GST On Development of Residential Plots by Developer Under JDA:
AAR Analysis of Maarq Spaces Pvt. Ltd.
Background
of the Case
M/s. Maarq Spaces Pvt.
Ltd., a private limited company engaged in property development, entered into a
Joint Development Agreement (JDA) dated 08.11.2017 with certain
landowners for developing their land into a residential layout. As per the
agreement:
- Revenue sharing
was agreed at 75% for landowners and 25% for the applicant.
- Cost of development
was to be fully borne by the applicant.
- The applicant entered into sale
agreements with customers for the sale of developed plots.
Accordingly, the
applicant approached the Authority for Advance Rulings (AAR) seeking
clarification on the taxability under GST.
·
Order No.: KAR ADRG…/2019
·
Date of Order: 30.09.2019
·
Applicant: M/s Maarq Spaces Pvt.
Ltd., Bengaluru
·
Authority: Karnataka Authority for
Advance Rulings
Questions
Raised Before the AAR
1. Whether
the development and sale of land by the applicant under a Joint
Development Agreement attract GST?
2. If
yes, whether Rule 31 of the CGST Rules can be applied to determine the taxable
value of the supply?
Submissions
by the Applicant
The applicant contended
the following points:
On Taxability of
Development and Sale of Land
- As per Section 7(2)(a) read
with Entry 5 of Schedule III of CGST Act, sale of land is
neither a supply of goods nor services and hence not taxable under GST.
- The sale of developed plots should
also be treated as sale of land, even if development work is done,
since development is naturally bundled and incidental.
- The applicant claimed the transaction
to be a composite supply where the principal supply is land,
and hence no GST is applicable.
On Use of Rule 31 for
Valuation
- If the transaction is taxable, then
valuation should be done under Rule 31 (residual method).
- The applicant requested deduction
of land value from total consideration using market value or
cost-based estimation, treating only development charges as taxable.
Discussion
and Analysis by the Authority
The AAR carried out a
detailed analysis of the agreement and facts.
Nature of the Transaction
- The applicant is not the owner
of the land and has no title or possession rights over it.
- The landowners are responsible for
obtaining layout approvals, and the applicant is merely appointed to carry
out development work.
- The applicant’s share (25%) is not
of land, but of revenue earned through sale of plots.
Key Observations from the Agreement
- The applicant has expertise in
development, not in land ownership.
- The applicant executes civil
development work, like roads, drainage, fencing, landscaping, etc.
- The applicant bears the
development cost and is compensated through revenue share from sale
proceeds.
- Sale consideration is deposited in an
escrow account, and revenue is shared only after each sale.
- The applicant does not receive any
specific plots, only monetary compensation.
- The arrangement is a service to
landowners and not a sale of land by the applicant.
Conclusion on Question 1:
The applicant is not
selling land, and the activity amounts to supply of service, which
is liable to GST.
Ruling on Valuation Under
Rule 31
As per Section 15 of the
CGST Act:
The value of supply is
the transaction value, i.e., the price actually paid or payable for the
supply of goods or services.
AAR’s View:
- Applicant is paid 25% of the value
of each plot sold — this amount is consideration for development
services.
- The entire 25% amount received is in
money, not in kind or land.
- Therefore, Rule 27–30 do not apply,
and Rule 31 applies.
- Rule 31 allows using reasonable
means consistent with Section 15.
- Since consideration is received progressively
as sales happen, each payment received by applicant is fully
taxable under GST.
Decision by
the Authority
Question 1:
Yes, the activities
undertaken by the applicant are supply of service and are liable to
tax under GST.
Question 2:
Yes, Rule 31 is
applicable. The value of supply is equal to the total amount received
by the applicant, i.e., 25% of the market value of each plot sold.
Conclusion
This ruling provides a
critical insight for real estate developers entering into JDAs. The development
of land into plotted layouts for sale, where the developer is not the
owner of the land, will be considered a supply of service. The entire
revenue share earned by the developer will be treated as taxable
consideration, and GST is applicable on such amount.
This ruling clears the
misconception that sale of developed plots is exempt simply because it is
"land". If development precedes sale, and developer is not the
owner, then the transaction is not exempt and falls under supply of
services.
Disclaimer: All the Information is based on the notification, circular advisory 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.
Press On Click Here To Download Order File
Click here
