GST UPDATE ON SALE OF DEVELOPED LAND PART-8:-

GST UPDATE ON SALE OF DEVELOPED LAND PART-8:-

In earlier update, we have discussed about the taxability of TDR in Joint Development Agreement along with illustration. It is pertinent to mention that the Real Estate Developers have filed a writ petition in the Bombay High Court challenging the notification no. 04/2018-Central Tax (Rate) dated 25.01.2018according to which the transfer of development rights from the landowner to the developer is taxable on the grounds that development rights partake the nature of immovable property and cannot be liable to GST as sale of land is specifically excluded from the ambit of GST.In the present update, we wish to discuss the taxability of developed land.

It is commonly observed that at times, the land is developed into plots and is being sold. The question that needs examination is whether activity of developing the land into plots for sale is liable to GST or not? Before proceeding further, it is necessary to have look at the definitions of certain terms as defined in RERA.
The definition of ‘promoter’ as given under section 2(zk) of the RERA is very wide and reads as follows:-
promoter is:

a. a person who constructs or causes to be constructed an independent building or a building consisting of apartments, or converts an existing building or a part thereof into apartments, for the purpose of selling all or some of the apartments to other persons and includes his assignees; or

b. a person who develops the land into a project, whether or not the person also constructs structures on any of the plots, for the purpose of selling to other persons all or some of the plots in the said project, whether with or without structures thereon; or

c. any development authority or any other public body in respect of allottees of—

Buildings or apartments, as the case may be, constructed by such authority or body on lands owned by them or placed at their disposal by the Government; or
Plots owned by such authority or body or placed at their disposal by the Government, for the purpose of selling all or some of the apartments or plots; or

d. An apex State level co-operative housing finance society and a primary co-operative housing society which constructs apartments or buildings for its Members or in respect of the allottees of such apartments or buildings; or

e. Any other person who acts himself as a builder, coloniser, contractor, developer, estate developer or by any other name or claims to be acting as the holder of a power of attorney from the owner of the land on which the building or apartment is constructed or plot is developed for sale; or

f. Such other person who constructs any building or apartment for sale to the general public.

Explanation—For the purposes of this clause, where the person who constructs or converts a building into apartments or develops a plot for sale and the persons who sell apartments or plots are different persons, both of them shall be deemed to be the promoters and shall be jointly liable as such for the functions and responsibilities specified, under this Act or the rules and regulations made thereunder;”

Therefore, person developing plot for sale is covered by the definition of promoter as given under RERA. Now, coming to the definition of apartment and project under RERA.
“apartment” shall have the same meaning as assigned to it section 2(e) of RERA wherein it is defined as follows:-

“whether called block, chamber, dwelling unit, flat, office, showroom, shop, godown, premises, suit, tenement, unit or by any other name, means a separate and self-contained part of any immovable property, including one or more rooms or enclosed spaces, located on one or more floors or any part
thereof, in a building or on a plot of land, used or intended to be used for any residential or commercial use such as residence, office, shop, showroom or godown or for carrying on any business, occupation, profession or trade, or for any other type of use ancillary to the purpose specified”

Project:- As per paragraph 4 (xv) of notification No. 3/2019 ibid, “Project” shall mean a Real Estate Project (REP) or Residential Real Estate Project (RREP).

Real Estate Project (REP) as per explanation 4(xviii) of notification No. 3/2019 ibid, the definition would be as per section 2(zn) of the RERA which defines the term REP as:

The development of a building or a building consisting of apartments, or converting an existing building or a part thereof into apartments, or

The development of land into plotsor apartment, as the case may be, for the purpose of selling all or some of the said apartments or plots or building, as the case may be, and

Also includes the common areas, the development works, all improvements and structures thereon, and all easement, rights and appurtenances belonging thereto.

It is submitted that although, the definition of REP covers the activity of development of plots into its ambit and the definition of promoter is also very wide, the question arises is whether concessional GST rate will apply for development of land into plots? In this regard, it is submitted that the concessional rate of 5%/1% has been prescribed for construction of residential/affordable residential apartments and development of land cannot be covered by the specific entries. Hence, the concessional rate does not apply for development of land into plots. Now, the next question that arises is whether GST is payable on the activity of development of land into plots?

It is commonly observed that plot of land is being surrounded by boundary walls so as to make the land as identifiable and demarcated. However, in our opinion, this activity of developing the land into plot cannot be made liable to GST as sale of land has been mentioned in Schedule III and so it is considered neither a supply of goods nor supply of services. Therefore, in our opinion, the activity of developing a land into plots and is subsequent sale is not liable to GST.

This is solely for the educational purpose.
You can reach us at www.capradeepjain.com, at our facebook page on
https://www.facebook.com/GSTTODAYBYPRADEEPJAIN/ as well as follow us on Twitter at https://www.twitter.com/@capradeepjain21

Comments

GST UPDATE ON SALE OF DEVELOPED LAND PART-8:-

Post a Comment

Query