ITC in respect of GST paid on Development of Land can be reversed on Pro-rata basis after Issuance of Completion Certificate on Sale: AAR

PJ/Advance Ruling/2018-2019/11

The Authority for Advance Ruling (AAR), Kerala has held that the input tax credit must be reversed on pro-rata basis after issuing while selling the plot as per the GST laws. The authority has clarified that it is lawful to structure agreement by fixing land cost after absorbing development charges. The applicant is executing a layout development project ‘Emerald Hills’ for which, they have converted eleven acres of property into residential plots with the facility of paved roads up, water and electricity supply to each plot, water drains, trees, party hall, health club, play courts, compound wall etc. Total cost of plot is divided as cost of land and cost of development. Land component consists of cost of actual area of each plot and cost of undivided share of land in common area. Undivided share in common areas including roads and common facilities will be transferred to the Association through a sale deed.

The applicants have collected 18% GST on the development charge. Now Completion Certificate dated 31.05.2018 for layout development has been issued and therefore, they intend to structure future agreements by fixing land cost, fully absorbing development charge. Entire payment made for a plot will be shown in the sale deed and stamp duty and registration fee will be paid. The petitioner sought for advance ruling regarding the permissibility of structuring agreement by fixing the land cost by absorbing the development charges and Whether the ITC availed has to be paid back on pro rata basis, on plots sold after completion? While disposing the petition, the authority noted that in the instant case, the Completion Certificate in respect of the project has been issued on 31.05.2018 and the proposed transaction is in respect of sale of developed plots/land with civil structures after the issuance of Completion Certificate. “Therefore, 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.”

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PJ/Advance Ruling/2018-2019/11

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