Land Development does not constitute Sale, Taxable at Transaction Value actually Paid: AAR [Read Order]

The Authority on Advance Rulings (AAR) in Karnataka held that land development does not constitute a sale and is hence taxable at the transaction value actually paid of payable of the service as under section 31 and 15 of the Act.

The Authority headed by Sri. Harish Dharnia and Dr.Ravi Prasad M.P. made the relevant ruling while considering the application of M/s. Maarq Spaces Pvt. Ltd.

The applicant herein entered into a joint development agreement with landowners of properties to develop plots. The main activates of the applicant includes laying sanitary pipes and drains, etc. and also bifurcation the land into sites and amenities for a share of the revenue from sales of the plot.

The applicant contended that 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 serial number 5 of Schedule III of the CGST Act, 2O17. The applicant further contended that the activity of development work carried out in respect of the land is an activity incidental to the sale of land.

The Authority however held that the applicant is a land developer and the that the core competence of the applicant lies in the field of converting a raw piece of land into a well-developed residential layout by engaging themselves extensively in activities such as survey of the land, preparing a detailed map of the proposed layout, clearing/leveling the site, carrying out the construction of roads, laying of sewage/water pipelines, designing and creating common amenities etc.

The Authority ruled that since “the applicant has no right over the land and consequently the applicant cannot claim to be engaged in the activity of the sale of land as envisaged in the provisions of entry at Serial number 5 of said Schedule III”. The Authority also added that the activities are undertaken by the applicant amount to a supply of service to the landowners and is liable to be taxed appropriately under the provisions of the CGST/KSGST Acts.

While discussing on the question of taxable value, the Authority held that, “the Consideration for a service is the total value that the service provider gets in the deal and not what the service provider expends for the provisioning of the service”. The Authority also ruled that section 31 and 15 would apply here and that the value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply where the supplier and the recipient are not related and the price is the sole consideration.