Reversal of ITC as per Rule 42

[Komal Agarwal]

M/s XYZ has purchased land area 10000 mtr during April, 2018. It develop infrastructure on land like road, electric line, common wall, drainage line etc. Govt authority passed layout plan as saleable plotting land area of 6000 mtr (30 plots of 200 mtr each) and 4000 mtr land area for common infrastructure. During 2018-19 XYZ incurred 20.00 lacs on infrastructure and availed ITC Rs 3.60 lac. XYZ booked 6 plots and get token money during 18-19 and but possession not provided. Infrastructure cost during FY 19-20 was 40.00 lacs plus ITC Rs 7.20 lacs.

There are two component in inward supply, one is land (exempted) and another is infrastructure (taxable). And there are two component in outward supply one is land (exempted) and another is infrastructure (taxable). For the outward supply of land we are using inward supply of land only and we are not availing any ITC on procurement of land and not paying any tax on sale of land. Wherever we were availing ITC on infrastructure development only. And using this ITC for selling of infrastructure development GST liability.

Sale value of plotted land includes value of land and infrastructure both. As per para 2 of notification no 11/2017 CGST (Rate) value of land is to be deemed at one third of sale value. We collected 18% GST on 2/3 portion (infrastructure part) of sale and discharged GST liability through credit ledger.

Question : Whether any liability to reversal of ITC arise during 18-19 due to Rule 42 of CGST Rule. If yes then how much?

[Sadanand Bulbule]

Dear querist

As per your under understanding, XYZ is the owner of land and does development of it as per the rules of Local Town Planning Authority. Hope you are aware that in terms of Sl No. 5 of the Third Schedule to the GST Act, the sale of "LAND", whether undeveloped or developed is neither a supply of goods nor a service. Factual and legal position being so, where is the question pf levying tax on infrastructure developed by the land owner and claiming input tax thereon separately?

Further there are no two independent transactions/supplies in your case, sale of land and supply of infrastructure services to the buyers. it is the integrated sale of land converted in the form of sites as a single transaction and, therefore, not liable to tax under the GST Act in terms of Sl.No. 5 of the Third Schedule.

[Shilpi Jain]

While assessing the payment of tax on sale of plots if you are not separating the sale of land and the infra portion then the same cannot be done while assessing the ITC eligibility.

Are you paying GST on infra devept? Is it not part of sale of plots?

[KALLESHAMURTHY MURTHY K.N.]

Dear Sirs,

CBIC has issued a clarification in a Circular bearing No. 177/09/2022 dated 3-08-2022, the same is applicable for this case. Formation of sites and sales with infrastructure development on own land by the developer is an exempted supply and hence not liable to avail input tax. In case any other taxable supplies were there, the ITC availed has to be apportioned to the extent of exempted supply as required under rule 42. In case, the tax is collected from the customers on the sale of sites, it would serve as the wrong collection of tax and regulated by sec. 76. Under such circumstances, ITC is not allowable. In the case of ITC utilised for such output tax payable, ITC has to be reversed along with interest.

I endorse Sir Bulbuleji for more information given.

AI Summary

Input tax credit reversal required where site formation on own land is an exempt supply, with apportioned reversal and interest.
Formation and sale of plotted sites by a landowner with infrastructure on own land is an exempt supply; ITC claimed on inputs or services used for that exempt site formation must be apportioned and reversed under Rule 42. CBIC clarification confirms ITC on such site formation is not allowable, and any ITC used to discharge tax for those transactions must be reversed with interest. Wrongful tax collected from buyers is regulated as a wrong collection and does not validate ITC claims.