GST Applicability on Sale of Developed Plots, Development
Services, and Transfer of Development Rights: AAR Ruling in the Case of M/s
Vaishnaoi Infratech and Developers Pvt. Ltd.
Introduction
In a significant Advance
Ruling issued by the Telangana State Authority for Advance Ruling (TSAAR), key
clarifications were provided on the GST implications surrounding the sale of
developed plots, provision of development services, and transfer of development
rights (TDRs). The case revolves around M/s Vaishnaoi Infratech and
Developers Pvt. Ltd., a company engaged in the business of real estate
development. The ruling addressed several questions on taxability, valuation,
input tax credit (ITC), and timing of tax payment under the GST law.
Ruling
Details
- Ruling Authority:
Telangana State Authority for Advance Ruling (TSAAR)
- Order No.:
21/2023
- Ruling Date:
30th September 2023
- Application No.:
A.R. Com/07/2023
- Applicant:
M/s Vaishnaoi Infratech and Developers Pvt. Ltd.
Background
of the Case
M/s Vaishnaoi Infratech
and Developers Pvt. Ltd., incorporated under the Companies Act, 1956, is
engaged in the business of real estate development. The applicant owns land and
has also entered into joint development agreements with other landowners to develop
plots. The developed plots are subsequently sold to customers.
To ensure compliance with
GST law and avoid future disputes, the applicant sought advance ruling on the
following issues:
Questions
Raised by the Applicant
1. Whether
the sale of developed plots to customers after development is taxable
under GST?
2. Whether
development services provided to landowners under development agreements
are taxable, and if so, under which notification and entry?
3. Whether
Transfer of Development Rights (TDRs) by landowners in consideration of
development services is taxable? Who is liable to pay GST – the applicant or
the landowner? What is the applicable notification?
4. If
taxable, how to determine the value of supply for development services
and TDR? How much land value can be deducted?
5. Can
the applicant claim Input Tax Credit (ITC) on tax paid on TDRs received
from registered landowners?
6. What
is the time of payment of GST on TDR and development services? What are
the relevant notifications?
Submissions
by the Applicant
The applicant stated:
- That they are not engaged in any
construction of apartments or buildings.
- They undertake development of land
such as leveling, laying of drainage lines, etc., and subsequently sell
the developed plots.
- They enter into development
agreements with landowners who provide TDRs in exchange for development
services.
- They are unsure about GST
applicability and its various implications on these transactions.
Discussion
and Findings by the Authority
1. Sale of Developed
Plots – Not Taxable
The Authority referred to
Entry 5 of Schedule III of the CGST Act, which states that the sale
of land is not treated as a supply of goods or services. Further, Circular
No. 177/09/2022 dated 03.08.2022 clarified that sale of developed land
(after leveling, drainage, electricity line installation, etc.) also qualifies
as sale of land and does not attract GST.
Hence, the sale of
developed plots is outside the scope of GST.
2.
Development Services Provided to Landowners – Taxable
Services provided for the
development of land are taxable under GST. This includes leveling,
laying of roads, drains, water lines, and other infrastructure development.
These activities qualify as “works contract services” as per Section
2(119) of the CGST Act.
Such services are taxable
at 18% (9% CGST + 9% SGST) under Notification No. 11/2017 – Central
Tax (Rate), Entry 3(xii), SAC 9954.
3. Transfer
of Development Rights (TDR) – Taxable Under RCM
The applicant, as a promoter,
receives TDRs from landowners in exchange for development services. The
Authority observed that:
- Notification No. 4/2019
exempts TDR only when used for residential apartment construction,
not for land plotting.
- The applicant is not constructing
apartments, hence the exemption does not apply.
Under Notification No.
13/2017, as amended by Notification No. 5/2019, the developer
(applicant) is liable to pay GST under reverse charge mechanism (RCM)
on such TDRs.
Applicable rate: 18%
(9% CGST + 9% SGST)
4.
Valuation of Supply
If the value of
development services is explicitly specified in the development
agreement, then the actual value is used for taxation under Section
15 of the CGST Act.
If not, Rule 30 of the
CGST Rules applies, which mandates valuation as 110% of the cost of
provision of such service.
5. Input
Tax Credit (ITC) on TDRs
The Authority confirmed
that the applicant can avail input tax credit of GST paid on TDRs
received from registered landowners. This ITC can be used to offset GST
payable on outward supplies, i.e., development services.
6. Time of
Supply
- For TDR (under RCM):
- Time of supply is the 61st day
from date of document/invoice issued by the supplier (i.e.,
landowner) – as per Section 13(3)(b) and Section 31(3)(f)/(g)
of the CGST Act.
- For Development Services (Continuous
Supply):
- Time of supply is governed by Section
13 read with Section 31(5).
- It is the due date of payment,
or if unascertainable, the actual date of payment or date of
completion of relevant event.
Final
Ruling of TSAAR
|
Question
|
Answer
(TSAAR)
|
|
Sale
of developed plots taxable?
|
No.
Sale of land (developed or otherwise) is not taxable under GST.
|
|
Development
services to landowners taxable?
|
Yes.
Taxable under Notification 11/2017, SAC 9954 at 18%.
|
|
Transfer
of Development Rights (TDR) – taxable? Who is liable?
|
Yes.
Taxable under RCM. Applicant is liable at 18% under Notification 13/2017 as
amended.
|
|
Valuation
method for taxable services?
|
As
per contract (Section 15), or Rule 30 if value not specified.
|
|
ITC
on TDR from registered landowners?
|
Yes.
Full ITC is available.
|
|
Time
of supply?
|
TDR
– 60 days post document. Development services – continuous supply provisions
apply.
|
Conclusion
This Advance Ruling
provides much-needed clarity to developers engaged in plot development
activities. It reinforces that sale of developed land is not taxable,
while services related to development and TDRs are taxable under
specific provisions of GST law.
This ruling will serve as
a guiding precedent for other real estate developers in similar business models
and help ensure proper GST compliance in terms of taxability, valuation,
ITC claims, and timing of tax payment.
Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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