2019 (11) TMI 994 - AAR - GST

Taxability of land development & sale under GST: Applicant's activities deemed development services, subject to GST

In Re: M/s. Maarq Spaces Private Limited

The case involved determining the taxability of development and sale of land under GST. The applicant, a property developer, contended that their ... Levy of GST - sale of developed plots for consideration - revenue sharing basis - principal supply/predominant supply - applicability of Rule 31 of CGST Rules - Taxability in terms of serial number 5 of Schedule III of the CGST Act, 2017 - HELD THAT:- On the basis of provisions of the agreement it would be in order to conclude that activities undertaken by the applicant are not qualified to be covered under entry number 5 of Schedule Ill of the said Act. Thus the activities undertaken by the applicant amount to a supply of service - the activities undertaken by the applicant, as envisaged in the agreement placed before the Authority, amount to a supply of service to the landowners and is liable to be taxed appropriately under the provisions of the CGST/KSGST Acts. Applicability of provisions of Rule 31 of CGST Rules - ascertaining the value of land and supply of service for the purpose of taxable value - HELD THAT:- Consideration for a service is the total value that the service provider gets in the deal and not what the service provider expends for the provisioning of the service. The total gain to the applicant or the total amount accruing to the applicant for the services is 25% of the amount at which the plots are sold. It has already been emphasised and held that the applicant has no right in the title of the land and therefore the applicant cannot be considered as the sellers of the plots. Their role is limited to aiding and assisting the landowners in the sale of the plots. They are only service providers in the whole process, be it development of the raw land into residential plots or their sale after the development. Therefore the entire amount received by them is liable to be taxed. Thus, Rule 31 applies in the instant case and the value of the supply is equal to the total amount received by the applicant, which is equal to 25% of the market value of each plot. Issues Involved:1. Whether the activity of development and sale of land attracts tax under GST.2. If taxable, whether Rule 31 can be applied to ascertain the value of land and supply of service.Issue-Wise Detailed Analysis:1. Taxability of Development and Sale of Land under GST:The applicant, a property developer, entered into a Joint Development Agreement (JDA) with landowners to develop land into residential plots. The applicant contended that the sale of developed plots falls under 'sale of land,' which is excluded from GST under Entry 5 of Schedule III of the CGST Act, 2017. The applicant argued that development activities are incidental to the sale of land and thus constitute a composite supply, with the predominant supply being the sale of land.Upon examination, the authority noted that the applicant’s primary activity is the development of land, which involves significant civil works, including surveying, leveling, and construction of infrastructure. The agreement stipulated that the applicant bears all development costs and recovers these costs from the sale proceeds of the plots. The revenue from the sale is shared between the applicant and the landowners.The authority highlighted that the applicant does not hold the title to the land; thus, they cannot be considered as sellers of land. Instead, the applicant is engaged in providing development services to the landowners. The agreement’s provisions, such as the landowners' responsibility for obtaining approvals and indemnifying the applicant against title claims, further support this conclusion.Therefore, the authority ruled that the activities undertaken by the applicant constitute a supply of service to the landowners and are liable to be taxed under GST.2. Applicability of Rule 31 for Determining Taxable Value:The applicant argued that if their activities are taxable, the value of the supply should be determined using Rule 31 of the CGST Rules, 2017, as the consideration includes both land and development costs. Rule 31 allows for the determination of value using reasonable means when other rules (27 to 30) are not applicable.The authority observed that the applicant’s consideration for services is 25% of the sale value of each plot, which is received progressively as plots are sold. This arrangement does not involve any physical possession of land by the applicant; instead, they receive monetary consideration. Therefore, the transaction value, as defined under Section 15 of the CGST Act, is the price actually paid for the supply of services.The authority concluded that Rule 31 is applicable in this case, and the value of the supply is equal to 25% of the market value of each plot. The entire amount received by the applicant is liable to be taxed under GST.Ruling:1. The activities as envisaged in the agreement between the applicant and the landowners amount to a supply of service and are liable to be taxed under GST.2. Rule 31 applies in the instant case, and the value of the supply is equal to the total amount received by the applicant, which is 25% of the market value of each plot.