TaxTMI 
TaxTMI 
2023 (2) TMI 929
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....of Central Tax, Bangalore South Commissionerate, (herein after referred to as Appellant/Appellant Department) against the Advance Ruling No. KAR/ADRG 31/2022 dated 8th September 2022. Brief Facts of the case: 3. Ms. Rabia Khanum, No. 19/2-6, Ranoji Rao Road. Basavanagudi, Bengaluru - 560 004 (hereinafter referred to as 'Respondent'), is an un registered individual who owns three acres of land at Sy.No.61/8 (old Sy .No.61/1), Bagganadu Village, J.G. Hali Hobli, Hiriyur Taluk, Chitradurga District and intends to convert this land for residential usage by forming small plots of land (residential sites) and sell the plots to individuals. The Respondent claims that they will be developing the land as per regulations of the District Town and Country Planning Act (DTCPA), The Karnataka Real Estate Regulation Act and other zonal regulations that would be applicable while obtaining sanction of the plan. 4. The Respondent filed an application for Advance Ruling under Section 97 of the CGST Act, 2017 in respect of the following questions:- i. Whether GST is applicable for the consideration received on sale of sites? If yes, at what rate and on what value? ii....
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....has stated that all unsold plots will be put to sale after completion of the works related to basic necessities, handing over of works of the roads, drains, parks, playgrounds, bus stops, etc to the authorities. 6. The Authority for Advance ruling examined the case of the Respondent and vide ruling No. KAR/ADRG 31/2022 dated 8th September 2022 and after taking into consideration the CB1C Circular No.177, dated 3rd August 2022, has passed the ruling as under:- i. GST is not applicable for the consideration received on sale of site. ii. GST is not applicable for the advance received towards sale of site. iii. GST is not applicable on sale of plots/sites even when they are sold after completion of works related to basic necessities. iv. In view of the ruling given at question (i), the questions (iv) and (v) of the application becomes redundant. 7. The jurisdictional CGST officer reviewed the impugned order passed by the Authority and being aggrieved by the ruling passed, filed an appeal before us on the following grounds: 7.1. The Appellant Department submitted that the clarification given in Circular No 177/09/2022 dated 3rd August 2022 is....
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....of the CGST Act, is different from the sale of developed plots; that the sale of land referred to in Schedule III refers to sale of undeveloped land. Since the Respondent is going to undertake substantial development of the land before giving it out for sale to end customers, these development activities are covered in clause (b) of para 5 of Schedule II and will be a supply of service which is taxable. 7.3. The Appellant Department argued that the AAR has erred in holding that the sale of developed land by the Respondent is not taxable in terms of entry 5 of Schedule III of the CGST Act; that when the transaction involves a mere sale of land, the said transaction will be out of the scope of supply and will be covered in entry No 5 of Schedule III. However, in this case, common facilities are being developed by the Respondent and this activity will make it a taxable service under clause (b) of para 5 of Schedule II i.e 'construction of civil structure or a part thereof, intended for sale to a buyer'. The Appellant Department also contends that the Respondent charges the rate on super built-up basis and not on the actual measure of the plot; that the super built-up area i....
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....ion. GST is also payable on the advance received towards sale of site in terms of Section 12(b) of CGST Act @18% on the gross value of advance. 8. The Respondent filed a counter to the grounds of appeal vide letter dated 8th Dec 2022 wherein they submitted that they own 3 acres of land which they propose to convert for residential usage by forming small plots and sell to individuals; that as per the regulations, the land will have to be developed in order to obtain plan sanction; that without developing the land with basic amenities such as formation of roads, drains, laying of electrical cables, water pipes, sewerage lines, drilling borewells and constructing water tanks, the concerned authorities will not grant permission to sell the plots; that the development of basic amenities on the land will be handed over to the concerned authorities on completion and the same is not transferred to any individual; that the authority issues work order specifying the details of work that need to be done and thereafter the authority gives permission to sell . Typically, this is called release of plots for sale by the sanctioning authority. The Respondent has argued that the Appellant Depart....
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....basic amenities is not taxable in terms of entry 5 of Schedule III of the CGST Act. The Respondent also relied on the advance ruling given by Haryana AAR in the case of M/s Informage Realty Pvt Ltd and Goa AAR in the case of Shantilal Real Estate Services wherein it has been held that sale of developed plots is not taxable in terms of entry 5 of Schedule III. In view of the above, the Respondent prayed that the appeal by the Department be dismissed. 9. The Appellant Department filed additional submissions vide letter dated 4lh Jan 2023 wherein they submitted that the contention of the Department is regarding taxability of the activity of development of land and its sale before completion of development or before receipt of completion certificate from the concerned authorities. If the buyer enters into a contract/agreement with the developer, when the development of land is in progress, the activity of development is taxable. Once the land is developed and completion certificate is obtained from the relevant authorities, the property becomes a 'developed land' and the contents of Para 14.3 of the CB1C Circular 177/2022 dated 3rd August 2022 will apply. Even if the develop....
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.... Prashant, Superintendent, Bangalore South Commissionerate. The Respondent was represented by Shri. Santosh S., Authorized representative. 10.1 The Assistant Commissioner of Central Taxes representing the Appellant Department stated that the Department is aggrieved by the ruling given by the lower Authority holding that GST is not applicable on the consideration received for the sale of sites and on the advance received towards sale of site. The Appellant submitted that the lower Authority has relied on the Board's Circular No 177/09/2022 dated 3rd August 2022 to hold that the sale of developed land is not taxable to GST; that the lower Authority has erred in not taking note of the fact that the land sold by the Respondent is not on 'as is where is' basis but is sold by undertaking certain development activities on the land; that only when land is sold as it is or after development on receipt of the completion certificate it is not liable to GST as it is clearly covered within the scope of entry 5 of Schedule III of the CGST Act. He submitted that the clarification given at Para 14.3 of the impugned Board's Circular is applicable to the sale of fully developed la....
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....Authority and submitted that the Respondent is the land owner who is selling the land and the development activities are undertaken by her at the behest of the local authorities; that the developed infrastructure is handed over to the local authority on completion of development; that the infrastructure is not sold to the purchaser of the land; that the legislature never intended to impose tax on the sale of land in any form and it is for this reason that Schedule III specifies that sale of land will neither be a supply of goods or service; that the Circular No 177/09/2022 also confirms this intention of the legislature not to tax land whether developed or undeveloped. On a specific query by the Bench to comment on Para 14.4 of the Board's Circular wherein it is stated that any service provided for development of land, like levelling, laying of drainage lines shall attract GST, he submitted that the said para relates to the services received by the developer of the land; that on such services received by the Respondent from contractors who undertake the development work, GST is payable since it a service supplied by the contractors to the developer. However, the Respondent as o....
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....r authority to seek a ruling on whether the consideration received for the sale of sites is taxable; whether the advance received towards the sale of site is liable to GST and whether GST is applicable on sale of plots after completion of development works. The lower authority referred to entry 5 of Schedule III of the CGST Act and the clarification given by the CBIC vide Circular No 177/09/2022 dated 3rd August 2022 and held that the activity of sale of land by the Respondent, the receipt of advances towards the sale of sites and the sale of plots after completion of development works, are all not leviable to GST. Aggrieved by this ruling, the Department is before us in appeal. 14. We find that the Appellant Department is aggrieved only with respect to the advances received by the Respondent. It is the case of the Department that the advances received by the Respondent from prospective buyers before completion of the development works is liable to tax at the hands of the Respondent under the category of Works Contract since, carrying out the development activity before the sale of the site is akin to rendering a service to the purchaser. The Department has no grievance with the....
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....ithout modification or subject to such modifications and conditions as it considers expedient or may refuse to give sanction, if the planning authority is of the opinion that such plan is not in any way consistent with the proposals of the Master Plan. Provided that where the Master Plans are not finally approved, in such cases the Planning Authority may sanction the layout plan as per the guidelines issued by the Government from time to time. (2A) If the Authority decides to sanction the layout plans under sub-section (2), it shall sanction provisional layout plan in accordance with such rules as may be prescribed for demarcation and development purposes showing the sites, street alignment, park and play ground and civic amenity area and any other infrastructure facility including the arrangement to be made for leveling, paving, metalling, flagging, channeling, sewering, draining, street lighting and water supply to the satisfaction of the Planning Authority and local authority. One copy of such plan shall be marked to the jurisdictional local authority. The owner shall relinquish the roads, parks and play ground to the local authority' and Civic Amenity'....
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.... a of such sites for registration purpose under the Karnataka Stamps Act, 1957 (Karnataka Act 34 of 1957) and the Registration Act. 1908 (Central Act XVI of 1908). (iii) The Planning Authority shall ensure the completion of all development works including all infrastructure facilities as specified under sub-section (2-A), on conducting inspection by the concerned Authority or Agency or Department within three years from the date of approval of the provisional layout plan. In case the completion certificates for completion of all development works are not obtained within three years from the date of approval of the provisional layout plan, the Planning Authority may for the reasons to be recorded extend the period for completion of development by a further period of one year. (iv) On completion of all development works and obtaining the completion certificates within three years or within the extended period and obtaining the certificate of completion from the concerned Authority or Agency or Department including the development of the park, playground and civic amenity sites, the Planning Authority shall approve the final layout plan releasing the remaining sixty ....
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.... or pull down any work or restore the land to its original condition. (5) Any expenses incurred by the Planning Authority under sub-section (4) shall be a sum due to the Planning Authority under this Act from the person in default. (6) Any person aggrieved by the decision of the Planning Authority under subsection (2) or sub-section (4) may. within thirty days from the date of such decision appeal to such authority as may be prescribed. (7) The prescribed authority may after giving a reasonable opportunity of being heard to the appellant and the Planning Authority, pass such order as it deems fit. as far as may be. within four months from the date of receipt of the appeal. 16. From the above provisions, it is clear that, every person who intends to develop a layout shall submit a detailed plan of the layout, showing the roads, plots and areas earmarked for civic amenities and parks any other infrastructure facility including the arrangements to be made for levelling, paving, metalling, flagging, channeling, sewering, drainage, street lighting and water supply. The owner shall relinquish the areas earmarked for roads, parks and play ground to the local ....
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....ion of development works. A copy of the final layout plan will be issued by the Planning Authority for transfer of title of the sites by registration and issuance of Khata by the local authority. 17. As can be seen from the above provisions, the transfer of title in the land to individual buyers can be done by the developer only after completion of the development works. The above provisions also make it clear that the owner of the land carries out the required development works under the supervision of the concerned Authority/Agency/Department and a certificate of completion is obtained from the concerned Authority/Agency/Department. The areas where the development works relating to roads, parks and play grounds are undertaken, are handed over by the owner to the local authority and the development works relating to civic amenities such as drainage, water supply, electricity, sewerage facilities are handed over by the owner to the Planning Authority. The ownership of the developed roads, drainage, electricity and other civic amenities is not transferred to the buyer but the ownership lies with the concerned Authority/Agency/Department. All that is available for the owner/develo....
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.... to the buyer since the construction activity is done at the behest of the buyer. The buyer approaches the developer and pays advances with the intention of getting an apartment built for him. Therefore, until the completion certification is received from the competent authority, the developer is rendering a service of construction to the buyer. However, any buyer who approaches a developer for purchase of an apartment after receipt of the completion certificate, is not getting any service from the developer and is paying the consideration for the purchase of building which is the ready to move in apartment. This transaction is not subject to GST in terms of entry 5 of Schedule III of the CGST Act. 19. In the case before us the situation is very different. The owner of the land is developing the land not at the behest of the buyer and not because the purchaser has requested for any service from him but because it is required of him by law to develop the land in order to sell the plots. The development of land undertaken by the owner is an activity incidental to the sale of land. The transaction between the purchaser and the owner of the land is a transaction purely for the sale ....
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.... regarding applicability of GST on sale of land after levelling, laying down of drainage lines etc. 14.2 As per SI 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. It is a well settled law that Circulars are binding on the Department and the Department cannot go against what is already clarified in the Circulars. The Supreme Court in the case of Paper Products Ltd vs Commissioner of Central excise reported in 1999 (112) ELT 765, has held that Board's....
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....e cannot adopt the ratio of the decision given in the context of one statute to interpret another statute when both statutes are not pari materia. We also note that this was the view taken by the Gujarat High Court in the case of Munjaal Manishbhatt vs UOI (2022 (62) G.S.T.L 262 Guj) wherein one of the issues examined by the High Court was the issue of taxability on transfer of developed plot to the customer. 23. The Appellant Department has also relied on the Supreme Court decision in the case of Larsen & Turbo Ltd and Anr vs State of Karnataka to drive home the point that amounts received after entering into contract with the developer would be treated as works contract. We have gone through this decision dated 26th Sept 2013 of the Supreme Court and are unable to appreciate its relevance to the present matter. In the L&T case, the Supreme Court was examining whether the definition of 'works contract' as defined in the Karnataka Sales Tax Act was wide enough to include within its fold the construction contract entered into by L&T. In its decision, the Hon'ble Supreme Court followed the judgement given in the case of Raheja Development and held it to be a good law a....