Sale of developed plots remains GST exempt while development services and transfer of development rights attract 18% GST under reverse charge

AAR Telangana ruled on GST applicability for plot development activities. The authority held that sale of developed plots remains exempt under Schedule III of CGST Act as it constitutes sale of land regardless of development undertaken. Development services provided to landowners attract 9% CGST and 9% SGST under works contract provisions. Transfer of development rights by landowners to developers is taxable under reverse charge mechanism at 9% CGST and 9% SGST, with liability falling on the promoter/developer as per Notification 13/2017 amended by Notification 5/2019.

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Issues Involved:
1. Taxability of sale of developed plots under GST.
2. Taxability of development services provided to landowners under GST.
3. Taxability of transfer of development rights under GST and liability under reverse charge mechanism (RCM).
4. Determination of value of supply for GST on development rights and services.
5. Input Tax Credit (ITC) eligibility on development rights.
6. Time of payment for GST on development rights and services.

Summary:

Issue 1: Taxability of Sale of Developed Plots
- Clarification: The sale of developed plots by the applicant is not taxable under GST. The activity of selling land, whether developed or undeveloped, is covered under item (5) of Schedule III to the CGST Act and does not attract GST as per Circular No. 177/09/2022 dated 03.08.2022.

Issue 2: Taxability of Development Services Provided to Landowners
- Clarification: Development services provided to landowners are taxable under GST. These services include leveling, laying drainage lines, etc., and attract GST at the applicable rate. The supply of works contract services to customers and landowners is taxable at 9% CGST and 9% SGST as per sub-entry xii of entry at serial no. 3 with SAC 9954 of Notification 11/2017.

Issue 3: Taxability of Transfer of Development Rights and Liability under RCM
- Clarification: The transfer of development rights by the landowner to the applicant is taxable under CGST and SGST Acts. The promoter (applicant) is liable to pay GST on a reverse charge basis at the rate of 9% each for CGST and SGST under entry 5B of Notification 13/2017 as amended by Notification 5/2019 dated 29.03.2019. This applies to real estate projects as defined in the Real Estate (Regulation and Development) Act 2016.

Issue 4: Determination of Value of Supply for GST
- Clarification: The value of supply for works contracts is determined under Section 15 of the CGST Act. If the value is not separately specified, Rule 30 of the CGST Rules read with Section 15 of the CGST Act will apply.

Issue 5: Input Tax Credit (ITC) Eligibility on Development Rights
- Clarification: The applicant can claim ITC on the GST paid under RCM for development rights received from registered landowners while discharging the liability to pay tax on development services provided.

Issue 6: Time of Payment for GST on Development Rights and Services
- Clarification: The time of supply for transfer of development rights is determined under Section 13(3)(b) of the CGST Act, which is the date immediately following 60 days from the date of issue of the invoice or voucher. For continuous supply of development services, the time of supply is determined by Section 13 read with Section 31(5) of the CGST Act, based on the due date of payment or the actual date of payment received.

Final Ruling:
- Sale of Developed Plots: Not taxable under GST.
- Development Services: Taxable under GST at 9% CGST and 9% SGST.
- Transfer of Development Rights: Taxable under RCM at 9% CGST and 9% SGST.
- Value of Supply: Determined under Section 15 of the CGST Act.
- ITC Eligibility: Yes, ITC can be claimed.
- Time of Payment: As per the provisions of the CGST Act for development rights and continuous supply of services.

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