Applicability of GST on Sale of Land

In an application filed before AAR under GST, Gujarat by Shree Dipesh Anilkumar Naik [2020 (6) TMI 448]

Applicant is the owner of the land, who develops the land with an infrastructure such as drainage line, water line, electricity line, land levelling, etc. as per the requirement of the approved Plan Passing Authority (i.e. Jilla Panchayat).

Coverage under approved Plan Passing Authority (i.e. Jilla Panchayat)

  • Forming land into layout after obtaining necessary plan approval from the Development Authority, get all other permission required to take up, commence and complete what would be the layout, comprised of individual sites.
  • Levelling the land, construction of boundary wall & construction of roads.
  • Laying of underground sewerage lines with sewer treatments plant etc.

Query Involved

Whether GST is applicable on sale of plot of land with infrastructure as per approved Plan Passing Authority?

Discussion &Findings

  • Schedule III to GST Law sets out the activities or transactions which are treated as neither a supply of goods nor as supply of services. Therein entry 5 covers sale of land, which is excluded from GST levy.
  • Here, the substance of agreement between the parties is important.
  • The plotted development is a scheme which involves forming land into layout after obtaining necessary plan approval from the Development Authority.
  • The sellers charge the rates on super built-up basis and not the actual measure of the plot i.e. such common amenities, roads, water tank and other infrastructure is an intrinsic part of the plot allotted to the buyer.
  • The above indicates that sale of developed plot is not equivalent to sale of land but is a different transaction. Sale of such plotted development tantamount to rendering of service. This view has also been taken by the Supreme Court in the case of M/s Narne Construction P Ltd. reported at 2013 (29) STR 3 (SC).

Held that

  • Activity of the sale of developed plots would be covered under the clause ‘construction of a complex intended for sale to a buyer’. Thus, the said activity is covered under ‘construction services’ and GST is payable on the sale of developed plots in terms of CGST Act / Rules and relevant Notification issued time to time.
  • Where the nature of activity is that of ONLY sale of immoveable property of plot, it is excluded from GST levy (Schedule-III).

Writers Enlightenment

AAR is strictly based on one aspect. If we go by the concept of “Composite Supply” then principal supply shall be the main point to emphasis. There was no discussion on Composite supply in the application. Sale of land is the principal supply and ancillary activity has been done to make the land saleable.

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