Joint Development Agreement for land

[VENU K]

An unregistered partnership firm entered into a land development agreement with another unregistered individual landowner. The consideration as per the development agreement for the two acre plot as per the registered agreement is 54 percent for land owner and 46 percent for developer. A refundable deposit of Rs.40,00,000/- was paid at the time of signing of the agreement. This is a fully refundable deposit. Only the preliminary works have been started now. There is absolutely no plans for construction of units in the plot. The agreement is to just develop the plots and sell it. No plot sale has as yet happned. The agreement was registered on 15 Feb 2024.

The doubts here are

1. Is the partnership firm liable for registration as of today, assuming there are no other turnover. The developer firm has not made any supplies so far.

2. Can a liability be imposed on the firm under Reverse Charge for transfer of development rights as the firm is an unregistered firm.

3. If there is an RCM liability , then, what is the time of supply ?

The Managing Partner is being summoned by the Department now.

[Shilpi Jain]

It is a plotting arrangement

1. Is the partnership firm liable for registration as of today, assuming there are no other turnover. The developer firm has not made any supplies so far.

It would be providing works contract services to the landonwer for which liability will arise near completion. At such time registration would be required. Though, for this firm to avail credit on expenses, it could consider taking registration now.

2. Can a liability be imposed on the firm under Reverse Charge for transfer of development rights as the firm is an unregistered firm.

Yes. Liability does not depend on whether the firm is registered or otherwise. Further as mentioed above registration would be required, if not now but near completion

3. If there is an RCM liability , then, what is the time of supply ?

Interpretational issue but can consider near completion of the activity of plotting in the project.

[VENU K]

Thank you Silpi Madam for the expert opinion. In this case the Managing Partner of the firm has been summoned in connection with payment of RCM with reference to Joint Development Agreement.

Does it actually fall under JDA as no construction is being planned. The plan is to just sell the plots after development.

[Sadanand Bulbule]

Dear querist

Also refer issue ID No.119294 for additional inputs.

[Alkesh Jani]

Shri,

I hope the relevant portion of Circular No. 177/2022 may be of your help and same is reproduced below:-

"14. Whether sale of land after levelling, laying down of drainage lines etc., is taxable under GST

14.1 Representation has been received requesting for clarification regarding applicability of GST on sale of land after levelling, laying down of drainage lines etc.

14.2 As per Sl no. (5) of Schedule III of the Central Goods and Services Tax Act, 2017, ‘sale of land’ is neither a supply of goods nor a supply of services, therefore, sale of land does not attract GST.

14.3 Land may be sold either as it is or after some development such as levelling, laying down of drainage lines, water lines, electricity lines, etc. It is clarified that sale of such developed land is also sale of land and is covered by Sr. No. 5 of Schedule III of the Central Goods and Services Tax Act, 2017 and accordingly does not attract GST.

14.4 However, it may be noted that any service provided for development of land, like levelling, laying of drainage lines (as may be received by developers) shall attract GST at applicable rate for such services."

[VENU K]

Thank you all for your considered opinions.

Further , in this case the doubts are

1. There is a registered joint Development Agreement to develope land and sell it as it is. No construction is visualised. In such a case

Is RCM applicable

If so at what valuation

At what time of supply  ?

My understanding is............

RCM is applicable.

Time of supply is at time of handing over possession of land  to developer after signing of JDA.

Valuation is as per fair market value of land  rights received by developer.In this case 46 percent of fair market value of undeveloped land.

Further no GST liability in case of sale of developed land. So most of the input credit will be un available to the developer.

Is my understanding correct  ? or am I missing something ?

[KALLESHAMURTHY MURTHY K.N.]

Dear Querist,

I fully endorse Sri  Alkesh Jani Ji. In the scenario of the facts of the issue, since the activities fall under exempted supply, nothing is applicable under GST Law either forward tax or reverse tax mechanism. 

The above my view is only for knowledge purposes not bearing any legal perspective. 

Thanks to all. 

[Amit Agrawal]

Dear Shri VENU K Ji,

Without going through 'Joint Development Agreement for land', it is difficult - at-least to me - to offer any definitive comments on the queries raised by you. 

Please let me try & give some pointers:

A. RCM comes only if 'Services supplied by any person by way of transfer of development rights or Floor Space Index (FSI) (including additional FSI) for construction of a project by a promoter'. As there is construction involved, this RCM provision has no applicability.

B. Subject to ''Joint Development Agreement for land', I am really doubtful if there was any transfer of 'development rights' from the land-owner to the developer. It seems to me that both parties have entered into 'Association of Person' (i.e. Joint Venture / JV) having defined rights & obligations and sharing profit from the business-venture by spitting future revenue from developed land in 54:46 ratio. 

C. Subject to 'Joint Development Agreement for land' & other factual matrix, developer may be liable to pay gst against 'Work Contract Services' supplied either to land-owner or 'JV'.

C1. Again, time of supply of such 'Work Contract Services' will depend upon terms of 'Joint Development Agreement for land' read with Section 13 of the CGST Act, 2017. 

As explained at the start, these are just few pointers to be looked at and not my views per se. 

These are ex facie views of mine and the same should not be construed as professional advice / suggestion or recommendation.

[Shilpi Jain]

The moment there is a project (irrespective of whether flats are being constructed or commercial units or it is merely plots) there is a liabiltiy of TDR under RCM in hands of the developer. This is assuming no challenge for TDR is envisaged and client is willing to adopt a conservative view that GST is liable on TDR.

[Sadanand Bulbule]

Dear querist

I desire to put the subject concept in different & simple way. Under the TDR concept, the supply of land and the supply of construction services in return become necessary to each other. The construction services are defined at Sl. No. 5[b] of the II Schedule to the CGST Act.

 

[Sadanand Bulbule]

Dear querist

TDR comprise three fundamental dimensions, supply of land to the developer, supply of construction services by the developer to such land owner on his land and the fixation of quantum of consideration as defined under Section 2[31] of the CGST Act. Of course, "time of such supply" to each other is the most determinant factor as per the JDA and related notifications too.

[Manoj Thakur]

This will depend on revenue sharing or area sharing and other terms of the development agreement which needs to be looked at to provide any meaningful guidance

[Sadanand Bulbule]

2025 (5) TMI 633 - PATNA HIGH COURT - SHASHI RANJAN CONSTRUCTIONS PRIVATE LIMITED VERSUS UNION OF INDIA, CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS, STATE OF BIHAR, ASST. COMMISSIONER OF STATE TAX, MUZAFFARPUR.

Challenge to order and summary of order - challenge to N/N. 09/2023 dated 31.03.2023 as contained in Annexure-P8 and the N/N. 56 of 2023 dated 28.12.2003 - extension of time limit specified under sub-section (10) of Section 73 of the CGST Act for issuance of order under sub-section (9) of Section 73 of the GST Act for recovery of tax not paid or short paid or input tax credit wrongly availed or utilized upto 31st March, 2024 for the Financial Year 2018-19 - main contention of petitioner is that the impugned order has been passed without consideration of the provisions of the Act, the rules made thereunder and also notification fixing the liability only in respect of the development agreement on or after 01.04.2019 - violation of principles of natural justice - mistake of fact apparent on the record or not.

HELD THAT:- The petitioner does not get any right on the said property until the completion of the project. After the project is completed and completion certificate is issued, the petitioner gets a right to sell the area of the property which is called “Developers Area”. There are no substantial material to establish that with execution of the development agreement, the petitioner got ownership in the land. It is held that the transfer of development rights as it stands is amenable to GST and cannot be brought within the purview of sale of land subject to clause (b) of Paragraph 5 of Schedule II, sale of building (as per Entry 5 of Schedule-III of the GST Act).

The petitioner has not controverted the submission of the State that vide notification no. 11/2017 dated 28.06.2017, construction of a complex, civil structure etc. intended for sale to a buyer was made exigible to GST except where the entire consideration has been received after issuance of completion certificate or after its first occupancy, whichever is earlier. In this case, it has been specifically pleaded by the State-respondent that the consideration had been received by the petitioner in the form of transfer of development rights, which happened long before the issuance of completion certificate or first occupancy. This Court agrees that in this case, the petitioner cannot claim that it had received the consideration after the issuance of completion certificate or first occupancy.

The State-respondents are correct in contending that the construction of a complex, civil structure etc. intended for sale to a buyer was made exigible to GST except where the entire consideration has been received after issuance of completion certificate or after its first occupancy, whichever is earlier. There would be no ambiguity in the above-mentioned notifications.

Conclusion - There is no ambiguity with regard to liability of the petitioner on account of ‘GST’ on ‘RCM’ basis on the constructions services rendered by him in lieu of the developments rights under the Development Agreement dated 27.11.2014.

There are no reasons to entertain the present writ application - application dismissed.

AI Summary

Reverse charge on transfer of development rights may apply, with time of supply typically near project completion. A joint development agreement to develop and sell plots raises GST questions: an unregistered developer will generally need registration when the taxable project nears completion though may register earlier to claim credits; transfer of development rights and related development services can attract reverse charge irrespective of the transferor's registration; time of supply for RCM is interpretative but is commonly viewed as near project completion or at handing over possession; valuation for RCM typically reflects the developer's proportionate share of fair market value of land rights, while sale of land remains non-taxable though development services remain taxable.