In a bid to avoid disputes with the revenue department, the provision of advance rulings was introduced under the Goods and Services Tax (GST) law. It seeks to clarify the provisions of the GST law to cater to the problems of the businesses.
Confusions have surfaced as to the taxability and determination of taxable value in a situation where both land and superstructure attached to it is sold for a consideration. The land and its superstructure become inseparable but have completely different tax treatments in the eyes of law. This has led to an application to advance ruling by the applicant seeking to know the taxability of the aforementioned supply. The applicant also seeks to know the tax implications of the aforementioned supply, in case the agreement with the buyer is entered after part of construction is completed.
Facts of the case
The applicant is engaged in construction, development service by either buying own land or acquiring land development rights.
The applicant in question enters into the following agreements with the buyer:
- Sale of undivided and impartible share in land
- Sale of superstructure
This altogether constitutes a composite supply consisting of three components, namely
- Land on which the complex or building is constructed
- Goods which are used in construction services
- Services undertaken by the applicant directly or through other contractors
The Applicant’s Contention
The applicant has attempted to present their contention through perusal of relevant provisions of the Act.
Sale of land is kept out of the scope of ‘Supply’ in GST law, i.e., it is neither treated as a supply of goods nor as a supply of service. Therefore, any sale of undivided and impartible share in land would not be leviable to GST.
Construction of superstructure is chargeable to GST. As per the applicant, GST should be imposed only on the value of construction on or after the agreement with the buyer i.e., after deducting the value of construction already completed till the date of agreement.
Matter of Perplexity for which advance ruling applied
The issue for decision in this case regarding the value and rate of tax is faced with perplexities since the land and its superstructure becomes inseparable and separate sale of the two does not appear to be permissible. Although the laws in India recognises ‘land’ and ‘superstructure’ as separate and independent immovable property, the valuation of this composite supply will be done as per the relevant provisions of the Act.1
The taxability of construction of a complex or building has been made transparent by the law. GST will not be charged for the consideration for which certificate of completion has been received . It has also been provided, the deemed value of land to be excluded from total value would be one-third.4
Sale of land could be out of GST purview, but since the sale of land is inseparable from the sale of the superstructure, therefore, it is important to ascertain the deemed value of land in question.
The ruling passed by the Delhi Authority for Advance Ruling successfully decodes the provisions of the law. In case of supply of land and the superstructure attached to it, GST would be payable on two-third of the total amount consisting of the amount charged for transfer of land and the whole consideration charged for supply of goods and service. Hence, in line with the notification issued by the Council, the deemed value of land that shall stand to be excluded is one-third of the total amount.
The ruling further clarified that in circumstances, where the agreement of construction is entered after part of the construction is already completed, two-third of the entire consideration shall be chargeable to tax under GST at 9% as CGST and SGST respectively.5
1Section 7 of CGST Act, 2017 read with Entry 5 of Schedule III of the CGST Act, 2017
2 Section 15 of the CGST Act, 2017
3Paragraph 5(b) of Schedule II of the CGST Act, 2017
4Para 2 of Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017
5 Serial No 3(i) of Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017 and parallel SGST Notification
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