Valuation of land under GST for sale of residential/commercial property
In the matter of M/s Karma Buildcon:- Advance Ruling No. GUJ/GAAR/R/33/2020 dated 02-07-2020
Background:-
- The applicant is engaged in the business of developing residential/commercial property on purchased land. The applicant constructs such residential/ commercial property by engaging labour, machinery for the purpose and transfers such property to the buyers. In this process, it enters into agreement with prospective buyers for sale of residential/commercial property inclusive of land or undivided share of land.
- The applicant submitted that the 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- IT (Rate) both dated 28.06.2017 as 1/3rd of the value, because in applicant’s case the cost of land is distinctly determinable and is more than 1/3rd of the consideration value of sale of property.
- The applicant further submitted that value of land can not be same at all places. It varies from place to place. In view of that, a uniform deduction for land @ 1/3rd as prescribed by the notification is contrary to the ground realities. More so, when in applicant’s case cost of land is distinctly ascertainable and much more than 1/3rd of the total value to be realized of the constructed residential/ commercial property, actual amount of land cost needs to be allowed to be deducted.
Question before Authority: -
In the case of construction of residential/ commercial complex, the builder charges an amount which is inclusive of land or undivided share of land. As per the Notification No. 11/2017- CT (Rate) and 08/2017- IT (Rate) both dated 28.06.2017, the land value is deemed to be 1/3rd of the total value including land value and GST is payable on the balance amount. But in the applicant’s case, the value of land is clearly ascertainable. In that case, can actual cost of land be deducted for the purpose of arriving at the taxable value of supply?
Answer:- The value of land shall be arrived in terms of deeming provision of Para 2 of Notification No. 11/2017-CT (Rate) dated 28.06.2017, as amended by Not. No. 1/2018- CT (Rate) dated 25-01-2018. In view of Authority, the applicant’s contention that actual cost of land be allowed as deduction from the transaction value of sale of residential/ commercial property is not tenable in view of above notifications and is beyond the purview of legality.
The Notification clearly provides as below:-
“In case of supply of service specified in column (3) of the netry at item (i) against serial no. 3 of the Table, involving transfer of property in land or undivided share of land, as the case may be, the value of supply of service and goods portion in such supply shall be equivalent to the total amount charged for such supply less the value of land or undivided share of land, as the case may be, and the value of land or undivided share of land, as the case may be, in such supply shall be deemed to be one third of the total amount charged for such supply.”
In para 2 of Notification No. 11/2017- CT (Rate) dated 28.06.2017, as amended vide Notification No. 1/2018 C.T. (Rate) dated 25-01-2018, there is deemed provisions that the value of transfer of land or undivided share of land, as the case may be, and the value of such transfer of land or undivided share of land, as the case may be, in such supply shall be deemed to be 1/3rd of the total amount charged for such supply.
Accordingly, the applicant contention to allow the deduction of actual value of land from the sale value on the grounds that their land value is ascertainable is not legal.
