GST applicability on sale of vacant plot of land after developing primary amenities
Brief Facts:
- The applicant submitted that he is having a vacant land outside the municipal area for which he has obtained necessary approvals from the Jilla Panchayat. As per approval of Jilla Panchayat, the seller of land is required to develop the primary amenities like sewerage and drainage line, water line, electricity line, land levelling for road, pipe line facilities for drinking water, street lights etc.
- The applicant further submitted that they will sell individual plots to different buyers without construction on the same. He sought advance ruling in respect of his transaction of sale of vacant plot without construction but subject to provision of primary amenities.
Observations of Authority:
- Schedule-III to GST law sets out the activities which are treated as neither supply of goods nor supply of services. Therein entry-5 covers sale of land, which is excluded from GST levy.
Entry-5 reads as follows:-
“Sale of land and, subject to clause (b) of paragraph 5 of Schedule-II, sale of building.”
- From the above definition, it is clear that the transaction shall be out of GST net only if the activity is exclusively dealing with transfer of title or transfer of ownership of land, which is immoveable property or earth. Here the substance of agreement between the parties is important. Where the nature of activity is that of ONLY sale of immovable property of plot, it is excluded from GST levy.
- But in this case, the applicant is selling developed land as plots. We find that the plotted development is a scheme which involves forming land into layout after obtaining necessary plan approval from the development authorities, commence and complete what would be the layout, comprised of individual sites. In the activity of plot development, the following are done-levelling the land, construction of boundary walls, construction of roads, laying of underground cables and water pipelines, development of landscaped gardens, drainage system, water harvesting system, demarcation of individual plots, construction of overhead tanks etc. Sale of such sites is done to end customers who may construct houses/villas in the plots.
- The seller charges the rates on super built-up basis and not the actual measure of the plot. The super built-up area includes the area used for common amenities, roads, tanks and other infrastructure on a proportionate basis. Thus, in effect the seller is collecting charges towards the land as well as common amenities, roads, water tanks etc. on a proportionate basis. In other words, such common amenities, roads, water tank and other infrastructure is an intrinsic part of the plot allotted to the buyer.
- This indicates that sale of developed plots is not equivalent to sale of land but is a different transaction. Sale of such plotted development tantamount to rendering of service. This view has also been taken by Supreme Court in the case of M/s Narne Construction P. Ltd. reported at 2013 (29) STR 3 (SC).
Decision of AAR:
- Schedule-II of the CGST Act, 2017 pertains to activities or transactions to be treated as “Supply of goods or supply of services”. As per clause 5(b) of the Schedule-II of the CGST Act, 2017, construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer is a ”supply of service” and hence, is liable to GST.
- We find that the activity of sale of developed plots would be covered under clause ‘construction of a complex intended for sale to a buyer’. Thus, the said activity is covered under ‘construction services’ and GST is payable on the sale of developed plots.
ADVANCE RULING NO. GUJ/GAAR/R/2020/11
(IN APPLICATION NO. Advance Ruling/SGST&CGST/2018/AR/49)
Date: 19.05.2020
