2022 (1) TMI 1055 - AAAR - GST

Farmer's sale of developed land plots with infrastructure amenities constitutes taxable service under GST at 18%

In Re: Shree Dipesh Anilkumar Naik

The AAAR-Gujarat ruled that a farmer's sale of developed land plots with infrastructure amenities constitutes taxable service under GST, not exempt land ... Levy of GST - sale of plot of land - farmer having a vacant land outside the municipal area of town - as per the requirement of approval by the respective authority (the Jilla Panchayat), primary amenities such as, Drainage line, water line, electricity line, land leveling etc. are to be provided by the applicant - HELD THAT:- Although the appellant has time and again referred to the plan approval obtained by them from the plan approving authority i.e. the Jilla Panchayat as well as to the various pages of the sale deed which they have made with the individual buyers of their plots of land, they have submitted neither the copy of the approved plan from the plan approval authority i.e. the Jilla Panchayat, nor the sale deed/agreement/contract which they have made or are proposing to make with the individual buyers of their plots of land. In fact, on going through the copy of sale deed (marked as Annexure-VII) which the appellant has submitted along with their additional submission dated 10.11.2020 (received in this office on 12.11.2020), it is found that the said sale deed does not pertain to the appellant but pertains to sale of developed land between Shri Manishbhai Bhavaniprasad Agrawal and Shri Denishbhai Dhanrajbhai Shah, both partners of Swami Developers(the sellers) and Shri Nevil Bharatbhai Doctor(the purchaser) which is not in any way related to the appellant - the said documents/papers submitted by the appellant as well as those parts of the submissions of the appellant that are based on the clauses of the attached sale deed, cannot be relied upon in the present case. When the transaction involves mere sale of land, the said transaction will be out of the scope of supply and will be squarely covered under Entry No.5 of Schedule-III which covers activities or transactions which shall be treated neither as a supply of goods nor supply of services. However, in view of the common facilities being developed/being got developed by the appellant, this activity will be squarely covered under the scope of taxable service i.e. ‘construction of civil structure or a part thereof, intended for sale to a buyer.’ under clause(b) of paragraph 5 of Schedule-II of the CGST Act, 2017 - the sale of developed land by the appellant will not fall under Entry No.5 of Schedule-III of the CGST Act, 2017. The seller is collecting charges towards the land as well as the common amenities, roads, water tank and other infrastructure on a proportionate basis and all these are an intrinsic part of the plot allotted to the buyer. The facts clearly indicate that sale of developed plot is not equivalent to sale of land but is a different transaction. Sale of such plotted development tantamount to supply/rendering of service. In the present case, the appellant is the owner of the land, who develops the land/gets the land developed with an infrastructure such as Drainage line, Water line, Electricity line, Land leveling etc. as per the requirement of the approved Plan Passing Authority (Jilla Panchayat) and thereafter, sells such developed land as plots. The appellant’s sales price includes the cost of the land as well as the cost of common amenities as mentioned above, on a proportionate basis. Schedule II of the CGST Act, 2017 pertains to activities or transactions to be treated as ‘supply of goods or supply of services’ - the said activity is not covered under Entry No.5 of Schedule-III of the CGST Act, 2017 as contended by the appellant, but it is a supply of taxable service involving ‘construction of civil structure or a part thereof, intended for sale to a buyer’ falling under the head ‘Construction services’ appearing at Sr.No.3 of Notification No.11/2017-Central Tax (Rate) dated 28.06.2017 (as amended from time to time) and GST at the rate of 18% is payable on the sale of developed plots in terms of CGST Act, 2017 and Rules thereunder. Issues Involved:1. Applicability of GST on the sale of developed plots of land.2. Determination of whether the sale of developed plots falls under the scope of 'supply' as per the CGST Act.3. Consideration of the transaction as a composite supply.4. Compliance with the conditions mandated by the plan passing authority (Jilla Panchayat).5. Timeliness and validity of the appeal filed by the appellant.Detailed Analysis:1. Applicability of GST on the Sale of Developed Plots of Land:The appellant questioned whether GST is applicable on the sale of plots of land where primary amenities such as drainage, water line, electricity line, and land leveling are provided as per the requirements of the Jilla Panchayat. The Gujarat Authority for Advance Ruling (GAAR) ruled that GST is applicable on such sales, considering the provision of these primary amenities as part of the transaction. The GAAR referenced Entry 5 of Schedule-III of the CGST Act, which excludes the sale of land from GST, but noted that the sale of developed land with amenities constitutes a service, thus attracting GST.2. Determination of Whether the Sale of Developed Plots Falls Under the Scope of 'Supply' as per the CGST Act:The appellant argued that the sale of land should fall under Entry 5 of Schedule-III of the CGST Act, which treats the sale of land as neither a supply of goods nor a supply of services. However, the authority observed that the sale of developed plots involves providing common amenities, making it a 'supply of services' under clause 5(b) of Schedule-II of the CGST Act. The authority emphasized that the appellant's sales price includes the cost of both the land and the common amenities, thus constituting a taxable supply.3. Consideration of the Transaction as a Composite Supply:The appellant contended that the transaction should be considered a composite supply, where the principal supply is the sale of land, and the provision of common amenities is ancillary. However, the authority found that the conditions for a composite supply were not met, as the appellant was not a taxable person under GST law, and the transaction did not involve multiple taxable supplies bundled naturally. Therefore, the transaction could not be classified as a composite supply.4. Compliance with the Conditions Mandated by the Plan Passing Authority (Jilla Panchayat):The appellant proposed to sell plots with a condition that buyers would develop common amenities by forming an Association of Persons (AOP). The authority noted this arrangement contradicted the Jilla Panchayat's mandate that the appellant must develop these amenities. The authority found no evidence that the appellant's sale price excluded the cost of developing these amenities, leading to the conclusion that the sale involved developed plots, not mere land.5. Timeliness and Validity of the Appeal Filed by the Appellant:The appellant filed the appeal on 31.08.2020, referencing extensions provided due to the Covid-19 pandemic. The authority accepted the appeal as timely, considering the extensions granted by Notification No. 35/2020-Central Tax and Notification No. 55/2020-Central Tax.Conclusion:The Appellate Authority upheld the GAAR's ruling, confirming that the sale of developed plots is a taxable service under the CGST Act. The transaction is not covered under Entry 5 of Schedule-III, as it involves the provision of common amenities, thus falling under 'construction services' and attracting GST at 18%. The appeal was rejected on these grounds.