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of <h1>AAR Tamil Nadu rules separate land sale and construction agreements constitute single supply of construction services under Schedule II with 2/3rd taxable value</h1> <h3>In Re: M/s. Kara Property Ventures LLP</h3> In Re: M/s. Kara Property Ventures LLP - 2019 (23) G.S.T.L. 287 (A. A. R. - GST), [2019] 71 G S.T.R. 99 (AAR) Issues Involved:1. Determination of the value of supply of services provided from July 1, 2017, under the provisions of CGST Act 2017 read with Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 (as amended).Detailed Analysis:1. Nature of Agreements and Transactions:The Applicant, engaged in construction activities, has a residential project named 'One Crest' in Chennai. They enter into two separate agreements with customers: one for the sale of an undivided share in the land (Land Agreement) and another for the construction of a super-structure (Construction Agreement). These agreements are registered for stamp duty purposes and are intrinsically connected, meaning one cannot exist without the other.2. Supply of Services under GST:The Applicant's activity involves the construction of apartment units on land owned by them. When a customer purchases a unit, they also purchase a portion of the land. According to Section 7 of the CGST Act, 2017, the term 'supply' includes all forms of supply of goods or services for a consideration. Schedule II of the CGST Act specifies that the construction of a complex or building is treated as a supply of service except where the full consideration is received after the issuance of a completion certificate.3. Agreements' Co-existence:The agreements for the sale of undivided share of land and construction are co-existent and co-terminus, meaning they run concurrently and cannot be terminated independently. The Sale Deed is executed and registered only after the construction is completed and the completion certificate is received. This indicates that the transaction is not a sale of land as per Schedule III but a supply of service under Schedule II.4. Determination of Value of Supply:The value of supply is determined under Section 15 of the GST Act. Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended, provides the applicable rate of CGST and SGST for the construction of a complex or building. According to Paragraph 2 of the notification, the value of supply of service and goods portion in such supply shall be equivalent to the total amount charged for such supply less the value of land or undivided share of land, deemed to be one-third of the total amount charged.5. Ruling:The measure of levy of GST on the supply of service of 'Construction' in the Applicant's project 'One Crest' shall be two-thirds of the total value charged for construction service and the amount charged for the transfer of undivided share of land. This is in accordance with entry No. 3(i) of Notification No. 11/2017-C.T.(Rate) dated 28.06.2017, as amended.Conclusion:The value of supply of services provided by the Applicant in the project 'One Crest' shall be calculated as two-thirds of the total value charged for construction service and the amount charged for the transfer of undivided share of land, as per the specified notification.
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