Understanding GST Implications on Builders, Developers, and Contractors

1
 
Presented by: CA Payal (Prerana) Shah
In National Conference on Indirect Taxes
organised by ICAI hosted by Indore Branch of CIRC of ICAI
On: 03.06.2022
 
Builders, Developers,
Contractors
 
GST
 
and
20-07-2024
CA Payal (Prerana) Shah
2
 
Legal background of GST viz-a-viz builders/developers
 
GST levied on under-construction development services vide Section 7 (1) read with Entry 5
(b) of Schedule II of CGST Act 2017 with effect from 1 July 2017
Sale of land and building subject to Entry 5 (b) of Schedule II – Not a supply of goods or
services as per Schedule III
Entry 5 (b) of Schedule II:
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Retrospective amendment to introduce Section 7 (1A) of CGST Act 2017 vide CGST
(Amendment) Act 2018 with effect from 
1 July 2017 
and therefore, only when a transaction
is supply, classification of such supply is determined as supply of goods or supply of services
vide Schedule II
Rate notification (12/2017-CGST (R)) to provide rates for works contract as well as construction
services under HSN (SAC) 9954
 
20-07-2024
 
CA Payal (Prerana) Shah
3
 
6/8/2019
 
CA Prerana Shah
 
4
 
PARADIGM SHIFT OF GST ON REAL ESTATE WEF 01.04.2019
ONGOING PROJECTS (OPTION NOT EXERCISED)/ NEW PROJECTS
WITHOUT ITC
Note: The rates are
effective rates after
1/3
rd
 deduction for
land
 
NEW SCHEME WEF 01.04.2019 IS
OPTIONAL?
 
 
20-07-2024
 
CA Payal (Prerana) Shah
5
 
IS NEW SCHEME OPTIONAL?...
 
Do builders have an option to not to go for 1% or 5% if is not beneficial to them?
As per FAQ no. 23 on Real estate dated 07.05.2019
 
 
 
 
 
 
 
20-07-2024
 
CA Jayesh Gogri
6
 
Can Government mandate rate consisting of conditions?
If yes, w
hat if a person fails to satisfy conditions for availing GST rate of 1%/5%?
Person cannot opt for 1%/5%
Does notification provide for any other rate? If not, will levy fail in absence of rate?
 
 
 
 
…IS NEW SCHEME OPTIONAL?...
 
Larsen & Toubro Ltd. vs. State of Karnataka 2014 (303) E. L. T. 3 (S.C.) –
Construction is a specie of works contract
 
Section 2 Definitions
In this Act, unless the context otherwise requires,––
(119) “works contract” means a contract for building, construction,
fabrication, completion, erection, installation, fitting out, improvement,
modification, repair, maintenance, renovation, alteration or commissioning
of any immovable property wherein transfer of property in goods (whether
as goods or in some other form) is involved in the execution of such
contract
 
20-07-2024
 
CA Jayesh Gogri
7
 
…IS NEW SCHEME OPTIONAL?...
 
 
Notification no. 3/2019-CT(R) dated 29.03.2019 – Rate entry for works contract
 
20-07-2024
 
CA Jayesh Gogri
8
 
…IS NEW SCHEME OPTIONAL?
 
Residuary entry notification no. 11/2017-CT(R) dated 28.06.2017
 
 
 
 
 
 
 
20-07-2024
 
CA Jayesh Gogri
9
 
Seems that there is no rate entry if conditions are not satisfied
 
 
COLLECTIBILITY OF GST IF
AGREEMENTS ARE SILENT
 
 
20-07-2024
 
CA Payal (Prerana) Shah
10
 
Case Study
 
ABC LLP, a developer, had executed a Development Agreement with XYZ Land owner
As per the terms of agreement, ABC LLP was responsible to undertake all the costs and
expenses related to redevelopment. ABC LLP agreed to provide units free of cost to XYZ Land
owner
However, the Development Agreement was silent on applicability of GST on free units
provided to XYZ Land Owner
Now, ABC LLP has issued a demand note to XYZ Land Owner and demanded GST from XYZ
Land Owner. However, XYZ Land Owner is denying to pay GST to ABC LLP
One of the partner of ABC LLP is of the view that GST is an indirect tax wherein the supplier is
allowed to charge and collect GST from recipient
 
20-07-2024
 
CA Payal (Prerana) Shah
11
 
Collectability of GST if agreements are silent
 
BENGAL SHRACHI HOUSING DEVELOPMENT LIMITED 2017 (6) G.S.T.L. 356 (S.C.)
 
21. It is thus clear that the judgments of this Court which referred to service tax being
an indirect tax have reference only to service tax being an indirect tax in economic theory
and not constitutional law. 
The fact that service tax may not, in given circumstances, be
passed on by the service provider to the recipient of the service would not, therefore,
make such tax any the less a service tax. 
It is important to bear this in mind, as the main
prop of Shri Jaideep Gupta’s argument is that service tax being an indirect tax which must
be passed on by virtue of the judgments of this Court, would make the recipient of the
service the person on whom the tax is primarily leviable.
 
 
20-07-2024
 
CA Payal (Prerana) Shah
12
 
BUYING AND SELLING PLOT OF LAND
 
 
20-07-2024
 
CA Payal (Prerana) Shah
13
 
GST ON SALE OF PLOT OF LAND???
 
Mr. Zamindaar is owner of plot of land
 He has developed his plot by carrying out primary activities like drainage line, water line,
electricity line, land levelling, street lights, etc.
 Is GST applicable on sale of such developed plot of land?
 
20-07-2024
 
CA Payal (Prerana) Shah
14
 
GST ON SALE OF PLOT OF LAND???
 
Schedule III
“5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of
building.”
 
M/s. Shree Dipesh Anilkumar Naik 2020 (6) TMI 448 – AAR (Guj.)
12. In present case, 
we also find that the applicant is the owner of the land, who develops the
land with an infrastructure such as Drainage line,  Water  line,  Electricity line,  Land levelling
etc
. …. His sales price includes the cost of the land as well as the cost of  common amenities,
Drainage line,  Water  line,  Electricity line,  Land levelling charges,  etc.  on a proportionate
basis……
14.  
We find that  the activity of  the sale of  developed plots  would be covered under  the
clause ‘construction of  a complex intended for  sale to a buyer
’.  Thus, the said activity is covered
under ‘construction services’ and GST is payable on the sale of developed plots in terms of CGST
Act / Rules and relevant Notification issued time to time
 
20-07-2024
 
CA Payal (Prerana) Shah
15
 
GST ON SALE OF PLOT OF LAND???
 
M/s Vidit Builders, Jabalpur ((AAR Madhya Pradesh dated
06.01.2020)
In respect of Joint Development Agreement AAR Madhya Pradesh held
It is not the land owner
, 
it is the developer who will be responsible for
paying the 
GST on the amount of his share
The activities of the developer will be taxed as the services of Work
Contractors
 
20-07-2024
 
CA Payal (Prerana) Shah
16
 
SELLING DEVELOPMENT RIGHTS
 
 
20-07-2024
 
CA Payal (Prerana) Shah
17
 
TAXABILITY OF DEVELOPMENT RIGHTS…
 
Notifications that hint taxability of TDR/FSI in indirect manner
 
Notification 4/2019-CT(R) dated 29.03.2019
Exempts 
TDR/FSI subject to following conditions:
Transfer of TDR/FSI takes place on or after 01.04.2019
TDR/FSI used for the construction of residential apartment
Such residential apartments are booked prior to first occupation or date of completion certificate
 
Notification 5/2019-CT(R) dated 29.03.2019
GST payable on RCM by Developer on supply of service by way of transfer of development rights/FSI
 
Notification 6/2019-CT(R) dated 29.03.2019
GST on TDR/FSI (except commercial portion for monetary consideration) to be paid
on or before the date of completion certificate or first occupation, whichever is
earlier to the extent of unsold flats
 
20-07-2024
 
CA Payal (Prerana) Shah
18
 
TAXABILITY OF DEVELOPMENT RIGHTS…
 
20-07-2024
 
CA Payal (Prerana) Shah
19
 
… TAXABILITY OF DEVELOPMENT RIGHTS…
 
Schedule III Activities or transaction which shall be treated neither as a
supply of goods nor a supply of services
5. 
Sale of land 
and, subject to clause (b) of paragraph 5 of Schedule II,
sale of building
 
DLF Commercial Projects Corporations 
2019 (5) TMI 1299 - Cestat
Chandigarh
Transferable Development Right is a immovable property
 
20-07-2024
 
CA Payal (Prerana) Shah
20
 
… TAXABILITY OF DEVELOPMENT RIGHTS…
 
Section 2(14) of the Maharashtra Regional and Town Planning Act,1966 defines
“land” to include benefits to arise out of land
, 
and things attached to the earth or permanently fastened to
anything attached to the earth
 
Section 3(p) The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation
and Resettlement Act, 2013 defines
“land” 
to 
include benefits to arise out of land, 
and things attached to the earth or permanently fastened to
anything attached to the earth
 
Supreme court in case of 
Safiya Bee vs Mohd. Vajanath Hussain [2011 2 SCC 94]
stated that
land includes right in or over land 
and benefits arising out of land
 
Constitution of India – Entry 18, List 2
Land, that is to say, rights in or over land,
 
land tenures including the relation of landlord and
tenant, and the collection of rents; transfer and alienation of agricultural land; land
improvement and agricultural loans; colonization”
 
20-07-2024
 
CA Payal (Prerana) Shah
21
 
IS GST LEVIABLE ON FREE UNITS?
 
 
20-07-2024
 
CA Payal (Prerana) Shah
22
 
CASE STUDY
 
Laxmichand executed a Development Agreement with Nirmit Pvt Ltd on 17.02.2020 for
redevelopment of plot and providing free units
As per the terms of Development Agreement:
Nirmit Pvt Ltd agreed to provide newly constructed units free of cost to 
Laxmichand
Society agreed to allow Nirmit Pvt Ltd to utilise full FSI by paying applicable premium to
Municipal Corporation and load TDR from open market
Nirmit Pvt Ltd will incur all the cost and expenses for redevelopment
Nirmit Pvt Ltd can sell the additional units to various buyers and earn revenue from it
Is GST leviable on units given free of cost to Society?
 
20-07-2024
 
CA Payal (Prerana) Shah
23
 
IS GST LEVIABLE ON FREE UNITS?...
 
Notification no. 03/2019 CT(R) dated 29.03.2019
Provided also that where a registered person (landowner- promoter) who transfers development right
or FSI (including additional FSI) to a promoter (developer- promoter) against consideration, wholly or
partly, in the form of construction of apartments, -
(i) the developer- promoter shall pay tax  on supply of construction of apartments to the landowner-
promoter, and
 
Extract of FAQ dated 14.05.2019
 
20-07-2024
 
CA Payal (Prerana) Shah
24
 
…IS GST LEVIABLE ON FREE UNITS?...
 
Consideration – Is there any consideration?
Definition of consideration
(31) “consideration” in relation to the supply of goods or services or both includes––
(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to,
or for the inducement of, the supply of goods or services or both, whether by the recipient or by
any other person but shall not include any subsidy given by the Central Government or a State
Government;
(b) the monetary value of any act or forbearance, in respect of, in response to, or for the
inducement of, the supply of goods or services or both, whether by the recipient or by any other
person but shall not include any subsidy given by the Central Government or a State Government:
Provided that a deposit given in respect of the supply of goods or services or both shall not be
considered as payment made for such supply unless the supplier applies such deposit as
consideration for the said supply
 
20-07-2024
 
CA Payal (Prerana) Shah
25
 
….IS GST LEVIABLE ON FREE UNITS?...
 
Vasantha Green Projects 2019 (20) G.S.T.L. 568 (Tri. - Hyd.) – Pending in SC
Para 7. 
It has to be construed, in the above factual matrix, that construction of villas for the landowners
is a consideration towards the land on which villas were constructed and offered for sale to prospective
customers. It would not be a rocket science to understand that 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
. It is not a case that appellant has not discharged the service tax liability on the value received
for the villas from prospective customers. In our view, 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 the same value, it 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
 
20-07-2024
 
CA Payal (Prerana) Shah
26
 
….IS GST LEVIABLE ON FREE UNITS?...
 
Ethics Infra 2022 (1) TMI 1015 (Tri. - Mum.)
4.8  In the present case the respondent has discharged the complete service tax liability on the
gross amount received by him for providing the taxable services. 
Once he have discharged the
tax liability on the gross consideration received by him by the sale of flats to new buyers
, the
demand of service tax 
for the flats handed over to the existing members of the societies
without any consideration 
cannot be sustained
.
 
 
 
20-07-2024
 
CA Payal (Prerana) Shah
27
 
CAN NOTIFICATIONS PRESCRIBE
VALUE?
 
 
20-07-2024
 
CA Payal (Prerana) Shah
28
 
CAN NOTIFICATION PRESCRIBE VALUE OF SUPPLY?...
 
Notification no. 3/2019-CTR dated 29.03.2019
2A. Where a registered person transfers development right or FSI (including additional FSI) to
a promoter against consideration, wholly or partly, in the form of construction of apartments,
the 
value of construction service in respect of such apartments shall be deemed to be equal to
the Total Amount charged for similar apartments in the project from the independent buyers,
other than the person transferring the development right or FSI (including additional FSI),
nearest to the date on which such development right or FSI (including additional FSI) is
transferred to the promoter, less the value of transfer of land, if any, as prescribed in
paragraph 2 above.
 
Notification no. 3/2019-CTR dated 29.03.2019 takes power from section 15(5)
 
 
20-07-2024
 
CA Payal (Prerana) Shah
29
 
…CAN NOTIFICATION PRESCRIBE VALUE OF SUPPLY?...
 
Section 15. Value of supply
(4) Where the value of the supply of goods or services or both cannot be determined under
sub-section (1), the same 
shall be determined in such manner as may be 
prescribed
(5) Notwithstanding anything contained in sub-section (1) or sub-section (4), the value of such
supplies as may be notified by the Government on the recommendations of the Council 
shall
be determined in such manner as may be 
prescribed
 
Definition of term “prescribed”
(87) “prescribed” means 
prescribed by rules 
made under this Act on the recommendations of
the Council
 
20-07-2024
 
CA Payal (Prerana) Shah
30
 
…CAN NOTIFICATION PRESCRIBE VALUE OF SUPPLY?...
 
Notification no. 4/2019-CTR dated 29.03.2019 also prescribes value
. 
However, the said
notification does not take power from Section 15 of CGST Act
 
1A. 
Value of supply
 of service by way of transfer of development rights or FSI by a person to
the promoter against consideration in the form of residential or commercial apartments 
shall
be deemed to be equal to 
the value of similar apartments charged by the promoter from the
independent 
buyers nearest to the date on which such development rights or FSI is transferred
to the promoter
 
1B. Value of portion of residential or commercial apartments remaining un-booked on the
date of issuance of completion certificate or first occupation, as the case may be, shall be
deemed to be equal to the value of similar apartments charged by the promoter 
nearest to
the date of issuance of completion certificate or first occupation
, as the case may be
 
 
20-07-2024
 
CA Payal (Prerana) Shah
31
 
…CAN NOTIFICATION PRESCRIBE VALUE OF SUPPLY?
 
Notification no. 4/2019-CTR dated 29.03.2019 – Opening para
In exercise of the powers conferred by sub-section (1) of section 11 of the Central
Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on being
satisfied that it is necessary in the public interest so to do, on the recommendations of
the Council, hereby makes the following further amendments in the notification of the
Government of India, in the Ministry of Finance (Department of Revenue),
No.12/2017- Central Tax (Rate), dated the 28th June, 2017, published in the Gazette
of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 691(E),
dated the 28th June, 2017, namely:
 
20-07-2024
 
CA Payal (Prerana) Shah
32
 
VALUE OF LAND?
 
 
20-07-2024
 
CA Payal (Prerana) Shah
33
 
VALUE OF LAND IN TOTAL VALUE OF SUPPLY…
 
ABC Pvt Ltd had sold a flat 1000 sq. ft. of flat for Rs. 2,00,00,000 (i.e. Rs. 20,000 per sq.
ft.) in its newly started project
The rate of Rs. 20,000 per sq. ft. consists of the following two components:
Rs. 16,000 for land
Rs. 4,000 for construction
However, the above two components were not separately recorded in the agreement
and a single lump sum price of Rs. 2 crs was charged
  How much GST is payable on the flat sold by ABC Pvt Ltd?
 
20-07-2024
 
CA Payal (Prerana) Shah
34
 
VALUE OF LAND IN TOTAL VALUE OF SUPPLY…
 
Deemed value of land – Notification 11/2017- CT(R) dated 28.06.2017 as amended by notification
no. 3/2019 CT(R) dated 29.03.2019
Entries of construction services provide as under:
(Provision of Paragraph 2 of this notification 
shall 
apply for valuation of this service)
2. In case of supply of service specified in column (3), 
in item (i); (i) (ia), (ib), (ic), (id), (ie) and  (if
)
against serial number 3 of the Table above, involving transfer of land or undivided share of land, as the
case may be, the value of such supply shall be equivalent to the total amount charged for such supply
less the value of transfer of land or undivided share of land, as the case may be, and the value of such
transfer of land or undivided share of land, as the case may be, in such supply shall be 
deemed to be
one third of the total amount charged for such supply.
 
20-07-2024
 
CA Payal (Prerana) Shah
35
 
…VALUE OF LAND IN TOTAL VALUE OF SUPPLY…
 
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122. In the result, the impugned Paragpragh 2 of the Notification No. 11/2017-Central
Tax (Rate) dated 28.6.2017 and identical notification under the Gujarat Goods and
Services Tax Act, 2017, which provide for a mandatory fixed rate of deduction of 1/3rd of
total consideration towards the value of land is ultra-vires the provisions as well as the
scheme of the GST Acts. 
Application of such mandatory uniform rate of deduction is
discriminatory, arbitrary and violative of Article 14 of the Constitution of India
.
 
123. While we so conclude, the question is whether the impugned paragraph 2 needs to
be struck down or the same can be saved by reading it down. In our considered view,
while maintaining the mandatory deduction of 1/3rd for value of land is not sustainable
in cases where the value of land is clearly ascertainable or where the value of
construction service can be derived with the aid of valuation rules, such deduction can be
permitted at the option of a taxable person particularly in cases where the value of land
or undivided share of land is not ascertainable
.
 
20-07-2024
 
CA Payal (Prerana) Shah
36
 
…VALUE OF LAND IN TOTAL VALUE OF SUPPLY…
 
As per section 15(1)
The 
value of a supply of goods or services 
or both shall be the transaction value, which is the
price actually paid or payable for the said supply of goods or services or both where the
supplier and the recipient of the supply are not related and the price is the sole consideration
for the supply
 
Schedule III Activities or transactions 
which shall be treated neither as a supply of goods nor a
supply of services
Sale of land 
and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
 
20-07-2024
 
CA Payal (Prerana) Shah
37
 
…VALUE OF LAND IN TOTAL VALUE OF SUPPLY…
 
Commissioner of Service tax vs. Bhayana Builders (P) Ltd. 2018 (10) GSTL
118 (SC)
18. In the first instance, no material is produced before us to justify that
aforesaid basis of the formula was adopted while issuing the notification.
In the absence of any such material, it would be anybody’s guess as to
what went in the mind of the Central Government in issuing these
notifications and prescribing the service tax to be calculated on a value
which is equivalent to 33% of the gross amount
 
20-07-2024
 
CA Payal (Prerana) Shah
38
 
… VALUE OF LAND IN TOTAL VALUE OF SUPPLY…
 
As per section 15(4) of CGST Act
(4) Where the value of the supply of goods or services or both cannot be determined under sub-section (1), the same
shall be determined in such manner as may be prescribed.
Rule 27 of CGST Rules prescribes value of supply as ‘open market value’ in a situation where consideration is not
wholly in money
As per explanation to Rule 35 of CGST Rules
“(a) "open market value" of a supply of goods or services or both means the full value in money, excluding the integrated
tax, central tax, State tax, Union territory tax and the cess payable by a person in a transaction, where the supplier and
the recipient of the supply are not related and the price is the sole consideration, to obtain such supply at the same time
when the supply being valued is made”
Stamp Duty value may be taken as open market value as the same is also adopted by State Government
 
20-07-2024
 
CA Payal (Prerana) Shah
39
 
Whether value of land notification can be retrospectively amended?
 
Govind Saran Ganga Saran Vs. CST [1985] 155 ITR 144 (SC)
The taxable event, the person liable to pay the tax, the rate of tax and the value on
which the tax is payable are the essential ingredients of a taxation statute and they
have to be clearly and unambiguously conveyed. If there is any ambiguity regarding
any of these ingredients in a taxation statute, there is no tax in law
 
Larsen and Toubro Ltd [2015] 60 taxmann.com 354 (SC)
Works contract cannot be taxed prior to 01.06.2007 in absence of valuation Rule like
Rule 2A of the Service Tax (Determination of Value) Rules, 2006
 
Suresh Kumar Bansal [2016] 70 taxmann.com 55 (Delhi) pending in SC
Purchase of an under-construction flat was held to be not leviable to tax in absence
of a valuation mechanism to deduct the value towards land
Subsequent to this decision, Rule 2A of the said rule was amended retrospectively so
as to provide for a valuation mechanism for deduction of land
 
20-07-2024
 
CA Payal (Prerana) Shah
40
 
REVENUE
SHARING AGREEMENT
 
 
20-07-2024
 
CA Payal (Prerana) Shah
41
 
REVENUE SHARING AGREEMENT…
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Revenue sharing agreement for
development of land into
residential layout
 
2
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7
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Revenue from sale
of developed plots
shared between
Maarq Spaces and
Landowner
 
Queries:
a)
Whether the activity of development and sale of land
attracts tax under GST?
b)
the answer to the above question is yes, for the
purpose of taxable value, whether provision of Rule
31 can be made applicable in ascertaining the value
of land and supply of service?
 
M/S. MAARQ SPACES PRIVATE LIMITED  2020
(5) TMI 415 – APP. AAR KAR.
 
Maarq to obtain required licences,
sanctions, consent, permissions, NOC
and procure sanction plan
 
20-07-2024
 
CA Payal (Prerana) Shah
42
 
…REVENUE SHARING AGREEMENT….
 
Pronounced by App. AAR
 
15. The Appellant has also contended that there is no supply of any service by him to the
landowners; that the JDA has been executed with a mutual agreement by both the parties to
jointly develop the land and  share  the  revenues  
out  of  the  sale  of  land.  In  real  estate
transactions  involving  plotted development, one party owns the land and another party has
the expertise to develop the land. The two parties come together with the common intention
of developing the land and sharing the revenue accruing for the sale of the developed plots in
the land. However, the 
landowners give the rights of using the land to the developer in
exchange for which, the developer gives the service of developing the land 
of the owners.
While the Joint Development agreement is entered into for the two parties to jointly reap the
benefits of the sale of the land to customers, there is a clear rendering of a service by the
developer to the landowner in developing the land which belongs to the landowner.
Therefore, 
we hold that the activity of developing the land is a supply of service by the
Appellant.
 
Rule 31 applies in the instant case and the value of the supply is equal to the total amount
received by the applicant, which is equal to 25% of the market value of each plot
 
20-07-2024
 
CA Payal (Prerana) Shah
43
 
… REVENUE SHARING AGREEMENT…
 
Schedule III
“5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II,
sale of building.”
 
20-07-2024
 
CA Payal (Prerana) Shah
44
 
…REVENUE SHARING AGREEMENT
 
Consideration is received by both the parties viz. landowner as well as developer only
when plots are sold to ultimate buyer
 
Merely an appropriation of revenue
 
What if plot is never sold?
Developer may not earn anything
Therefore, development rights may not be treated as consideration.
There needs to be some element of benefit for supplying service which can be materialised
 
Example: If seven horses are pulling the cart, the horses are not supplying services to
each other but supplying it to the person riding cart
 
 
20-07-2024
 
CA Payal (Prerana) Shah
45
 
ITC ON CONSTRUCTION & WORKS
CONTRACT
 
 
20-07-2024
 
CA Payal (Prerana) Shah
46
 
ITC ON CONSTRUCTION OF IMMOVABLE PROPERTY USED FOR
BUSINESS…
 
Mr. Richie is engaged in the business of renting commercial
properties.
 
He wishes to construct a shopping mall and rent the mall
after construction.
 
Can Mr. Richie claim ITC of inputs used in construction of
such shopping mall?
 
20-07-2024
 
CA Payal (Prerana) Shah
47
 
… ITC ON CONSTRUCTION OF IMMOVABLE PROPERTY USED FOR
BUSINESS…
 
S. 17(5) of CGST Act, 2017
Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of
section 18, 
input tax credit shall not be available 
in respect of the following, namely:-
(c) works contract services 
when supplied for construction of an immovable property 
(other
than plant and machinery) except where it is an input service for further supply of works
contract service;
(d) goods or services or both received 
by a taxable person for construction of an immovable
property
 (other than plant or machinery) 
on his own account 
including when such goods or
services or both are used in the course or furtherance of business.
Explanation.––For the purposes of clauses (c) and (d), the expression “construction” includes
re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation,
to the said immovable property;
 
20-07-2024
 
CA Payal (Prerana) Shah
48
 
… ITC ON CONSTRUCTION OF IMMOVABLE PROPERTY USED FOR
BUSINESS
 
Safari Retreats Pvt. Ltd. 2019 (25) GSTL 341 (Orissa. HC) dated 17.04.2019 
[
further
challenged in Supreme Court 2020 (32) GSTL J120 (SC)]
20. In that view of the matter, in our considered opinion the provision of Section 17(5)(d) is
to be read down and the narrow restriction as imposed, reading of the provision by the
Department, is not required to be accepted, inasmuch as keeping in mind the language used
in (1999) 2 SCC 361= 1999 (106) E.L.T. 3 (S.C.) (supra), the very purpose of the credit is to give
benefit to the assessee. 
In that view of the matter, if the assessee is required to pay GST on
the rental income arising out of the investment on which he has paid GST, it is required to
have the input credit on the GST
, which is required to pay under Section 17(5)(d) of the CGST
Act.
 
20-07-2024
 
CA Payal (Prerana) Shah
 
49
 
CANCELLATION OF UNIT BOOKING
 
 
20-07-2024
 
CA Payal (Prerana) Shah
50
 
CANCELLATION OF UNIT BOOKING…
 
Mr. Raman had booked a Unit in an under-construction project of Raghav Builders in the
month of Jun’20. In Apr’21, he cancelled the Unit due to cash crunch. Raghav builders
deducted Rs. 50,000 as cancellation charges and refunded the entire amount to Mr.
Raman. In this situation the following queries arise:
Is GST applicable on Unit cancellation charges?
What about GST already paid by Raghav Builders on construction services?
Will you answer change, if Unit was cancelled in Apr’22 instead of Apr’21?
 
20-07-2024
 
CA Payal (Prerana) Shah
51
 
…CANCELLATION OF UNIT BOOKING…
 
S. 34 of CGST Act – Credit and Debit Notes
(1) Where one or more tax invoices have been issued for supply of any goods or services or both and the taxable value
or tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of such supply, or where
the goods supplied are returned by the recipient, or where goods or services or both supplied are found to be deficient,
the registered person, who has supplied such goods or services or both, may issue to the recipient one or more 
credit
notes 
for supplies made in a financial year containing such particulars as may be prescribed.
(2) Any registered person who issues a credit note in relation to a supply of goods or services or both shall declare the
details of such credit note in the return for the month during which such credit note has been issued 
but not later than
the thirtieth day of November following the end of the financial year in which such supply was made
, or the date of
furnishing of the relevant annual return, whichever is earlier, and the tax liability shall be adjusted in such manner as
may be prescribed:
Provided that no reduction in output tax liability of the supplier shall be permitted, if the incidence of tax and interest
on such supply has been passed on to any other person.
 
20-07-2024
 
CA Payal (Prerana) Shah
52
 
… CANCELLATION OF UNIT BOOKING…
 
Clarification by circular no. 137/07/2020-GST dated 13.04.2020
 
20-07-2024
 
CA Payal (Prerana) Shah
53
 
… CANCELLATION OF UNIT BOOKING…
 
Clarification by circular no. 137/07/2020-GST dated 13.04.2020
 
20-07-2024
 
CA Payal (Prerana) Shah
54
 
… CANCELLATION OF UNIT BOOKING…
 
Clarification by circular no. 137/07/2020-GST dated 13.04.2020
 
20-07-2024
 
CA Payal (Prerana) Shah
55
 
…CANCELLATION OF UNIT BOOKING
 
Mafatlal Industries v. Union of India 1997 (89) E.L.T. 247 (SC)
“So long as 
Article 265 is there, the State cannot be permitted to levy any tax without
authority of law
 and if any tax has been collected unlawfully that must be restored to the
person from whom it was collected.
If the tax has been collected from any person unlawfully, it is the taxpayer’s money which is in
unlawful possession of the State.
The 
State has a constitutional obligation to give back the money 
to the tax-payer. An act done
in violation of constitutional mandate is void and no right flows out of that void act to the
State.
The State is in unlawful possession of the tax-payer’s property.
The State cannot retain it on any equitable ground nor can it give it to any other person out of
any supposed equitable consideration.”
 
20-07-2024
 
CA Payal (Prerana) Shah
56
 
RATE OF GST ON CAR PARKING,
DEVELOPMENT CHARGES, ETC.
 
 
20-07-2024
 
CA Payal (Prerana) Shah
57
 
Case Study
 
Realcon Private Limited is a renowned builder in Mumbai and constructs high rise
towers
Realcon Private Limited had sold a flat for Rs. 5 crores which includes the following:
 
20-07-2024
 
CA Payal (Prerana) Shah
58
 
GST on related charges…
 
Section 8. Tax liability on composite and mixed supplies.-
 
The tax liability on a composite or a mixed supply shall be determined in the following
manner, namely:-
 
(a) a composite supply comprising two or more supplies, one of which is a principal
supply, shall be treated as a supply of such principal supply; and
 
(b) a mixed supply comprising two or more supplies shall be treated as a supply of that
particular supply which attracts the highest rate of tax.
 
20-07-2024
 
CA Payal (Prerana) Shah
59
 
…GST on related charges
 
Section 2. Definitions.-
(30) "composite supply" means a supply made by a taxable person to a recipient consisting of two
or more taxable supplies of goods or services or both, or any combination thereof, which are
naturally bundled and supplied in conjunction with each other in the ordinary course of business,
one of which is a principal supply;
Illustration.- Where goods are packed and transported with insurance, the supply of goods,
packing materials, transport and insurance is a composite supply and supply of goods is a
principal supply;
 
(74) "mixed supply" means two or more individual supplies of goods or services, or any
combination thereof, made in conjunction with each other by a taxable person for a single price
where such supply does not constitute a composite supply.
Illustration.- A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry
fruits, aerated drinks and fruit juices when supplied for a single price is a mixed supply. Each of
these items can be supplied separately and is not dependent on any other. It shall not be a mixed
supply if these items are supplied separately;
 
20-07-2024
 
CA Payal (Prerana) Shah
60
 
COMPOSITE SUPPLY – AS PER SUPREME COURT
 
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143 The provisions of composite supply in the CGST Act (and the IGST Act) play a specific
role in the levy of GST. 
The idea of introducing ‘composite supply’ was to ensure that
various elements of a transaction are 
not dissected 
and the levy is imposed on the bundle
of supplies altogether. 
This finds specific mention in the illustration provided under
Section 2(30) of CGST Act, where the principal supply is that of goods. Thus, the intent of
the Parliament was that a transaction which includes different aspects of supply of goods
or services and which are naturally bundled together, must be taxed as a composite
supply.
 
20-07-2024
 
CA Payal (Prerana) Shah
61
 
RCM
 
 
20-07-2024
 
CA Payal (Prerana) Shah
62
 
TAXABILITY OF GOVERNMENT FUNCTIONS…
 
In some cases, the Department is asking the builder to pay GST under RCM even on
various premia, fees, etc. paid to BMC, MHADA etc.
 
Also, ITC is not available to builders for construction of residential apartments
 
What can be the recourse?
 
 
20-07-2024
 
CA Payal (Prerana) Shah
63
 
TAXABILITY OF GOVERNMENT FUNCTIONS…
 
Firstly, is it a ‘supply’ to attract GST?
Government may think it is, as they have to pass on the bucket of GST liability to end
consumers
 
Further as per section 7(2)(b) of CGST Act, 2017 read with notification 14/2017-CT(R)
dated 28.06.2017
“…the following activities or  transactions undertaken by the Central Government or State
Government or Union territory or any local authority in which they are engaged as public
authority, 
shall be treated neither as a supply of goods nor a supply of service
, namely:-
 
“Services by way of any activity in relation to a function entrusted to a Panchayat under
article 243G of the Constitution or to a Municipality under 
article 243W of the Constitution
.”
 
 
20-07-2024
 
CA Payal (Prerana) Shah
64
 
…TAXABILITY OF GOVERNMENT FUNCTIONS
 
As per Bangalore Tribunal in case of Karnataka Industrial Areas Development Board
(KIADB) (2020 117 taxmann.com 69)
“we are of the considered opinion that the appellant is a statutory body 
discharging the
statutory function as per the statute KIAD Act, 1966 
and 
hence are not liable to pay service
tax 
in view of the ratios of the various decisions cited supra”
 
 
20-07-2024
 
CA Payal (Prerana) Shah
65
 
20-07-2024
 
CA Payal (Prerana) Shah
66
 
Thanks
67
G
 
6
th
 Floor, HDIL Kaledonia-A,
Sahar road, Andheri East,
Mumbai 400069, India.
 
022 4612 5600
 
preranashah@gscintime.com
WANT MORE?
 
CHECK NOW 
BY CLICKING LINKS IN DESCRIPTION
 
CA Payal (Prerana) Shah
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Explore the legal background of GST in relation to builders and developers, including the retrospective amendments affecting under-construction properties. Learn about the paradigm shift in GST on real estate from April 1, 2019, affecting ongoing and new projects, with optional schemes and varied tax rates. Delve into the choice builders have regarding opting for 1% or 5% GST rates under specific circumstances.


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  1. 1 Builders, Developers, Contractors and GST Presented by: CA Payal (Prerana) Shah In National Conference on Indirect Taxes organised by ICAI hosted by Indore Branch of CIRC of ICAI On: 03.06.2022

  2. 2 20-07-2024 CA Payal (Prerana) Shah

  3. 3 Legal background of GST viz-a-viz builders/developers GST levied on under-construction development services vide Section 7 (1) read with Entry 5 (b) of Schedule II of CGST Act 2017 with effect from 1 July 2017 Sale of land and building subject to Entry 5 (b) of Schedule II Not a supply of goods or services as per Schedule III Entry 5 (b) of Schedule II: Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier Retrospective amendment to introduce Section 7 (1A) of CGST Act 2017 vide CGST (Amendment) Act 2018 with effect from 1 July 2017 and therefore, only when a transaction is supply, classification of such supply is determined as supply of goods or supply of services vide Schedule II Rate notification (12/2017-CGST (R)) to provide rates for works contract as well as construction services under HSN (SAC) 9954 CA Payal (Prerana) Shah 20-07-2024

  4. PARADIGM SHIFT OF GST ON REAL ESTATE WEF 01.04.2019 ONGOING PROJECTS (OPTION NOT EXERCISED)/ NEW PROJECTS Affordable Affordable 1% WITHOUT ITC Residential Projects Ongoing Projects (Option not Non-Affordable 5% exercised)/ New Projects) Commercial Project 12% (with ITC) Affordable Affordable 1% Ongoing Projects Residential RREP Non Affordable 5% Commercial 5% Mixed Affordable Affordable 1% Residential Note: The rates are effective rates after 1/3rd deduction for land REP Non Affordable 5% Commercial 12% 6/8/2019 CA Prerana Shah 4

  5. 5 NEW SCHEME WEF 01.04.2019 IS OPTIONAL? 20-07-2024 CA Payal (Prerana) Shah

  6. 6 IS NEW SCHEME OPTIONAL?... Do builders have an option to not to go for 1% or 5% if is not beneficial to them? As per FAQ no. 23 on Real estate dated 07.05.2019 Sr. No Question Answer 23. Whether the option to pay tax at the applicable effective rate of 12% or 8% (with ITC) is available to the Promoter in respect of the New Project, which has been commenced on or after 1st April 2019? No, there is no option to pay tax at the effective rate of 12% or 8% with ITC on construction of residential apartments in projects which commences on or after 01-04-2019. Can Government mandate rate consisting of conditions? If yes, what if a person fails to satisfy conditions for availing GST rate of 1%/5%? Person cannot opt for 1%/5% Does notification provide for any other rate? If not, will levy fail in absence of rate? CA Jayesh Gogri 20-07-2024

  7. 7 IS NEW SCHEME OPTIONAL?... Larsen & Toubro Ltd. vs. State of Karnataka 2014 (303) E. L. T. 3 (S.C.) Construction is a specie of works contract Section 2 Definitions In this Act, unless the context otherwise requires, (119) workscontract means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract CA Jayesh Gogri 20-07-2024

  8. 8 IS NEW SCHEME OPTIONAL?... Notification no. 3/2019-CT(R) dated 29.03.2019 Rate entry for works contract Sr. No Question Rate Condition 3(v a) Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, other than that covered by items (i), (ia), (ib), (ic), (id), (ie) and (if) above, supplied by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of affordable residential apartments covered by sub- clause (a) of clause (xvi) of paragraph 4 below, in a project which commences on or after 1st April, 2019, or in an ongoing project in respect of which the promoter has not exercised option to pay central tax on construction of apartments at the rates as specified for item (ie) or (if), as the case may be, in the manner prescribed therein, 6 Provided that area .. at the rate prescribed therein carpet CA Jayesh Gogri 20-07-2024

  9. IS NEW SCHEME OPTIONAL? 9 Residuary entry notification no. 11/2017-CT(R) dated 28.06.2017 Sr. No Description Rate Condition (xii) Construction services other than (i), (ia), (ib), (ic), (id), (ie), (if), (iii), (iv), (v), (va), (vi), (vii), (viii), (ix), (x) and (xi) above. 3(xii) 9 - Explanation. - For the removal of doubt, it is hereby clarified that, supply by way of services specified at items (i), (ia), (ib), (ic), (id), (ie) and (if) in column (3) shall attract central tax prescribed against them in column (4) subject to conditions specified against them in column (5) and shall not be levied at the rate as specified under this entry Seems that there is no rate entry if conditions are not satisfied CA Jayesh Gogri 20-07-2024

  10. 10 COLLECTIBILITY OF GST IF AGREEMENTS ARE SILENT 20-07-2024 CA Payal (Prerana) Shah

  11. 11 Case Study ABC LLP, a developer, had executed a Development Agreement with XYZ Land owner As per the terms of agreement, ABC LLP was responsible to undertake all the costs and expenses related to redevelopment. ABC LLP agreed to provide units free of cost to XYZ Land owner However, the Development Agreement was silent on applicability of GST on free units provided to XYZ Land Owner Now, ABC LLP has issued a demand note to XYZ Land Owner and demanded GST from XYZ Land Owner. However, XYZ Land Owner is denying to pay GST to ABC LLP One of the partner of ABC LLP is of the view that GST is an indirect tax wherein the supplier is allowed to charge and collect GST from recipient CA Payal (Prerana) Shah 20-07-2024

  12. 12 Collectability of GST if agreements are silent BENGAL SHRACHI HOUSING DEVELOPMENT LIMITED 2017 (6) G.S.T.L. 356 (S.C.) 21. an indirect tax have reference only to service tax being an indirect tax in economic theory and not constitutional law. The fact that service tax may not, in given circumstances, be passed on by the service provider to the recipient of the service would not, therefore, make such tax any the less a service tax. It is important to bear this in mind, as the main prop of Shri Jaideep Gupta s argument is that service tax being an indirect tax which must be passed on by virtue of the judgments of this Court, would make the recipient of the service the person on whom the tax is primarily leviable. It is thus clear that the judgments of this Court which referred to service tax being CA Payal (Prerana) Shah 20-07-2024

  13. 13 BUYING AND SELLING PLOT OF LAND 20-07-2024 CA Payal (Prerana) Shah

  14. 14 GST ON SALE OF PLOT OF LAND??? Mr. Zamindaar is owner of plot of land He has developed his plot by carrying out primary activities like drainage line, water line, electricity line, land levelling, street lights, etc. Is GST applicable on sale of such developed plot of land? CA Payal (Prerana) Shah 20-07-2024

  15. 15 GST ON SALE OF PLOT OF LAND??? Schedule III 5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building. M/s. Shree Dipesh Anilkumar Naik 2020 (6) TMI 448 AAR (Guj.) 12. In present case, we also find that the applicant is the owner of the land, who develops the land with an infrastructure such as Drainage line, Water line, Electricity line, Land levelling etc. . His sales price includes the cost of the land as well as the cost of common amenities, Drainage line, Water line, Electricity line, Land levelling charges, etc. on a proportionate basis 14. We find that the activity of the sale of developed plots would be covered under the clause construction of a complex intended for sale to a buyer . Thus, the said activity is covered under constructionservices and GST is payable on the sale of developed plots in terms of CGST Act / Rules and relevant Notification issued time to time CA Payal (Prerana) Shah 20-07-2024

  16. 16 GST ON SALE OF PLOT OF LAND??? M/s Vidit Builders, Jabalpur ((AAR Madhya Pradesh dated 06.01.2020) In respect of Joint Development Agreement AAR Madhya Pradesh held It is not the land owner, it is the developer who will be responsible for paying the GST on the amount of his share The activities of the developer will be taxed as the services of Work Contractors CA Payal (Prerana) Shah 20-07-2024

  17. 17 SELLING DEVELOPMENT RIGHTS 20-07-2024 CA Payal (Prerana) Shah

  18. 18 TAXABILITY OF DEVELOPMENT RIGHTS Notifications that hint taxability of TDR/FSI in indirect manner Notification 4/2019-CT(R) dated 29.03.2019 Exempts TDR/FSI subject to following conditions: Transfer of TDR/FSI takes place on or after 01.04.2019 TDR/FSI used for the construction of residential apartment Such residential apartments are booked prior to first occupation or date of completion certificate Notification 5/2019-CT(R) dated 29.03.2019 GST payable on RCM by Developer on supply of service by way of transfer of development rights/FSI Notification 6/2019-CT(R) dated 29.03.2019 GST on TDR/FSI (except commercial portion for monetary consideration) to be paid on or before the date of completion certificate or first occupation, whichever is earlier to the extent of unsold flats CA Payal (Prerana) Shah 20-07-2024

  19. 19 TAXABILITY OF DEVELOPMENT RIGHTS Can supply of TDR/FSI be treated as supply of land? CA Payal (Prerana) Shah 20-07-2024

  20. 20 TAXABILITY OF DEVELOPMENT RIGHTS Schedule III Activities or transaction which shall be treated neither as a supply of goods nor a supply of services 5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building DLF Commercial Projects Corporations 2019 (5) TMI 1299 - Cestat Chandigarh Transferable Development Right is a immovable property CA Payal (Prerana) Shah 20-07-2024

  21. 21 TAXABILITY OF DEVELOPMENT RIGHTS Section 2(14) of the Maharashtra Regional and Town Planning Act,1966 defines land to include benefits to arise out of land, and things attached to the earth or permanently fastened to anything attached to the earth Section 3(p) The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 defines land to include benefits to arise out of land, and things attached to the earth or permanently fastened to anything attached to the earth Supreme court in case of Safiya Bee vs Mohd. Vajanath Hussain [2011 2 SCC 94] stated that land includes right in or over land and benefits arising out of land Constitution of India Entry 18, List 2 Land, that is to say, rights in or over land, land tenures including the relation of landlord and tenant, and the collection of rents; transfer and alienation of agricultural land; land improvement and agricultural loans; colonization CA Payal (Prerana) Shah 20-07-2024

  22. 22 IS GST LEVIABLE ON FREE UNITS? 20-07-2024 CA Payal (Prerana) Shah

  23. 23 CASE STUDY Laxmichand executed a Development Agreement with Nirmit Pvt Ltd on 17.02.2020 for redevelopment of plot and providing free units As per the terms of Development Agreement: Nirmit Pvt Ltd agreed to provide newly constructed units free of cost to Laxmichand Society agreed to allow Nirmit Pvt Ltd to utilise full FSI by paying applicable premium to Municipal Corporation and load TDR from open market Nirmit Pvt Ltd will incur all the cost and expenses for redevelopment Nirmit Pvt Ltd can sell the additional units to various buyers and earn revenue from it Is GST leviable on units given free of cost to Society? CA Payal (Prerana) Shah 20-07-2024

  24. 24 IS GST LEVIABLE ON FREE UNITS?... Notification no. 03/2019 CT(R) dated 29.03.2019 Provided also that where a registered person (landowner- promoter) who transfers development right or FSI (including additional FSI) to a promoter (developer- promoter) against consideration, wholly or partly, in the form of construction of apartments, - (i) the developer- promoter shall pay tax on supply of construction of apartments to the landowner- promoter, and Extract of FAQ dated 14.05.2019 Sr. No Question Answer 9. In case of redevelopment or slum rehabilitation project, (new or an existing project) whether the constructed units supplied to existing occupiers by the developer free of monetary consideration are taxable?.... Yes, units supplied free of cost also attract GST as their consideration is not money but TDR/ FSI or rights relatable to land on which construction takes place CA Payal (Prerana) Shah 20-07-2024

  25. 25 IS GST LEVIABLE ON FREE UNITS?... Consideration Is there any consideration? Definition of consideration (31) consideration in relation to the supply of goods or services or both includes (a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government; (b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government: Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply CA Payal (Prerana) Shah 20-07-2024

  26. 26 .IS GST LEVIABLE ON FREE UNITS?... Vasantha Green Projects 2019 (20) G.S.T.L. 568 (Tri. - Hyd.) Pending in SC Para 7. It has to be construed, in the above factual matrix, that construction of villas for the landowners is a consideration towards the land on which villas were constructed and offered for sale to prospective customers. It would not be a rocket science to understand that 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. It is not a case that appellant has not discharged the service tax liability on the value received for the villas from prospective customers. In our view, 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 the same value, it 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 CA Payal (Prerana) Shah 20-07-2024

  27. 27 .IS GST LEVIABLE ON FREE UNITS?... Ethics Infra 2022 (1) TMI 1015 (Tri. - Mum.) 4.8 In the present case the respondent has discharged the complete service tax liability on the gross amount received by him for providing the taxable services. Once he have discharged the tax liability on the gross consideration received by him by the sale of flats to new buyers, the demand of service tax for the flats handed over to the existing members of the societies without any consideration cannot be sustained. CA Payal (Prerana) Shah 20-07-2024

  28. 28 CAN NOTIFICATIONS PRESCRIBE VALUE? 20-07-2024 CA Payal (Prerana) Shah

  29. 29 CAN NOTIFICATION PRESCRIBE VALUE OF SUPPLY?... Notification no. 3/2019-CTR dated 29.03.2019 2A. Where a registered person transfers development right or FSI (including additional FSI) to a promoter against consideration, wholly or partly, in the form of construction of apartments, the value of construction service in respect of such apartments shall be deemed to be equal to the Total Amount charged for similar apartments in the project from the independent buyers, other than the person transferring the development right or FSI (including additional FSI), nearest to the date on which such development right or FSI (including additional FSI) is transferred to the promoter, less the value of transfer of land, if any, as prescribed in paragraph 2 above. Notification no. 3/2019-CTR dated 29.03.2019 takes power from section 15(5) CA Payal (Prerana) Shah 20-07-2024

  30. 30 CAN NOTIFICATION PRESCRIBE VALUE OF SUPPLY?... Section 15. Value of supply (4) Where the value of the supply of goods or services or both cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed (5) Notwithstanding anything contained in sub-section (1) or sub-section (4), the value of such supplies as may be notified by the Government on the recommendations of the Council shall be determined in such manner as may be prescribed Definition of term prescribed (87) prescribed means prescribed by rules made under this Act on the recommendations of the Council CA Payal (Prerana) Shah 20-07-2024

  31. 31 CAN NOTIFICATION PRESCRIBE VALUE OF SUPPLY?... Notification no. 4/2019-CTR dated 29.03.2019 also prescribes value. However, the said notification does not take power from Section 15 of CGST Act 1A. Value of supply of service by way of transfer of development rights or FSI by a person to the promoter against consideration in the form of residential or commercial apartments shall be deemed to be equal to the value of similar apartments charged by the promoter from the independent buyers nearest to the date on which such development rights or FSI is transferred to the promoter 1B. Value of portion of residential or commercial apartments remaining un-booked on the date of issuance of completion certificate or first occupation, as the case may be, shall be deemed to be equal to the value of similar apartments charged by the promoter nearest to the date of issuance of completion certificate or first occupation, as the case may be CA Payal (Prerana) Shah 20-07-2024

  32. 32 CAN NOTIFICATION PRESCRIBE VALUE OF SUPPLY? Notification no. 4/2019-CTR dated 29.03.2019 Opening para In exercise of the powers conferred by sub-section (1) of section 11 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on being satisfied that it is necessary in the public interest so to do, on the recommendations of the Council, hereby makes the following further amendments in the notification of the Government of India, in the Ministry of Finance (Department of Revenue), No.12/2017- Central Tax (Rate), dated the 28th June, 2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 691(E), dated the 28th June, 2017, namely: CA Payal (Prerana) Shah 20-07-2024

  33. 33 VALUE OF LAND? 20-07-2024 CA Payal (Prerana) Shah

  34. 34 VALUE OF LAND IN TOTAL VALUE OF SUPPLY ABC Pvt Ltd had sold a flat 1000 sq. ft. of flat for Rs. 2,00,00,000 (i.e. Rs. 20,000 per sq. ft.) in its newly started project The rate of Rs. 20,000 per sq. ft. consists of the following two components: Rs. 16,000 for land Rs. 4,000 for construction However, the above two components were not separately recorded in the agreement and a single lump sum price of Rs. 2 crs was charged How much GST is payable on the flat sold by ABC Pvt Ltd? CA Payal (Prerana) Shah 20-07-2024

  35. 35 VALUE OF LAND IN TOTAL VALUE OF SUPPLY Deemed value of land Notification 11/2017- CT(R) dated 28.06.2017 as amended by notification no. 3/2019 CT(R) dated 29.03.2019 Entries of construction services provide as under: (Provision of Paragraph 2 of this notification shall apply for valuation of this service) 2. In case of supply of service specified in column (3), in item (i); (i) (ia), (ib), (ic), (id), (ie) and (if) against serial number 3 of the Table above, involving transfer of land or undivided share of land, as the case may be, the value of such supply shall be equivalent to the total amount charged for such supply less the value of transfer of land or undivided share of land, as the case may be, and the value of such transfer of land or undivided share of land, as the case may be, in such supply shall be deemed to be one third of the total amount charged for such supply. CA Payal (Prerana) Shah 20-07-2024

  36. 36 VALUE OF LAND IN TOTAL VALUE OF SUPPLY MUNJAAL MANISHBHAI BHATT 2022 (5) TMI 397 - GUJARAT HIGH COURT 122. In the result, the impugned Paragpragh 2 of the Notification No. 11/2017-Central Tax (Rate) dated 28.6.2017 and identical notification under the Gujarat Goods and Services Tax Act, 2017, which provide for a mandatory fixed rate of deduction of 1/3rd of total consideration towards the value of land is ultra-vires the provisions as well as the scheme of the GST Acts. Application of such mandatory uniform rate of deduction is discriminatory, arbitrary and violative of Article 14 of the Constitution of India. 123. While we so conclude, the question is whether the impugned paragraph 2 needs to be struck down or the same can be saved by reading it down. In our considered view, while maintaining the mandatory deduction of 1/3rd for value of land is not sustainable in cases where the value of land is clearly ascertainable or where the value of construction service can be derived with the aid of valuation rules, such deduction can be permitted at the option of a taxable person particularly in cases where the value of land or undivided share of land is not ascertainable. CA Payal (Prerana) Shah 20-07-2024

  37. 37 VALUE OF LAND IN TOTAL VALUE OF SUPPLY As per section 15(1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply Schedule III Activities or transactions which shall be treated neither as a supply of goods nor a supply of services Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building. CA Payal (Prerana) Shah 20-07-2024

  38. 38 VALUE OF LAND IN TOTAL VALUE OF SUPPLY Commissioner of Service tax vs. Bhayana Builders (P) Ltd. 2018 (10) GSTL 118 (SC) 18. In the first instance, no material is produced before us to justify that aforesaid basis of the formula was adopted while issuing the notification. In the absence of any such material, it would be anybody s guess as to what went in the mind of the Central Government in issuing these notifications and prescribing the service tax to be calculated on a value which is equivalent to 33% of the gross amount CA Payal (Prerana) Shah 20-07-2024

  39. 39 VALUE OF LAND IN TOTAL VALUE OF SUPPLY As per section 15(4) of CGST Act (4) Where the value of the supply of goods or services or both cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed. Rule 27 of CGST Rules prescribes value of supply as open market value in a situation where consideration is not wholly in money As per explanation to Rule 35 of CGST Rules (a) "open market value" of a supply of goods or services or both means the full value in money, excluding the integrated tax, central tax, State tax, Union territory tax and the cess payable by a person in a transaction, where the supplier and the recipient of the supply are not related and the price is the sole consideration, to obtain such supply at the same time when the supply being valued is made Stamp Duty value may be taken as open market value as the same is also adopted by State Government CA Payal (Prerana) Shah 20-07-2024

  40. 40 Whether value of land notification can be retrospectively amended? Govind Saran Ganga Saran Vs. CST [1985] 155 ITR 144 (SC) The taxable event, the person liable to pay the tax, the rate of tax and the value on which the tax is payable are the essential ingredients of a taxation statute and they have to be clearly and unambiguously conveyed. If there is any ambiguity regarding any of these ingredients in a taxation statute, there is no tax in law Larsen and Toubro Ltd [2015] 60 taxmann.com 354 (SC) Works contract cannot be taxed prior to 01.06.2007 in absence of valuation Rule like Rule 2A of the Service Tax (Determination of Value) Rules, 2006 Suresh Kumar Bansal [2016] 70 taxmann.com 55 (Delhi) pending in SC Purchase of an under-construction flat was held to be not leviable to tax in absence of a valuation mechanism to deduct the value towards land Subsequent to this decision, Rule 2A of the said rule was amended retrospectively so as to provide for a valuation mechanism for deduction of land CA Payal (Prerana) Shah 20-07-2024

  41. 41 REVENUE SHARING AGREEMENT 20-07-2024 CA Payal (Prerana) Shah

  42. 42 REVENUE SHARING AGREEMENT M/S. MAARQ SPACES PRIVATE LIMITED 2020 (5) TMI 415 APP. AAR KAR. 25% to Maarq M/S. MAARQ SPACES PRIVATE LIMITED Maarq to obtain required licences, sanctions, consent, permissions, NOC and procure sanction plan Revenue from sale of developed plots shared between Maarq Spaces and Landowner Revenue sharing agreement for development of land into residential layout 75% To land owner Queries: a) Whether the activity of development and sale of land attracts tax under GST? b) the answer to the above question is yes, for the purpose of taxable value, whether provision of Rule 31 can be made applicable in ascertaining the value of land and supply of service? Land Owner CA Payal (Prerana) Shah 20-07-2024

  43. 43 REVENUE SHARING AGREEMENT . Pronounced by App. AAR 15. The Appellant has also contended that there is no supply of any service by him to the landowners; that the JDA has been executed with a mutual agreement by both the parties to jointly develop the land and share the revenues out of the sale of land. In real estate transactions involving plotted development, one party owns the land and another party has the expertise to develop the land. The two parties come together with the common intention of developing the land and sharing the revenue accruing for the sale of the developed plots in the land. However, the landowners give the rights of using the land to the developer in exchange for which, the developer gives the service of developing the land of the owners. While the Joint Development agreement is entered into for the two parties to jointly reap the benefits of the sale of the land to customers, there is a clear rendering of a service by the developer to the landowner in developing the land which belongs to the landowner. Therefore, we hold that the activity of developing the land is a supply of service by the Appellant. Rule 31 applies in the instant case and the value of the supply is equal to the total amount received by the applicant, which is equal to 25% of the market value of each plot CA Payal (Prerana) Shah 20-07-2024

  44. 44 REVENUE SHARING AGREEMENT Schedule III 5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building. CA Payal (Prerana) Shah 20-07-2024

  45. 45 REVENUE SHARING AGREEMENT Consideration is received by both the parties viz. landowner as well as developer only when plots are sold to ultimate buyer Merely an appropriation of revenue What if plot is never sold? Developer may not earn anything Therefore, development rights may not be treated as consideration. There needs to be some element of benefit for supplying service which can be materialised Example: If seven horses are pulling the cart, the horses are not supplying services to each other but supplying it to the person riding cart CA Payal (Prerana) Shah 20-07-2024

  46. 46 ITC ON CONSTRUCTION & WORKS CONTRACT 20-07-2024 CA Payal (Prerana) Shah

  47. ITC ON CONSTRUCTION OF IMMOVABLE PROPERTY USED FOR BUSINESS Mr. Richie is engaged in the business of renting commercial properties. 47 He wishes to construct a shopping mall and rent the mall after construction. Can Mr. Richie claim ITC of inputs used in construction of such shopping mall? CA Payal (Prerana) Shah 20-07-2024

  48. ITC ON CONSTRUCTION OF IMMOVABLE PROPERTY USED FOR BUSINESS 48 S. 17(5) of CGST Act, 2017 Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely:- (c) works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service; (d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business. Explanation. For the purposes of clauses (c) and (d), the expression construction includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property; CA Payal (Prerana) Shah 20-07-2024

  49. ITC ON CONSTRUCTION OF IMMOVABLE PROPERTY USED FOR BUSINESS Safari Retreats Pvt. Ltd. 2019 (25) GSTL 341 (Orissa. HC) dated 17.04.2019 [further challenged in Supreme Court 2020 (32) GSTL J120 (SC)] 20. In that view of the matter, in our considered opinion the provision of Section 17(5)(d) is to be read down and the narrow restriction as imposed, reading of the provision by the Department, is not required to be accepted, inasmuch as keeping in mind the language used in (1999) 2 SCC 361= 1999 (106) E.L.T. 3 (S.C.) (supra), the very purpose of the credit is to give benefit to the assessee. In that view of the matter, if the assessee is required to pay GST on the rental income arising out of the investment on which he has paid GST, it is required to have the input credit on the GST, which is required to pay under Section 17(5)(d) of the CGST Act. 20-07-2024 CA Payal (Prerana) Shah 49

  50. 50 CANCELLATION OF UNIT BOOKING 20-07-2024 CA Payal (Prerana) Shah

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