The Odisha Authority for Advance Ruling ( AAR ) ruled that sale of land and duplex construction on same land executing two separate agreements attracts an effective rate of 5% Goods and Services Tax ( GST ) after deducting 1/3 towards land cost from the total consideration.
The Applicant, M/s NBER DEVELOPERS LLP engaged in Real Estate & Construction since its incorporation in 2018, has initiated a land plotting project in Jatni, Odisha, with plans to construct duplex houses on the same land. Two separate agreements will be entered with customers, one for land sale and the other for duplex construction, excluding “affordable residential apartments.”
The Applicant sought clarification on the GST rate for the sale of land and construction of duplexes under separate agreements, and the admissibility of input tax credit.
The GST rates for residential apartments, revised in the 34th GST Council meeting, apply a GST of 7.5% (CGST 3.75% + SGST 3.75%) for non-affordable residential apartments, effective after deducting 1/3rd towards land cost. However, Schedule III of the CGST Act exempts the sale of land from GST. Circular No. 177 clarified that developed land sales are also exempt from GST. The Applicant argues for separate treatment of land sale and construction contracts.
The Applicant’s contention is that land sale and construction contracts are distinct. The sale of land, according to Schedule III, attracts no GST, while construction contracts are subject to an 18% GST rate.
It was submitted that land sale and construction contracts should be treated separately. Once a customer purchases land and registers it, they are the landowner, not bound to the same developer for construction. Separate approvals are needed for individual house constructions. Developers may engage in land development activities and later sell plots, as clarified in Circular 177, stating that land sale is neither a supply of goods nor a service.
The Applicant cited rulings from Haryana AAR, Goa AAR, and Karnataka AAR, stating that the sale of developed plots is not taxable under Entry 5 of Schedule III. Thus, plots sold by developers to customers, whether before, during, or after development, are exempt from GST according to the cited Circular.
Upon examination, it was revealed that the Applicant acquired land for commercial exploitation through a General Power of Attorney. The Memorandum of Agreement outlined construction activities and land development. The project is registered under RERA, distinguishing it from mere land sales.
The bench of Abhay Gupta and P K Mohanty ruled that “in view of Notification No. 03/2019-C.T. (Rate) dated 29.03.2019, the Applicant is liable to pay GST @7.5% (CGST @3.75% + SGST @3.75%) after deducting l/3rd towards land cost from the total consideration i.e. effective rate of 5% GST on the full consideration received towards land and Duplex and is not eligible for ITC on any inward supply of goods and services.”
Thus, the applicant is liable to pay an effective rate of 5% GST.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
