Composite supply treatment for villa construction and land sale governs GST classification and valuation under the rate notification.

A linked villa construction and land-sale arrangement is treated under GST as a composite supply of construction service, because the buyer receives a completed villa and outsourcing of actual construction does not alter the supplier's direct taxable supply. The service falls under Heading 9954(ia) under the real-estate entry in Notification No. 11/2017-Central Tax (Rate), rather than the residual heading, and attracts CGST 3.75% plus SGST 3.75%. For valuation, the notified mechanism applies: one-third of the total amount charged is deemed to be land value where the supply involves transfer of land or undivided share of land.

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Issues: (i) Whether the agreement with customers for construction of villas constitutes a supply of service under GST despite outsourcing of construction to a contractor. (ii) Whether the construction service is classifiable under Heading 9954(ia) and taxable at CGST 3.75% and SGST 3.75% under Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, or under Heading 9954(xii). (iii) Whether, for valuation, the consideration under the construction agreement alone can be treated as the value of supply where there is a separate agreement for sale of land.

Issue (i): Whether the agreement with customers for construction of villas constitutes a supply of service under GST despite outsourcing of construction to a contractor.

Analysis: The contractual arrangement created a direct supply by the applicant to the buyers, with consideration received for construction and a continuing obligation to complete and deliver the villas. Outsourcing of the actual construction activity was only a mode of performance and did not alter the applicant's independent supply to the customers. Under GST, the scope of supply is wide, and each supply in the chain is taxable in the hands of the respective supplier. The cited pre-GST authority was held inapplicable to the GST framework.

Conclusion: The agreement constitutes a taxable supply of service under GST, notwithstanding outsourcing of construction.

Issue (ii): Whether the construction service is classifiable under Heading 9954(ia) and taxable at CGST 3.75% and SGST 3.75% under Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, or under Heading 9954(xii).

Analysis: The agreements for sale of land and construction were interlinked and served a single economic objective of delivering a completed villa to the buyer. The transaction was therefore treated as a composite supply, with construction as the principal supply. On that basis, and having regard to the specific real-estate entry in Serial No. 3 of the notification, the service fell within Heading 9954(ia) rather than the residual Heading 9954(xii).

Conclusion: The service is classifiable under Heading 9954(ia) and taxable at CGST 3.75% and SGST 3.75%.

Issue (iii): Whether, for valuation, the consideration under the construction agreement alone can be treated as the value of supply where there is a separate agreement for sale of land.

Analysis: The valuation was held to be governed by paragraph 2 of Notification No. 11/2017-Central Tax (Rate), which prescribes a statutory deduction of one-third of the total amount charged towards the value of land where the supply involves transfer of land or undivided share of land. The separate sale agreement did not justify adoption of the actual land value in place of the notified deeming mechanism, since the agreements together constituted one bundled supply.

Conclusion: The value of supply must be determined under paragraph 2 of Notification No. 11/2017-Central Tax (Rate), with one-third of the total amount charged deemed as land value.

Final Conclusion: The applicant's construction arrangement was held to be a taxable composite supply of construction service under GST, classifiable under the real-estate entry in the notification, and valuation was required to follow the notified one-third land deduction mechanism.

Ratio Decidendi: Where a developer enters into linked agreements for sale of land and construction of a villa, the transaction is to be examined on its substance as a composite supply of construction service, and the valuation must follow the specific statutory deeming formula prescribed in the applicable rate notification.

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