2018 (12) TMI 534 - AAR - GST

Liability for GST & Service Tax under Joint Development Agreement: Authority's Ruling

The Authority ruled that the applicant is liable to pay GST on building construction under the Joint Development Agreement as per Notification No. ... Liability to pay tax on construction services supplied to supplier of development rights - time of taxation on transfer of possession or right in constructed property (conveyance deed/allotment) - valuation of composite supply involving transfer of land - deeming one third land value under Notification No.11/2017 para 2 - proportionate liability for service tax before the appointed day and GST thereafter under transitional provisionLiability to pay tax on construction services supplied to supplier of development rights - time of taxation on transfer of possession or right in constructed property (conveyance deed/allotment) - Applicant is liable to pay GST on the value of building constructed and handed over to the land owner under the Joint Development Agreement. - HELD THAT: - Notification No.4/2018-Central Tax (Rate) dated 25.01.2018 classifies suppliers of construction service to suppliers of development rights as registered persons in whose case the liability to pay central tax on such services arises when the developer transfers possession or right in the constructed complex to the supplier of development rights by entering into a conveyance deed or similar instrument (for example allotment letter). The facts show the applicant supplied construction service to the land owner against consideration in the form of transfer of development rights; accordingly the applicant is liable to pay GST when possession or right is transferred as specified in the Notification. [Paras 9]The applicant must pay GST on the construction service supplied to the land owner under the JDA, with tax liability arising on transfer of possession/right as provided in the Notification.Valuation of composite supply involving transfer of land - deeming one third land value under Notification No.11/2017 para 2 - Value for GST on the construction service is to be determined in terms of paragraph 2 of Notification No.11/2017-Central Tax (Rate) dated 28.06.2017. - HELD THAT: - Paragraph 2 of Notification No.11/2017 provides that where supply of service involves transfer of property in land or undivided share of land, the value of the service and goods portion shall be equivalent to the total amount charged for the supply less the value of land or undivided share, and the value of the land or undivided share shall be deemed to be one third of the total amount charged for such supply. The applicant's liability to pay GST on the construction component must therefore be computed following this valuation mechanism. [Paras 10]GST payable by the applicant on the construction service shall be computed in accordance with para 2 of Notification No.11/2017 (deeming one third of total amount as land value and treating the remainder as the service/goods portion).Proportionate liability for service tax before the appointed day and GST thereafter under transitional provision - Applicant is liable to pay service tax for services provided up to 30.06.2017 and GST for services provided after 01.07.2017, on a proportionate basis. - HELD THAT: - Section 142(11) of the CGST/KGST Act provides that tax shall be leviable under the existing law to the extent it was leviable thereunder for supplies up to the appointed day and under the CGST/KGST Act thereafter; where services spanned the appointed day the taxable person is entitled to take credit of prior law taxes for supplies made after the appointed day as prescribed. Applying this transitional provision, the Authority concludes that service tax is payable for the portion of construction service provided before 01.07.2017 and GST is payable for the portion provided after that date, on a proportionate basis. [Paras 11, 12]The applicant must discharge service tax for the pre 01.07.2017 portion and GST for the post 01.07.2017 portion of the services, apportioned as per the transitional provision.Final Conclusion: The Authority rules that the applicant must (i) pay GST on the building constructed and handed over under the JDA with tax point on transfer of possession/right as prescribed, (ii) determine the taxable value of the construction service in accordance with para 2 of Notification No.11/2017 (one third deemed as land value), and (iii) discharge service tax for services rendered up to 30.06.2017 and GST for services rendered thereafter, on a proportionate basis. Issues:1. Liability to pay GST on building construction under Joint Development Agreement2. Determination of GST value in absence of monetary consideration3. Liability to pay service tax pre-GST and GST post-GSTAnalysis:Issue 1: Liability to pay GST on building construction under Joint Development AgreementThe applicant sought clarification on the GST liability for constructing and handing over a building to the landowner under a Joint Development Agreement. The Authority considered the applicant's submissions and relevant provisions. Notification No. 4/2018-Central Tax (Rate) dated 25.01.2018 specifies that a registered person supplying construction services against transfer of development rights is liable to pay GST. The applicant, being a registered person, falls under this category and is obligated to pay GST on the construction service provided to the landowner.Issue 2: Determination of GST value in absence of monetary considerationThe applicant raised a query regarding the determination of GST value when no monetary consideration is involved. The Authority referred to Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, which outlines the valuation method for services involving property transfer. As per the notification, the value of the supply shall be the total amount charged less the value of the land, with the land value deemed as one third of the total amount. This method provides clarity on determining the GST value in such scenarios.Issue 3: Liability to pay service tax pre-GST and GST post-GSTThe applicant inquired about the liability to pay service tax pre-GST implementation and GST post-GST regime. The Authority analyzed Section 142(11) of the CGST/KGST Act 2017, which mandates the payment of service tax under the Finance Act 1994 for services provided pre-GST and GST under the CGST Act 2017/KGST Act 2017 for services post-GST. Therefore, the ruling states that the applicant is liable to pay service tax/GST proportionate to the services provided before/after 30.06.2017, respectively.In conclusion, the Authority ruled that the applicant is liable to pay GST on the building construction under the Joint Development Agreement, the GST value is to be determined as per the specified notification, and the applicant is responsible for paying service tax/GST based on the timeline of service provision.