TaxTMI 
TaxTMI 
2019 (11) TMI 994
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....t Agreement on 08/ 11/2017 with Landowners for development of land into residential layout along with specifications and amenities. The consideration was agreed on revenue sharing basis in the ratio of 75% for Landowner and Agreement Holder and 25% for Applicant. Cost of the development shall be borne by Applicant. Pursuant to JDA, Applicant had entered into an agreement with customers for sale of developed plots for consideration. 3. In view of the above, the applicant has sought advance ruling in respect of the following question: 1. Whether the activity of development and sale of land attract tax under GST? 2. If the answer to the question no. 1 is yes, for the purpose of taxable value, whether provision of rule 31 can be made applicable in ascertaining the value of land and supply of service? 4: APPLICANT'S INTERPRETATION OF LAW 4.1 The Applicant submits that, Section 9 of the Karnataka Goods & Service Tax Act, 2017 (KGST Act) and the Central Goods and Service Tax Act, 2017 (CGST Act) are the main charging sections which levy tax on all intra-state supplies of goods or service or both. The word "Supply" is defined in Section 7 of the Act as under;....
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....or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply" Section 2(90) ""Principal Supply" means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary." 4.5 The applicant also submitted that on combined reading of the above provisions, it is understood that, where transaction or activity involves supply of two or more supplies and one of which is principal supply i.e., a supply which constitutes the predominant element when compared to other supplies. In such situation each supply will not be treated as separate supply, but become single supply one is called predominant supply, and other supplies become incidental or ancillary to the predominant supply. Applicant further submitted that applying the same principle to the facts of the Applicant where the predominant supply is land and development activity is incidental to the sale of land. Moreover, the development activity is naturally bundled with sale of land in other words it....
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....ll apply also in the case of streets referred to in sub-section (2) and all the particulars referred to in that sub-section shall be subject to the approval of the Authority. (4) Within six months after the receipt of any application under sub-section (2), the Authority shall either sanction the forming of the extension or layout to be in conformity with the guidelines to be issued by the Government or making of street on such conditions as it may think fit or disallow it or ask for further information with respect to it. (5) The Authority may require the applicant to deposit, before sanctioning the application, the sums necessary for meeting the expenditure for making roads, side drains, culverts, underground drainage and water supply and lighting and charges for such other purpose as such applicant may be called upon by the Authority, provided the applicant also agrees to transfer the ownership of the roads, drains, water supply mains, parks and open spaces, civic amenity areas laid out by him to the Authority permanently without claiming an compensation therefor." 4.7 In order to comply the above provisions, the applicant had executed a relinquishing deed on....
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....t excessive of immoderate. 5.6 Applying the above principle to the facts of the case, the applicant is of the view that, in order to comply the provision of section 7 read with entry 5 of Schedule Ill, exclusion of land value based on market value from total consideration or levy of tax only on the development charges based on the market value or cost plus reasonable profit shall be the reasonable means consistent with the principle. PERSONAL HEARING: / PROCEEDINGS HELD ON 12.06.2019 6. Sri. Sanjay Dhariwal, Chartered Accountant and the duly authorised representative appeared for personal hearing proceedings on 12.06.2019, before this authority and reiterated the submissions already made along with the application. FINDINGS & DISCUSSION: 7. The following facts of the case along with the submissions of the applicant have been examined and considered in the matter. 7.1 The applicant has entered into a joint development agreement with the landowners. In terms of the agreement the applicant undertakes the development of plots. He also constructs roads, lays sanitary pipes and drains, etc and also bifurcates the land into sites and amenities. The revenue accruing from ....
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....the landowners that all the cost of the execution of the project subsequent to the receipt of the Sanctioned plan, including costs like fee payable to architects, engineers, workmen etc shall be borne by the applicant. The applicant is entitled to recover these costs from the purchasers of the plots. The cost payable for obtaining the licences and approvals shall be borne by the landowners. 7.7 The agreement further provides that once the project has been developed the applicant will ensure the sale of the plots within the specified period. Para 8 of the agreement provides for the revenue sharing arrangement. The applicant is entitled to a revenue share equal to 25% of the sale value of each plot. 7.8 It is further seen in the agreement in Para 10.7 that the applicant shall indemnify and hold the landowners harmless against any loss or liability or claims of persons with whom the Developer would have contracted for development/ execution, sale, lease or transfer or otherwise in relation to the project. 7.9 Para 11.1 provides that the landowner alone shall be responsible for obtaining the approvals for the project. Further, para 11.5 provides that in so far as the title of ....
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.... does not possess any title of the land cannot be considered as the seller. Such a person may have a role in the activity of sale but he cannot claim himself to be the seller. In the instant case the applicant understands that they have a right to 25 % of the total number of plots developed and the sale of these plots, as well as those of the landowners share, is covered under serial number 5 of Schedule III. We do not agree with this interpretation of the agreement by the applicant. We deconstruct the understanding and the arguments professed by the applicant in the following discussion. 9.2 The first and foremost point to understand is the actual nature of the activities required to be performed by the applicant in terms of the agreement. In this regard our first observation is that in Para 9.4 (a) the applicant represents himself before the landowners as a person having experience and expertise as a land developer. This representation is of critical importance. This shows that the core competence of the applicant lies in the field of converting a raw piece of land into a well developed residential layout by engaging themselves extensively in activities such as survey of the l....
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....in accordance with the approvals. ln such a scenario the claim of the applicant that they are sellers of land is hollow and devoid of merit. At best the applicant assists the landowners in the sale of plots which all belong to the landowners. The applicant has no right over the plots. The applicant only has a right to the extent of 25% of the amounts received on account of sale of the plots towards the cost of development incurred by them. 9.6 In Para 6 it is provided that the entire cost of development shall be borne by the applicant. This shows that the applicant is engaged in the activity of providing a certain service to the landowners and the landowners will compensate the applicant for the same in accordance with the terms of the agreement. 9.7 The revenue sharing arrangement in Para 8 of the agreement indicates that the applicant gets an amount on the sale of each individual plot. This shows that there are no fixed earmarked plots to which the applicant can claim an entitlement. Further the amount received on the sale of the plots is credited to an escrow account and then only the same is divided. This further shows that the applicant is not the owner of the plots and ....
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....onsidered as a supply and is held taxable, then the taxable value of their supply cannot be determined in terms of Rules 27 to 30 and shall consequently be determined by Residual method under Rule 31 of the CGST Rules, 2017. 10.2 The terms of the agreement at Para 6 provide that the cost of execution of the development of the land including the cost of fee payable to the architects, contractors, staff, workmen etc shall be borne by the applicant. Further Para 6.1 provides that the applicant recovers the cost from the purchasers of the plots. In this regard the provisions of Para 8 dealing with revenue sharing are worth noting. Para 8.1 provides that as and when any plot is sold, the proceeds shall be divided between the applicant and the landowners in the given ratio. This shows that the charges that the applicant receives for the services provided by them to the landowners for the development of the land are equal to their revenue share when the plots are sold. Now we look at the definition of 'Consideration' as enumerated in Section 2(31) of the Act. It is stated therein that "consideration" in relation to supply of goods or services or both includes any payme....
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....r both cannot be determined under rules 27 to 30, the same shall be determined using reasonable means consistent with the principles and the general provisions of section 15. 10.5 Section 15, as already discussed in para 10.3 above, provides that the value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply where the supplier and the recipient are not related and the price is the sole consideration. In the instant case what the applicant receives as their remuneration for the provision of the services of development of the land and their subsequent activities related to the sale of the plots is an amount equal to 25% of the open market value of each plot. The arrangement is that the applicant shall get the amount only as and when the plots are sold. As already discussed earlier this arrangement, where the applicant gets paid for their services only upon the sale of the plots, enables the landowners to not to spend their financial resources to pay the applicant for their services. The applicant gets 25% of the amount collected from the plot purchasers. This amount constitutes their consideration ....