GST Applicable on Construction Costs, not on Undivided Share of Land used for Construction: Gujarat HC [Read Order]

GST Applicable on Construction Costs - GST Applicable - GST - Construction Costs - Undivided Share of Land used for Construction - Undivided Share - Undivided Share of Land - Construction - Gujarat High Court - taxscan

While entertaining the writ petition, the Gujarat High Court has ruled that land costs are not subject to Goods and Services Tax; rather, only the cost of building construction is subject to the tax.

The bench of Justice J.B. Pardiwala and Justice Nisha M. Thakore ruled that Goods and Services Tax (GST) is not applicable on the sale of a flat, villa, or commercial property, the actual land value or undivided share.  Only the expenditures of construction are subject to GST and neither the value of the land nor the undivided piece of land used to construct the flat.

The applicant is a practicing advocate in the same high court and entered into an agreement with the Navratna Organisers & Developers Pvt. Ltd for the purchase of the plot of land. Further, as per the said agreement, the writ applicant was liable to pay all taxes including the Goods and Services Tax.

M. R. Bhatt, Counsel appeared on behalf of the writ applicant submitted that Section 9 (1) of the Goods and Services Tax Act is the charging Section which imposes tax on the “supply” of the goods and services. The scope of “supply” is defined in Section 7. By virtue of Section 7 (2) of the Goods and Services Tax Act, the transactions as specified in the Schedule III to the GST Act are excluded from the purview of supply.

Further stated that the sale of land is neither supply of goods nor services. The imposition of tax on consideration received towards the sale of land by virtue of delegated legislation is therefore ultra-vires to Sections 7 and 9 of the Goods and Services Tax Acts.

The petitioner asserted that if the provisions were read collectively, it would be clear that any land sales, whether or not they were developed, would not be subject to tax under the GST Acts and that the tax obligation would only apply to work done in accordance with the contract with the potential buyer.

Mr. Vyas, the counsel for the respondents submitted that the consideration as provided in the booking agreement with respect to the land and construction are decided inter se the parties and the same might not reflect the actual value of the land involved.

It was also added that the consideration provided in the booking agreement is only for the purpose of calculating the final consideration value and nothing beyond that. The final sale / conveyance deed shall also be reflecting only the final consideration amount and the stamp duty also will be paid on such consideration amount and not separately.

The High Court in support of the Supreme Court case Mafatlal Industries Ltd. v/s Union of India observed that since the writ petitioner has really paid the tax burden and the tax was paid under protest as a result of the interim decision of the Court. Thus, the applicant should be given a refund.

Subscribe Taxscan Premium to view the Judgment

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates

taxscan-loader