GST UPDATE ON CREDIT AVAILMENT ISSUES RELATED TO DEVELOPMENT AND OTHER RELATED CHARGES TO LAND

GST UPDATE ON CREDIT AVAILMENT ISSUES RELATED TO DEVELOPMENT AND OTHER RELATED CHARGES TO LAND
This update is prepared to bring in more clarification about the ITC availment regarding ancillary activities pertaining to sale of land. As per the Section 2 (52) of the GST Act, 2017, ‘goods’ imply every form of movable property, actionable claims, growing crops, grass and things attached to or forming a part of the land which will be severed from the land before supplying as per the contract of supply. Whereas, ‘services’ mean anything other than goods, money and securities, for instance, activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination, for which a separate consideration is charged.
GST is not applicable to the sale of land because it is neither treated as supply of goods nor the supply of services as per Schedule III of the CGST Act, 2017. Land is identified as immovable property, and so, it does not attract GST. Only stamp duty is payable on land purchases.
Schedule II of the GST Act 2017 elucidates that GST on a land purchase will be applicable only on certain services.GST on a land purchase applies for the following services
a) Any lease, tenancy, easement and license to occupy the land
b) Any contract or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly
Now the question comes is whether the taxpayer is entitled to credit availment of development charges, brokerage charges etc attached to sale of plot/land. In a recent AAR of M/s PPD Living Spaces Pvt Ltd, it was ruled out that the applicant can prepare the agreement absorbing the development charge in cost of sale of plot. PPD Living Spaces Pvt Ltd have converted barren property into residential plots and collected 18% GST on development charge. If such plots are sold after issuance of completion certificate, then the transaction is covered by Paragraph 5 of Schedule III of the GST Act. Hence the sale deed executed for plot as well as undivided share in common area attracts only stamp duty and registration charge. The Input Tax Credit availed in respect of the GST paid on goods and/ or services used / consumed for the development of the land is liable to be reversed on pro rata basis in respect of the plots sold after the issuance of completion certificate.

The intention here of describing this ruling is that the taxpayer is entitled to avail credit of all the input and input services used for the development of land. Since the taxpayer is liable to pay tax at the rate of 18% on development charges and brokerage services. The basic rule behind availment of credit is the taxability of the final product or service. If the final product or service delivered is taxable, then all the input, input services and capital goods consumed in providing the product or service will be eligible to availment of credit subject to Section 17 of the CGST Act, 2017.
Moreover IND AS-16, Property, Plant and Equipments, all costs involved in bringing the asset to the present location and condition necessary for it to be capable of operating in the manner intended by management and the subsequent cost if increases the future benefits beyond its previously assessed standard of performance are capitalised in the cost of land only. Therefore, generally all the ancillary cost are capitalised by the taxpayers in the cost of land only and issue of availment of credit hardly arise.
While the new regime certainly answers many of the issues that have grappled the sector, however at the same time ignited many unanswered new issues. We hope that the Government issues relatable clarifications for the taxpayers to avoid litigation.
We request all our readers to please be safe and secure from Covid 19. Priortise your health and promote social distancing.
This is solely for educational purpose.

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GST UPDATE ON CREDIT AVAILMENT ISSUES RELATED TO DEVELOPMENT AND OTHER RELATED CHARGES TO LAND

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