Land development and duplex construction services taxable under GST despite exemption claims, 5% tax applies on full consideration

The Odisha AAR ruled that an applicant's activities involving land development and duplex construction constitute taxable services under GST. Despite the applicant's contention that land sales are exempt under Schedule III, the AAR found that development was undertaken at buyers' behest as part of construction services, not merely incidental to land sale. The applicant was held liable for 5% GST on full consideration (7.5% after deducting one-third land cost) and denied input tax credit eligibility. The AAR distinguished cited precedents as having different factual circumstances.

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Issues Involved:
1. Applicability of GST rate on sale of land and duplex constructed on the same land on execution of two separate agreements.
2. Admissibility of input tax credit (ITC).

Issue 1: Applicability of GST Rate on Sale of Land and Duplex Constructed on Same Land on Execution of Two Separate Agreements

The Applicant, engaged in real estate and construction, intends to sell land and construct duplex houses through two separate agreements. The key argument from the Applicant is that as per Schedule III of the CGST Act, the sale of land is neither a supply of goods nor a supply of service, hence GST is not applicable on the sale/transfer of land. They further cite Circular No. 177/09/2022-TRU, which clarifies that the sale of developed land is also considered a sale of land and does not attract GST.

However, the Authority found that the transaction in question is not limited to the sale of land. The Applicant is also engaged in the construction of duplex/multi-storied buildings, which involves development activities like electricity, drainage, and water facilities. The Memorandum of Agreement and Power of Attorney indicate that the Applicant is authorized to develop the land and construct buildings, not merely sell plots. Thus, the sale of plot/land and construction of duplexes is considered a taxable service under GST. As per Schedule II, Para 5 Clause (b) of the CGST Act, the activity attracts GST.

Issue 2: Admissibility of Input Tax Credit (ITC)

The Applicant contended that the construction service is in the nature of a "works contract" and would attract 18% GST, making them eligible for ITC. However, the Authority ruled that in view of Notification No. 03/2019-C.T. (Rate) dated 29.03.2019, the Applicant is liable to pay GST at an effective rate of 5% on the total consideration received for land and duplex construction, and is not eligible for ITC on any inward supply of goods and services.

Ruling:

The activity undertaken by the Applicant towards the sale of plot/land and construction of duplexes amounts to a taxable service under GST. The Applicant is liable to pay GST at an effective rate of 5% on the total consideration received and is not eligible for ITC on any inward supply of goods and services.

Appeal:

The Applicant or jurisdictional officer, if aggrieved by the ruling, may appeal to the Odisha State Appellate Authority for advance ruling under Section 100 of the CGST/OGST Act, 2017 within 30 days from the date of receipt of the advance ruling.

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