Taxability of developed land sale under GST: Ancillary activity or taxable service?

The case involved the taxability of the activity of development and sale of land under GST. One member ruled that the sale of developed plots is non-taxable under GST as it falls under Entry No. 5 of Schedule III, considering the development activities as ancillary. However, another member opined that the sale of developed plots constitutes a supply of service and should be taxable under GST. Due to the conflicting opinions, the matter was referred to the Appellate Authority for Advance Ruling for a final decision on the taxability and classification of the activity.

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Issues Involved:
1. Taxability of the activity of development and sale of land under GST.
2. Classification of the activity if taxable.
3. Determination of the taxable value of the supply.
4. Admissibility of Input Tax Credit (ITC) if the activity is taxable.

Detailed Analysis:

1. Taxability of the Activity of Development and Sale of Land under GST:
The applicant sought clarification on whether the activity of purchasing land, developing it with infrastructure, and selling it as plots is taxable under GST. The application was admitted under Section 97(2) of the CGST/SGST Act, 2017, which allows advance rulings on matters such as classification of supply, determination of value, admissibility of ITC, and determination of tax liability.

The applicant argued that the sale of land is excluded from the scope of supply under Entry No. 5 of Schedule III of the Act, which treats the sale of land as neither a supply of goods nor services. The applicant also contended that the development activities are incidental and naturally bundled with the sale of land, thus falling under the same exemption.

Ruling per: Amit Gupta, Member:
The member opined that the sale of developed plots does not constitute a supply of goods or services, as the development activities are ancillary and aimed at making the land livable. The sale transaction involves only the land, and no separate charges are made for the development activities. Therefore, the sale of developed plots falls under Entry No. 5 of Schedule III, making it non-taxable under GST.

Ruling per: Anurag Mishra, Member:
Contrarily, this member observed that the sale of developed plots involves substantial development activities, which are not merely incidental but integral to the transaction. Citing the Supreme Court's ruling in the case of M/s. Narne Construction P. Ltd. Vs. Union of India & Ors., it was argued that the sale of developed plots with assured facilities constitutes a supply of service. Therefore, the sale of developed plots should be treated as a supply of service under Clause (b) of Paragraph 5 of Schedule II and is taxable under GST.

2. Classification of the Activity if Taxable:
Given the differing views on the taxability, the classification of the activity remained unresolved. If taxable, the activity would likely be classified under services related to land development.

3. Determination of the Taxable Value of the Supply:
The applicant suggested that if the activity is taxable, the value should be determined as per Rule 31 of the CGST Rules, as Rules 27 to 30 do not apply to this transaction. However, this issue was not conclusively addressed due to the differing views on the primary issue of taxability.

4. Admissibility of Input Tax Credit (ITC) if the Activity is Taxable:
The applicant argued that if the activity is taxable, they are entitled to ITC under Section 16(1) of the Act. This issue also remained unresolved due to the differing views on the taxability of the activity.

Conclusion:
Due to the differing opinions of the members on the taxability of the sale of developed land/plots, the ruling could not be conclusively provided. The matter was referred to the Appellate Authority for Advance Ruling for a final decision, as per Section 98(5) of the CGST/SGST Act, 2017. The Appellate Authority will address the points of difference and provide a definitive ruling on the issues involved.

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