Blog No. 37: No GST on sale of plots with amenities

Authority for Advance Ruling in the State of GOA in a case held that sale of land with basic amenities such as electricity poles, drainage line does not constitute supply. A very welcomed decision but still the taxpayers are advised to plan their transactions/agreements wisely. The authorities in another States have ruled against the assessee in past.

Read about the case [M/S. Shantilal Real Estate Services, AAR Goa reported as 2022 (1) TMI 659] below:

Facts of the Case

1. The applicant has by way of sale deeds acquired the parcels of land proposing it to sub divide the larger parcel of land into smaller plots for sale to buyers.
2. The applicant has undertaken two projects, one requiring subdivision of plots while other require subdivision in addition with construction of new roads and drains and realignment of electricity poles.
3. No construction of building or structures will be done under the project.
4. The sale is only of the plots of land and roads, open spaces etc. are gifted to the Authority being in the nature of public utility.

Question for Ruling

(a)  Whether sale of plots is a supply.

(b)  If yes, whether it is a supply of goods or services and under which category it falls.

(c)  The valuation of the supply, if applicable.

(d)  Rate of tax as applicable.

(e)    Abatement if any.

Submissions by the Applicant

1. As per Para 5 to Schedule III of the CGST Act, sale of land is fully excluded from the ambit of GST law as it is neither a supply of goods nor a supply of services.
2. Further, the plot of land is sold based on its actual measurement and not on the basis of any built-up area/super built up area or carpet area and without any construction of any buildings or structure. Hence, it would be outside the scope of Para 5b of schedule II.
3. If for argument’s sake, development of plots were to be treated as a composite supply, land being the principle element in the supply, it would have to be the determinant of the applicable tax rate. Since land is not a supply, thus entire supply is not a supply or at the very minimum not a taxable supply.
4. Also, if development of plots is to be treated as supply by virtue of para 5b of schedule II, then the type of project, tax rate and abatement thereon cannot be determined as there is no construction of buildings or structures.
5. If residual manner of valuation is adopted then cost of development plus reasonable margin can be adopted as the value of supply and the remaining portion of the total consideration for sale of the plot received will be treated as value of the land and input tax credit on development service shall be availed.

Findings of the AAR

1. Schedule II cannot be applied as roads, poles or drainages constructed by seller of land are at no time transferred to the purchaser of sub divided developed plot and will be gifted to the local authority.
2. Probable plot buyer cannot opt to buy only plot without amenities. In future, plots will be sold as particular sq. mts. in case plot owner intends to sell plots purchased.
3. Since no structure is being erected nor construction of facilities such as gyms, clubhouse etc. in the nature of complex, building, civil structure or part thereof are being undertaken, it can be concluded that the object for sale is land.

Our Remarks

1. The issue is a widely contested issue.
2. Authority for Advance Ruling in the State of Gujarat in the matter of Satyaja Infratech vide order dated 20.09.2019 held that if the land has basic amenities, then GST will have to be paid on selling it.
3. Though the decision is being welcomed but is advised to the taxpayers to plan this transaction is such a manner wherein the charges for development of area, and sale of plot is separately recovered. This would ensure that entire transaction value is not made subject to GST.