2019 (8) TMI 395 - AAR - GST

Applicant Liable for GST on Joint Development Agreement Work

The ruling determined that the applicant is liable to pay GST for the work executed under the Joint Development Agreement (JDA) on the landowner's ... Supply by way of barter in the course of furtherance of business - Consideration includes non-monetary consideration (development rights) - Liability to pay tax on construction service against transfer of development rights (Notification No.4/2018) - Valuation of supply involving transfer of undivided share of land - deemed one third rule (Notification No.11/2017 para 2) - Time of supply determined by transfer of possession/right by conveyance or allotment (as per notification)Supply by way of barter in the course of furtherance of business - Consideration includes non-monetary consideration (development rights) - Activity under Joint Development Agreement (construction of flats in lieu of development rights) is a taxable supply under GST. - HELD THAT: - The Authority held that construction services provided by the applicant to land owners in exchange for development rights amount to supply by way of barter and fall within the definition of 'supply' since such exchanges are made for consideration in the course of furtherance of business. Section 7 (supply includes barter) and Section 2(31) (consideration includes non-monetary consideration) were applied to conclude that development rights constitute consideration and attract GST. [Paras 5]The activity is a taxable supply under the CGST/KGST Acts.Liability to pay tax on construction service against transfer of development rights (Notification No.4/2018) - Which party is liable to pay GST when construction service is supplied against development rights. - HELD THAT: - Relying on Notification No.4/2018-Central Tax (Rate) dated 25.01.2018, the Authority found that where construction services are supplied to the supplier of development rights against consideration in the form of development rights, the registered supplier of the construction service is liable to pay central tax. The notification specifically casts the liability on the supplier of construction services in such exchanges. [Paras 5]The applicant (supplier of construction services) is liable to pay GST on the services supplied to land owners in lieu of development rights.Valuation of supply involving transfer of undivided share of land - deemed one third rule (Notification No.11/2017 para 2) - Valuation of the construction service portion where the supply involves transfer of undivided share of land. - HELD THAT: - The Authority directed that the value of the supply for levy of tax is to be determined in accordance with paragraph 2 of Notification No.11/2017-Central Tax (Rate) dated 28.06.2017. That provision treats the value of land or undivided share of land as deemed to be one third of the total amount charged for the supply, and the value of the service/goods portion is the total amount charged less the deemed value of land. [Paras 5]Value of the taxable construction service is to be determined under para 2 of Notification No.11/2017, with the value of land/undivided share deemed to be one third of the total amount.Time of supply determined by transfer of possession/right by conveyance or allotment (as per notification) - Whether tax liability arises partly under pre-GST law and partly under GST, or wholly under GST, having regard to works commenced before GST and continued after its commencement. - HELD THAT: - The Authority examined Section 142 and the relevant notification and observed that Notification No.4/2018 fixes the time of liability for such supplies at the moment the developer transfers possession or right in the constructed property to the supplier of development rights by conveyance deed or similar instrument (for example allotment letter). As the applicant had not shown that possession of the land owner's share had been transferred pre-GST, and possession would occur on transfer during the GST regime, the Authority concluded that the entire liability arises under GST rather than being split between earlier law and GST. [Paras 5]Tax liability arises at the time of transfer of possession/right (conveyance/allotment) and, in the facts before the Authority, the liability is entirely under GST.Final Conclusion: The applicant is liable to pay GST on construction works executed under Joint Development Agreements for the land owners' portion; the supplier of construction services (the applicant) is liable to pay tax, valuation of the taxable service is to be determined under paragraph 2 of Notification No.11/2017 (with land deemed one third of the total), and the time of supply (and hence liability) is the transfer of possession/right by conveyance or similar instrument, resulting here in liability wholly under GST. Issues Involved:1. GST liability on work executed under Joint Development Agreement (JDA) on landowner's portion where work commenced during pre-GST and continued under GST Law.2. Valuation for payment of GST.3. Time of supply for GST applicability.Detailed Analysis:1. GST Liability on Work Executed Under JDA:The primary issue is whether the applicant is liable for GST on the construction service provided to the landowner under a Joint Development Agreement (JDA) where the construction commenced before the GST regime and continued into the GST regime. The applicant argued that the transaction should be considered as barter, which falls under the definition of 'Supply' as per Section 7 of the CGST Act 2017. The consideration received by the applicant is in the form of development rights, which qualifies as 'consideration' under Section 2(31) of the CGST Act 2017. Therefore, the activity is considered a 'Supply' and is liable for GST under Section 9 of the CGST Act 2017.2. Valuation for Payment of GST:The value of the supply is to be determined as per Notification No.11/2017-Central Tax (Rate) dated 28.06.2017. The value of the service involving the transfer of property in land or undivided share of land 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 for such supply.3. Time of Supply for GST Applicability:The applicant contended that tax should be levied under the earlier law for the work executed before the GST regime and under the GST law for the work executed after the GST regime. However, as per Notification No.4/2018-Central Tax (Rate) dated 25.01.2018, the liability to pay GST arises at the time when the developer transfers possession or the right in the constructed complex to the landowner. Since the possession of the landowner's share of flats has not been transferred yet, the entire tax liability falls under the GST law.Conclusion:The ruling concluded that the applicant is liable to pay GST for the work executed under the JDA on the landowner's portion. The value for GST payment should be determined as per para 2 of Notification No.11/2017-Central Tax (Rate) dated 28.06.2017. The time of supply falls under the GST regime, making the entire tax liability applicable under GST law.