JDA is always considered as a grey area under GST, as many experts have different view on this transaction. But sale of land is very clear aspect, covered under schedule III of CGST Act,2017, which specify that selling of land does not attract GST as it is treated neither treated as supply of goods nor it supply of service.
Even, after completion of the structure, sale of land along with constructions upon it, whether it is residential or commercial would not attract GST as it is sold as an immovable property, as per Schedule -ll.
|Joint Development Agreement|
|First Model||Second Model|
|Landowner(s) and developer(s) come together and jointly develop a property. It helps the developers to ease out funding requirement towards land acquisition as also share economic risk and rewards of the project with the||A piece of own land is developed by the land owner himself and sells plots thereafter to prospective buyers.|
Concept of JDA:
Recently these issues have been subjected to scrutiny by various advance ruling authorities, under section 98 of the CGST/SGST Acts. In both situations cited above, GST is applicable as per the advance rulings available for the time being.
RECENT ADVANCE RULINGS ON GST IN JOINT DEVELOPMENT VENTURES
The recent ruling of M/s Vidit Builders dated 06.01.2020 (Order no. 02/2020), provides an insight on the applicability of GST on JDA.
Facts of the case:
- The applicant is a partnership firm and engaged in the business of real estate development and is developing a colony by executing JDA with the landowner M/s Star Construction. In this project developer will develop and provide the following common facilities in the colony.
- Construction of concrete roads and compound walls.
- Development of garden.
- Construction of drain and water supply system.
- Erection of electric poles and transformers etc.
- With due permission from the local municipal corporation. Developer will sale vacant plots to individual buyers and will not do any construction activities on these plots.
Questions raised before the authority:
In view of the above, the applicant has sought in respect of the following question.
- Whether it (sale of vacant plots) is covered under Schedule III (Sale of Land) or classified under works contract.
- If it is covered under works contract, how the valuation would be done.
- Whether residual rules i.e. Rule 30/31 provided under GST valuation rules can be considered or not?
- He has entered JDA with the landowners in terms of the agreement the he undertakes the development of plots which also concludes construction of common facilities. The revenue accruing from the sale of the plots is shared as per the agreement.
- The agreement further provides that once the project has been developed the applicant will ensure the sale of the plots. For selling any expenses incurred by the applicant will be recovered by the applicant from the purchaser and would be shared between landowner and applicant in a 60:40.
- They are primarily engaged in the sale of land and the said activity is not liable to be taxed in terms of the provisions contained in Schedule III. Therefore,merely by developing common facilitieslike drainage, electricity, road facilities, garden development etc should not attract GST.
- Further development activities should not be covered under the ambit of GST. Since the dominancy in the transaction is in respect of land/plots with ancillary services (Common facilities).
- Anyone who does not possess any title of the land cannot be considered as the seller.
- Activities to be undertaken by the applicant are in nature of development of land into residential layout. Sale is entrusted to the applicant as the applicant has invested huge sums in the development of the land. The landowner remains the landowner till the property is transferred in the name of purchaser.
- Th authorization clause clearly shows that the activities are to be done by the applicant on behalf of the landowner. The applicant does not become the landowner himself & consequently he cannot claim to be engaged in the activity of sale of land.
- The activities performed/to be performed by the applicant cannot be classified under schedule III. It amounts to supply of services under works contract and is liable to be taxed under GST Act.
- Rule 31 applies in the instant case and the value of supply is equal to the amount received/receivable by the applicant which is equal to 40% of the amount on which the plots are sold.
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CA Tarun Kapoor
AKGVG & Associates