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Land Cost Separate from Development Charges Accepted; Pro-Rata ITC Reversal for Post-Completion Sales The Authority for Advance Rulings ruled that structuring agreements by fixing land cost after absorbing development charges is permissible. Additionally, ...
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Land Cost Separate from Development Charges Accepted; Pro-Rata ITC Reversal for Post-Completion Sales
The Authority for Advance Rulings ruled that structuring agreements by fixing land cost after absorbing development charges is permissible. Additionally, it was determined that Input Tax Credit (ITC) must be reversed on a pro rata basis for plots sold after the completion certificate is issued. This means that the ITC should be adjusted based on the proportion of plots sold post-completion.
Issues: 1. Structuring agreement by fixing land cost after absorbing development charges. 2. Reversal of Input Tax Credit (ITC) on pro rata basis for plots sold after completion.
Analysis: 1. Structuring agreement by fixing land cost after absorbing development charges: The applicant sought an advance ruling on whether it is permissible to structure agreements by fixing the land cost after absorbing the development charges. The Authority for Advance Rulings examined the issue in detail. Referring to Paragraph 5 of Schedule III of the GST Act, it was noted that the sale of land and buildings, except in certain circumstances, is not considered a supply of goods or services. However, Paragraph 5(b) of Schedule II specifies that the construction of a complex or building intended for sale is treated as a supply of services unless the entire consideration is received after the issuance of a completion certificate. In this case, as the completion certificate for the project was issued, the sale of developed plots with civil structures falls under the purview of Paragraph 5 of Schedule III. Consequently, the sale deed for the plot and undivided share in common areas is subject only to stamp duty and registration charges.
2. Reversal of Input Tax Credit on pro rata basis for plots sold after completion: The second issue pertained to the reversal of Input Tax Credit (ITC) on a pro rata basis for plots sold after the issuance of the completion certificate. The Authority ruled that the ITC availed on GST paid for goods and services used in the development of the land must be reversed on a pro rata basis for plots sold post-completion. This means that the ITC should be adjusted according to the proportion of plots sold after the issuance of the completion certificate.
In conclusion, the Authority for Advance Rulings issued the following rulings: 1) It is permissible to structure agreements by fixing the land cost after absorbing the development charges, and 2) The Input Tax Credit availed for goods and services used in land development must be reversed on a pro rata basis for plots sold after the issuance of the completion certificate.
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