Sale of Land

[Sandeep Anand]

Dear Team,

I am writing to inquire about the tax implications of land sales under GST.

We are a manufacturing company and have recently sold some of our land due to the expansion of a highway by the government. I would like to know if the sale of this land is considered an exempted supply under GST.

Additionally, I wanted to clarify if the common Input Tax Credit (ITC) reversal is mandatory for the above sale. I would appreciate it if you could provide me with your expert opinion on this matter.

Thanks & Regards,

Sandeep

[Sadanand Bulbule]

Dear Sir

Please refer the order dated 14/02/2023 of the AAAR of Karnataka rendered in the case of Ms. Rabia Khanum reported in 2023 (2) TMI 929, which is comprehensive and self-explanatory precisely on the points raised by you.

Secondly as there is no tax on the purchase or sale of land per say, the question of reversing common ITC thereon does not arise at all.

IN RE: M/S. MS. RABIA KHANUM,

[Shilpi Jain]

If it is sale of land then there is no liability of GST.

Also you are right that common credit needs to be reversed since this is regarded as an exempt supply for the purposes of reversal of credit as per explanation to Section 17(3) of CGST Act, 2017.

Any direct credit will have to be reversed fully.

[KASTURI SETHI]

Sale of land is included in Schedule-III of CGST Act which is neither a supply of goods nor a supply of services. This is equal to the erstwhile Negative List in Service Tax law. Sale of land cannot be covered under 'Exempt Supply'. Hence reversal is not required.

See the definition of 'Exempt Supply' under Section 2(47) of CGST Act.

I support the views of Sh.Sadanand Bulbule, Sir.

[Sadanand Bulbule]

Thank you so much Sri. Sethi Sir for your fabulous support.

Warm Regards

[Sandeep Anand]

Thanks All.

Your thorough explanation was helpful and provided us with the information we needed to better understand the matter at hand. Thank you for taking the time to provide such a comprehensive response.

Regards,

Sandeep

[Amit Agrawal]

Section 17 (3) of the CGST Act, 2017 reads as under:

The value of exempt supply under sub-section (2) shall be such as may be prescribed, and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.

¹[Explanation.-For the purposes of this sub-section, the expression ‘‘value of exempt supply’’ shall not include the value of activities or transactions specified in Schedule III,except those specified in paragraph 5 of the said Schedule.]

So, reversal of common input tax credit is warranted u/s 17 (2) against 'Sale of Land', in my humble view.

P.S. The question/s whether a compulsory acquisition by Govt. of Co's land (for purpose of development of highway etc.) can be equated with 'Sale of Land' per se and associated implications thereof, if any, are ignored for above post.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion. And I respect contrary views.

[Sadanand Bulbule]

Dear Amit ji

May I request you to please further distil the object of Section 17[3] and consequential contingencies warranting reversal of common ITC on sale of land, keeping in mind the meaning of " exempt supply" as defined under Section 2[47]?

The idea is to make the discussion extra vibrant. So let's churn it better [rather than more] to produce the best possible results.

[Amit Agrawal]

Dear Shri Sadanand Bulbule Ji,

It is true that exempt supply - as defined u/s 2 (47) - does not include 'Sale of Land'.

However, for the limited purpose of reversal of ITC u/s 17 (2), 'Sale of Land' is part of value of exempt supply due to express provision of Section 17 (3) & explanation given thereunder read with 'Explanation 2 (a) under Rule 45 of the CGST Rules (i.e. For determining the value of an exempt supply as referred to in sub-section (3) of section 17, the value of land and building shall be taken as the same as adopted for the purpose of paying stamp duty).

So, I hold the view that while reversing ITC u/r 42 & 43 read with Section 17 (2) & Explanation 2 (a) under Rule 45, reversal of common input tax credit is required against 'Sale of Land'.

And, w.r.t. objective behind these provisions, I feel that they are logical provision. As no tax is payable under GST against 'Sale of Land', input tax credit should not be available to the assessee against such activities.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion. And I respect contrary views.

[KASTURI SETHI]

Dear Sir,

Is it not stretching the law ?

[Shilpi Jain]

The law has itself provided u/s 17(3) for reversal. That will have to be complied

AI Summary

Land Sale for Highway Expansion Exempt from GST; Debate on ITC Reversal Under Sections 17(3) and 2(47) of CGST Act A manufacturing company inquired about the Goods and Services Tax (GST) implications of selling land due to government highway expansion. The discussion revealed that the sale of land is not subject to GST as it is neither a supply of goods nor services, according to Schedule III of the CGST Act. However, opinions varied on whether the reversal of common Input Tax Credit (ITC) is required. Some participants argued that the sale should be considered an exempt supply under Section 17(3) of the CGST Act, necessitating ITC reversal, while others disagreed, citing the definition of exempt supply under Section 2(47).