Deeming fiction for land valuation is optional; one-third deduction applies only when land value is not ascertainable.

Paragraph 2 of Notification No. 11/2017-Central Tax (Rate) is read down so that its one-third deeming fiction treating one-third of consideration as land operates as an optional rule where the actual value of land or undivided share is not ascertainable; where land or construction value can be ascertained or derived using valuation rules, the deeming fiction does not apply mandatorily. An earlier administrative ruling that treated the one-third deduction as mandatory is set aside to the extent it ignored the option and ascertainability principles.

---

---

Issues: Whether Paragraph 2 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, which deems the value of land or undivided share of land to be one-third of the total consideration for exclusion from GST on construction services where consideration is received before completion certificate, operates mandatorily or is available only at the option of the taxable person; and whether the Delhi Authority for Advance Ruling's order applying the deeming fiction as mandatory is sustainable.

Analysis: Paragraph 2 of Notification No. 11/2017 provides a uniform deduction treating one-third of the total consideration as attributable to land where certain conditions apply. The decision of a Division Bench of the Gujarat High Court in Munjaal Manishbhai Bhatt read down this paragraph to hold that the one-third deeming fiction is not mandatory where the actual value of land or the value of construction can be ascertained or derived using valuation rules, and that the deduction may be exercised at the option of the taxable person particularly when the value of land or undivided share is not ascertainable. The impugned order of the Delhi Authority for Advance Ruling applied the one-third deduction as mandatory without applying the option-based or ascertainability considerations affirmed by the Gujarat Division Bench.

Conclusion: The impugned order of the Delhi Authority for Advance Ruling is set aside; Paragraph 2 of Notification No. 11/2017 is not to be treated as mandatorily applying a one-third deeming fiction where the value of land or construction is ascertainable, and the deduction is available at the option of the taxable person in cases where the actual value is not ascertainable.

Ratio Decidendi: Paragraph 2 of Notification No. 11/2017 is to be read down so that the one-third deeming fiction operates only as an optional rule for taxable persons in cases where the actual value of land or undivided share in land is not ascertainable, and is not a mandatory uniform deduction where the value is ascertainable by other means.

---