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Is GST payable on sale of units/flats to landowner for free?

Parth Shah 
on 05 June 2020

LinkedIn


In Real E-State one of the most prevalent method for setting up a construction of Residential or Commercial is through entering in to Joint Development Agreement where developer is not willing to buy a piece of Land.

Agreement where in Land Owner and Developer come together and developed a property. In such, Most common arrangement being a

 

Area Sharing

Revenue Sharing

In area sharing agreement, the landowner gives development rights to construct or develop a complex to the developer.

 In return, developer agrees to assign a portion of the constructed area in the form of flats.

In Revenue Sharing, agreement entered between Land Owner and Developer to share contribution received from sale as percentage agreed

Is GST payable on sale of units/flats to landowner for free

Further, after 01.04.2019 Real E-State sector has undergone a massive changes due to shrin of Notification specifically in case FSI, TDR and Lease. Where in clearly state that Transfer of TDS Liable for GST under RCM subject to relaxation in case of Residential apartment

But before moving to ahead and conclude, it is well known that Goods and Services Tax is nothing but summation of Central and State Laws. (i.e. Service tax, VAT, Excise etc)

So, sticking to root and in case of "VASANTHA GREEN PROJECTS" where in Tribunal quashed Service Tax demand on free sale to Land Owner under JDA and allowed appeal in favour of Appellant. Hence, Revenue authority moved to Higher Authority and case is pending.

Refer Case for ease.
Service Tax
LD/66/192
Vasantha Green Projects
vs.
CCT
11st May, 2018

Tribunal quashed service tax demand on flats given to land owners by developer, free of cost, as value of such flats which represents consideration for securing development rights, which was already included in value charged to prospective buyers and thereby also stands included in the assessable value on which service tax liability is paid.

Facts:

Appellant entered into joint development agreement for construction of houses and residential premises with different land owners. In respect of one such agreement, appellant was required to give part of the area to land owners fully developed and entered into an agreement with prospective buyers for sale of the flats of his area. Department demanded service tax from appellant by alleging that appellant has not discharged service tax liability towards the construction services provided to the land owners towards allotted share of developed property. The demand was issued on the basis of nearest sale value of the villas, charged to the new prospective customers of the property lying with the appellant. While rebutting the same, appellant submitted that in consideration of the land given by the land owners, they constructed villas for land owner which were allotted to them free of cost.

The appellant submitted that, since the said cost is included in the price of villas and that it has paid service tax on such sale price, no further liability arises.

Held:

Hon'ble Tribunal noted that appellant has provided construction services to the land owner and as a consideration, received legal rights on his share of land. In terms of the said right, it constructed villas on that portion of land and sold them to prospective buyers. This would mean that appellant is investing the consideration received from first transaction with land owners i.e. right to construct, in the second transaction. Tribunal held that when the consideration received from land owners is invested in construction of villas to other buyers on which service tax is paid, it cannot be concluded that service tax paid on consideration received from land owners have to be evaluated differently. Further, it was noted that the construction of villas for the land owners is a consideration towards the land on which villas were constructed and offered for sale to prospective customers. The value which has been arrived at for sale of villas to prospective customers, would include the consideration paid or payable for acquisition of land. Tribunal noted that it is not a case that appellant has not discharged the service tax liability on the value received for the villas from prospective customers. Accordingly, Tribunal held that if the consideration towards the acquisition of the land has been included in the value of the villas sold to prospective customers and appropriate service tax liability has been discharged on the same value, the appellant cannot be again made liable to service tax under the premise that sale value of the villas given to land owners is a consideration on which service tax liability was not discharged, as this would lead to double taxation.

Further, Hon'ble Tribunal observed that in terms of Section 67 of Finance Act, 1994, service tax is liable to be paid on gross amount charged i.e. to say consideration received from land owners in kind and consideration received from prospective customers i.e. total gross amount. Tribunal found that the amount attributable to the consideration received by appellant in the form of land rights from the land owner stands included in the value of villas sold to prospective customer. This would mean that consideration received by the appellant in form of developmental right was considered in assessable value.

 

Also, reliance was place on chartered accountant certificate which clearly stated that to arrive at the value of construction, areas of villas to be shared to land owners, the appellant had undertaken an exercise to determine the value of construction per square feet for the villas and the said construction value of the villas built up area which was shared free of cost to the land owner, was considered while arriving at the service tax liability.

Thus, the tribunal set aside the impugned order and the appeal was allowed in favour of the Appellant."

From, the above it is clear that the authority itself still have ambiguity for taxation and need a reconsideration.

 

Source:  ICAI Material and Public Domain


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