Developer's sale of developed plots constitutes land sale under Schedule III entry 5, exempt from GST

The AAAR Karnataka held that sale of developed plots constitutes sale of land under entry 5 of Schedule III of CGST Act and is not subject to GST. The authority determined that development activities are mandatory prerequisites under Town Country Planning Act and incidental to land sale, not separate taxable services. The dominant intention is land purchase, not service provision. Infrastructure like roads, drains, and utilities remain with local authorities, not transferred to buyers. Title transfer occurs only after development completion and planning authority approval. However, services procured by developers from third parties for development remain subject to GST at applicable rates.

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Issues Involved:
1. Applicability of GST on the consideration received on the sale of sites.
2. Applicability of GST on the advance received towards the sale of sites.
3. Applicability of GST on the sale of plots after completion of development works.
4. Eligibility to collect GST from prospective buyers.
5. Eligibility to claim Input Tax Credit (ITC) on development expenses.

Detailed Analysis:

1. Applicability of GST on the Consideration Received on Sale of Sites:
The Respondent, an unregistered individual, owns land intended for residential use by forming plots and selling them. The Authority for Advance Ruling (AAR) held that GST is not applicable for the consideration received on the sale of sites. The Appellant Department argued that the sale of developed plots includes the cost of land and common amenities, thus constituting a supply of service. However, the Appellate Authority found that the development works are mandated by law and do not constitute a service to the buyer. The dominant intention is the sale of land, not the provision of a service.

2. Applicability of GST on the Advance Received Towards Sale of Sites:
The AAR ruled that GST is not applicable on advances received towards the sale of sites. The Appellant Department contended that advances received before the completion of development works should be taxed as works contract services. However, the Appellate Authority held that the advances are towards the purchase of land, not for any service, and are thus not taxable under GST.

3. Applicability of GST on the Sale of Plots After Completion of Development Works:
The AAR held that GST is not applicable on the sale of plots even after completing development works. The Appellant Department did not dispute this ruling, and the Appellate Authority upheld it, confirming that the sale of developed land is covered under entry 5 of Schedule III of the CGST Act and does not attract GST.

4. Eligibility to Collect GST from Prospective Buyers:
Given the ruling that the sale of land (developed or undeveloped) does not attract GST, the question of collecting GST from prospective buyers becomes redundant. The Appellate Authority upheld the AAR's decision that this question is redundant.

5. Eligibility to Claim Input Tax Credit on Development Expenses:
Since the sale of land is not taxable under GST, the question of claiming ITC on development expenses is also redundant. The Appellate Authority upheld the AAR's decision that this question is redundant.

Additional Points:
- The Appellant Department's reliance on the Supreme Court decision in the case of Name Constructions Pvt Ltd was found irrelevant as it was rendered in the context of the Consumer Protection Act, not GST law.
- The Appellate Authority emphasized that the development works are mandated by law and do not constitute a service to the buyer. The ownership of developed infrastructure lies with local authorities, not the buyers.
- The Board's Circular No 177/09/2022 dated 3rd August 2022 clarifies that the sale of developed land does not attract GST, and this circular is binding on the Department.

Conclusion:
The appeal filed by the Assistant Commissioner of Central Tax, Bangalore South Commissionerate, was rejected, and the ruling given by the Authority for Advance Ruling in KAR ADRG 31/2022, dated 8th September 2022, was upheld. The sale of developed plots is not subject to GST, and any advances received towards the sale of such plots are also not taxable under GST.

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