consideration paid by the Landowners for the services rendered by the Applicant for the development of their land and will be regarded as works contract services attracting 18% GST (9% CGST + 9% SGST).
It can be previously noted that conflicting views exist on the taxability of sale of developed land like in the Gujarat AAR in Re: Shree Dipesh Anil Kumar Naik [Advance Ruling No. GUJ/GAAR/R/2020/11 dated May 19, 2020] has held that the Sale of the developed plot is not equivalent to the sale of land but is a different transaction. Sale of such plotted development tantamount to the rendering of service. The activity of the sale of developed plots would be covered under the clause ‘construction of a complex intended for sale to a buyer’. Thus, the said activity is covered under ‘construction services’ and GST is payable on the sale of developed plots in terms of CGST Act / Rules and relevant Notification issued from time to time. This is a litigative area since inception and readers are advised to use their prudence and rethink their positions based on respective facts of their cases.