GST Implication on Sale of Developed Plot of Land

We are of the view that Sale of Developed Land is not leviable to GST. However, we always suggest an alternative tax efficient model for such transactions to keep it free from unnecessary litigation.

Sale of Land – under GST Law

  1. Sale of Land is neither Supply of Goods nor Supply of Service as per Schedule – III of CGST Act. Therefore, sale of Land is not leviable to GST.

Sale of Developed Land – Dispute under Service Tax Regime

  1. In the service tax regime department has raised a dispute that development of Plots is a separate transaction from sale of Land and issued SCNs to Developers. Thus, this issue is under litigation.
  2. We have also filed two writ petitions before Hon’ble High Court of Delhi on this issue under service tax law.

Efficient Model under GST for Sale of Developed Plot (Tax Efficient and Free from Litigation)

  1. If we consider the entire value of land as exempted being sale of Developed Land under GST, ITC on goods or service procured for development of land shall not be allowed.
  2. It would be tax efficient model under GST if we segregate the value of land and development activities.
  3. Development charges become leviable to GST. No Exposure on development activity as Company will pay taxes on it.
  4. ITC on goods or services procured for development of land shall be allowed and net tax cost impact will be on value addition only.
  5. The department is itself segregating these two and holding a view that development of land is a separate service from Sale of Land.

Advance Rulings on this issue under GST

  1. At the outset, the Advance Rulings are applicant specific and are binding only on the Applicant who has sought the Ruling and the concerned Officer or Jurisdictional Officer in respect of that Applicant. [Section 103 of CGST Act]
  2. In few Advance Rulings on this issue, the Authority for Advance Ruling has held that Development of Plot is taxable. In these Advance Rulings, liability of the Developer of Plot of Land is concluded in different-different manner.

Our Suggestion

  1. As suggested above that being a litigative issue, the Developer may adopt an efficient Model based on the terms of the Joint Development Agreement, Agreement for Sale of Land and facts of respective project.

GST Law India is a blog on GST and allied commercial laws managed by members of the law firm ALA Legal.