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of <h1>AAAR rules sale of developed land with basic amenities constitutes taxable construction service under GST law</h1> <h3>In Re: Bhopal Smart City Development Corporation Limited</h3> In Re: Bhopal Smart City Development Corporation Limited - TMI Issues Involved:1. Applicability of GST on the sale of developed plot of land.2. Rate of GST on the supply.3. HSN or SAC code for the supply.4. Relevant entry number of the notification for the supply.5. Exclusion of land value from the total consideration for GST calculation.6. Availability of 1/3rd abatement on account of the value of land.Detailed Analysis:Issue 1: Applicability of GST on the Sale of Developed Plot of LandThe Appellate Authority for Advance Ruling (AAAR) overturned the AAR's decision that GST is not applicable on the sale of developed land. The AAAR concluded that the development activities (e.g., drainage, water line, electricity line, land leveling, road, and street light) change the character and value of the land, making it a supply of services under clause (b) of paragraph 5 of Schedule II of the CGST Act, 2017. The AAAR emphasized that these activities are preparatory parts of constructing a complex on the land, thus falling under 'construction services.'Issue 2: Rate of GST on the SupplyThe AAAR determined that the activities of selling developed land are liable to GST under 'construction services.' The applicable GST rate is CGST @ 9% and SGST @ 9% as per serial no. 3 of Notification No. 11/2017-Central Tax (Rate) dated 28-06-2017, as amended.Issue 3: HSN or SAC Code for the SupplyThe AAAR did not explicitly mention the HSN or SAC code for the supply. However, it falls under 'construction services,' which is typically classified under Heading 9954.Issue 4: Relevant Entry Number of the Notification for the SupplyThe AAAR referred to serial no. 3 of Notification No. 11/2017-Central Tax (Rate) dated 28-06-2017, as amended, which pertains to 'construction services.'Issue 5: Exclusion of Land Value from the Total Consideration for GST CalculationThe AAAR confirmed that 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. The value of land or undivided share of land in such supply shall be deemed to be one third of the total amount charged for such supply.Issue 6: Availability of 1/3rd Abatement on Account of the Value of LandThe AAAR upheld the provision in Notification No. 11/2017-Central Tax (Rate) which allows for the value of land to be deemed as one third of the total amount charged for the supply. This provides a mechanism for quantifying the service portion in transactions involving the transfer of property in land.Conclusion:The AAAR quashed the AAR's order and ruled that the sale of developed land by the respondent is liable to GST under 'construction services.' The activities fall under clause (b) of paragraph 5 of Schedule II of the CGST Act, 2017, attracting CGST @ 9% and SGST @ 9%. The value of supply should exclude the deemed value of land, which is considered one third of the total amount charged for the supply.
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