GST not on Schedule III
Case Title | Assistant Commissioner |
Court | Karnataka AAAR |
Honorable Judges | Member Ranjana Jha & Member Shikha |
Citation | KAR/AAAR/02/2023 2023 (2) GSTPanacea 15 HC Karnataka |
Judgement Date | 14-Febuary-2023 |
Council for Petitioner | N.Sundaram |
Council for Respondent | NA |
Section | Section 101,100,97,12(b) |
In Favour of | In Favour of Appellant |
The Karnataka Bench of Member Ranjana Jha & Member Shikha C has held that sale of land developed by the Respondent is covered within the scope of the term ‘sale of land’ as mentioned in entry 5 of Schedule III does not attract GST. Bench reject the appeal filed by the Assistant Commissioner of Central Tax, Bangalore South Commissionerate and uphold the ruling given by the Authority for Advance Ruling.
FACTS OF THE CASE
Ms. Rabia Khanum, (hereinafter referred to as ‘Respondent’), is a un registered individual who owns three acres of land at Sy.No.61/8 (old Sy .No.61/1), Bagganadu Village, J.G. Hali Hobli, Hiriyur Taluk, Chitradurga District and intends to convert this land for residential usage by forming small plots of land (residential sites) and sell the plots to individuals.
The Respondent claims that they will be developing the land as per regulations of the District Town and Country Planning Act (DTCPA), The Karnataka Real Estate Regulation Act and other zonal regulations that would be applicable while obtaining sanction of the plan
The Respondent filed an application for Advance Ruling under Section 97 of the CGST Act, 2017 in respect of the following questions:-
- Whether GST is applicable for the consideration received on sale of sites? If yes, at what rate and on what value?
- Whether GST is applicable for the advance received towards sale of site? If yes, at what rate and on what value?
- Whether GST is applicable on sale ofplots after completion of works related to basic necessities?
- If GST is chargeable on any of these transactions, can the applicant collect the GST from the prospective buyers?
- If GST is chargeable on any of these transactions whether the applicant is eligible for claiming Input Tax Credit that they pay on the expenses they incur on development?
The Authority for Advance ruling examined the case of the Respondent and vide ruling No. KAR/ADRG 31/2022 dated 8th September 2022 and after taking into consideration the CB1C Circular No.177, dated 3rd August 2022, has passed the ruling as under:-
- GST is not applicable for the consideration received on sale of site.
- GST is not applicable for the advance received towards sale of site.
- GST is not applicable on sale of plots/sites even when they are sold after completion of works related to basic necessities.
- In view of the ruling given at question (i), the questions (iv) and (v) of the application becomes redundant.
The jurisdictional CGST officer reviewed the impugned order passed by the Authority and being aggrieved by the ruling passed, filed an appeal
The Appellant Department submitted that the clarification given in Circular No 177/09/2022 dated 3rd August 2022 is only regarding developed land: that the Circular is silent about taxability of supply of development of land by the developer himself; Therefore, the sale of land is not on ‘as is where is’ basis and that the development of land before the sale of land is a supply of service.
The Appellant Department submitted that the Respondent is the owner of the land who develops the land with the required infrastructure and after this development, she sells the developed land as plots; that the sale price includes the cost of the land as well as the cost of common amenities; that the activity of sale of developed plots would be covered under the clause ‘construction of a complex intended for sale to a buyer’; that the activity of the Respondent is covered under ‘construction services‘ and GST is payable on the sale of developed plots in terms of CGST Act/Rules and relevant Notifications issued
In other words, GST is payable on entire consideration received by the developer even after completion, if agreement is entered into before completion. GST is also payable on the advance received towards sale of site in terms of Section 12(b) of CGST Act @18% on the gross value of advance
GST not on Schedule III
COURT HELD
Considering the facts as recorded, held that the owner of the land is developing the land not at the behest of the buyer and not because the purchaser has requested for any service from him but because it is required of him by law to develop the land in order to sell the plots
The Board’s Circular No 177/09/2022 dated 3rd August 2022 at Para 14.3 (reproduced at Para 20 ante), clarifies that sale of developed land does not attract GST. The entry No 5 of Schedule III to the CGST Act states that ‘sale of land’ is neither supply of goods or services.
Bench held that sale of land developed by the Respondent is covered within the scope of the term ‘sale of land’ as mentioned in entry 5 of Schedule III.
Bench reject the appeal filed by the Assistant Commissioner of Central Tax, Bangalore South Commissionerate and uphold the ruling given by the Authority for Advance Ruling in KAR ADRG 31/2022, dated 8th September 2022
GST not on Schedule III
ANALYSIS OF THE JUDGEMENT
The Board’s Circular No 177/09/2022 dated 3rd August 2022 at Para 14.3 (reproduced at Para 20 ante), clarifies that sale of developed land does not attract GST.
The entry No 5 of Schedule III to the CGST Act states that ‘sale of land’ is neither supply of goods or services. The term “Sale” has not been defined in the GST law but has been defined in Section 54 of the Transfer of Property Act, 1882 as “transfer of ownership in exchange for a price paid or promised or part-paid and part-promised. ‘. The said Section 54 also states that such transfer, in the case of tangible immovable property of the value of one hundred rupees and upwards, can be made only by a registered instrument.
Therefore, the term ‘sale of land’ as mentioned in entry 5 of Schedule III refers to the transfer of title in the land by way of registration as per the Registration Act, 1908. This transfer of title in the land/plot cannot take place before the land is developed with the required infrastructure and amenities, as the Planning Authority, in terms of Section 17 of the KTCPA (reproduced in Para 15 ante), will not issue the layout plan unless the development is complete. Further, without the layout plan issued by the Planning Authority, the local authority will not issue the Khata for the plot and in the absence of the Khata, the registration process for transfer of title from the seller to the buyer will not take place. On a co-joint reading of all the above provisions, Bench hold that sale of land developed by the Respondent is covered within the scope of the term ‘sale of land’ as mentioned in entry 5 of Schedule III.
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