The Gujarat Authority of Advance Ruling (AAR) ruled that the builder is required to deduct one-third value of land or undivided shares from the total value charged for the subject supply.
The applicant, M/s Karma Buildcon is engaged in the business of construction. For the purpose of the business, they buy land and develop residential/ commercial property on that land. For the purpose, they engaged Architects, consultants, structural engineers to prepare a plan for the development of residential/commercial property. The prescribed approval from various authorities are procured to develop residential/commercial property on such land.
The applicant submitted that on the basis of such plan and approvals they enter into the agreement with prospective buyers for such residential /commercial property. The agreements entered into are for inclusive of land or undivided share of land basis. The applicant constructs such residential or commercial property by engaging labor machinery for the purpose and transfers such property to the buyers.
The applicant further submitted that cost of land that is being transferred to the buyers on inclusive of land or undivided share of land basis need to be allowed to be deducted as a whole and not as provided in Notification No. 11/2017-CT (Rate) and 08/2017-I.T (Rate) both dated June 28, 2017 as one third (33.33%) of the value, because in applicant’s case the cost of Land is distinctly determinable and is more than one third (33.33%) of the consideration value of the sale of the property.
The applicant sought the Advance Ruling on the issue of what will be the value of supply for the transaction of sale of residential/ commercial property with undivided rights of land.
Further, the advance ruling was also sought on the issue that in the case of construction of a residential/commercial complex, the builder charges an amount which is inclusive of land or undivided share of land. As per Notification No. 11/2017-CT (Rate) and 08/2017-I.T (Rate) both dated June 28, 2017, the land value is deemed to be one third (33.33%) of the total amount i.e. value including land value and GST is payable on the balance amount. But in an applicant’s case, the value of Land is clearly ascertainable. In that case, the actual cost of Land can be deducted for the purpose of arriving at the taxable value of supply.
The two-member bench of Sanjay Saxena and Mohit Agarwal ruled that the value to be arrived at in terms of deeming provision of Para 2 of Notification no. 11/2017-CT (Rate) dated June 28, 2017, as amended by Notification No. 1/2018-C.T. (Rate), dated January 25, 2018.
In applicant’s case the value of Land is clearly ascertainable and the actual cost of Land can not be deducted for the purpose of arriving at the taxable value of supply.
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