2025 (6) TMI 577 - AAR - GST

Levy of GST - area given free of cost to existing members under a redevelopment agreement - monetary considerations paid to existing members in terms of the development agreement - taxable value for levy of GST on the area given free of cost to existing members. GST Liability on Area Given Free of Cost to Existing Members - HELD THAT - In cases where flats are allotted to existing members of a society under a re-development arrangement such allotment is not made in consideration of monetary payment. Instead the consideration is in the form of development rights transferred by the society to the developer for the purpose of re-development. In accordance with above mentioned para 2A and Rule 27 (a) of the Central Goods and Services Tax Rules 2017 where the consideration is not wholly in money the value of such flats shall be deemed to be equal to the value of similar flats supplied by the builder or developer to independent buyers for monetary consideration - Such construction services rendered by the developer to the landowner or society members in exchange for development rights constitute a supply of service within the meaning of clause 5 (b) of Schedule II of the Central Goods and Services Tax Act 2017 and are accordingly liable to Goods and Services Tax (GST). Whether GST is payable on various monetary payments made to the society members? - HELD THAT - As per Notification No. 06/2019-State Tax (Rate) dated 30th March 2019 GST liability payable on development rights is to be paid by promoter (builder/developer) on the date of issuance of completion certificate for the project where required by the competent authority or on its first occupation whichever is earlier. A new tax structure for real estate sector was introduced with effect from 1- 4-2019 onwards by amendment of Notification No. 11/2017 Central Tax (Rate) dated 28-6-2017 by Notification No. 03/2019-Central Tax (Rate) dated 29-3-2019. The Notification No. 03/2019-Central Tax (Rate) dated 29-3-2019 substituted the rate for services related to real estate sector with effect from 1-4-2019 and also made provisions for continuing the old rate of tax (as it existed up to 31-3-2019) for the ongoing projects. Notification No. 04/2019 -Central Tax (Rate) dated 29-3-2019 provided that the promoter shall be liable to pay tax at applicable on reverse charge basis. The taxation of development rights after 01-04-2019 is governed by entry 41A of NN 12/2017 CT(R) dated 28/06/2017. The tax would be payable to the extent of unsold flats on the date of CC. It says promoter shall be liable to pay tax at the applicable rate on reverse charge basis on such proportion of value of development rights or FSI attributable to the residential apartments which remain un-booked on the date of issuance of completion certificate or first occupation of the project whichever is earlier. It is further provided that tax payable shall not exceed 1% of the value in case of affordable residential apartments and 5% of the value in case of residential apartments other than affordable residential apartments remaining un-booked on the date of issuance of completion certificate or first occupation. The liability to pay central tax on the said portion of the development rights or FSI or both calculated as above shall arise on the date of completion or first occupation of the project as the case may be whichever is earlier. Conclusion - i) GST is payable on the area given free of cost amenities parking and stamp duty borne by the developer to existing members. ii) GST is not payable separately on monetary considerations paid to existing members or society as these are part of the overall consideration for development rights. iii) The taxable value for GST on area given free of cost is the market value of similar flats sold to independent buyers nearest to the date of transfer of development rights or completion certificate.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Authority for Advance Ruling (AAR) under Sections 97 and 98 of the Central Goods and Services Tax Act, 2017 and Maharashtra Goods and Services Tax Act, 2017 are as follows:

Question 1: Whether Goods and Services Tax (GST) is payable on the area given free of cost to existing members under a redevelopment agreement, including the following components:

• Area in lieu of existing area given
• Additional area given
• Amenities provided
• Parking area
• Stamp duty and registration charges borne by the builder/developer

Question 2: Whether GST is payable on monetary considerations paid to existing members in terms of the development agreement, namely:

• Rent for alternate accommodation
• Brokerage for alternate accommodation
• Shifting charges
• Corpus to existing members
• Corpus to the society

Question 3: What is the taxable value for levy of GST on the area given free of cost to existing members, including the components listed under Question 1?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: GST Liability on Area Given Free of Cost to Existing Members

Relevant Legal Framework and Precedents:

The GST law defines "supply" under Section 7 of the CGST Act, 2017, which includes all forms of supply of goods or services or both made or agreed to be made for a consideration in the course or furtherance of business, including barter or exchange. Schedule II, Sr. No. 5(b) treats construction of a building or part thereof intended for sale as a supply of service. Notifications No. 03/2019, 04/2019, and 06/2019-Central Tax (Rate) dated 29th March 2019 govern the GST liability on development rights and construction services, with the liability on the promoter (builder/developer) arising on the date of issuance of the completion certificate or first occupation, whichever is earlier. Rule 27(a) of the CGST Rules, 2017 prescribes valuation principles where consideration is partly or wholly not in money.

Advance rulings such as the Telangana AAR in M/s. Vajra Infracorp India Pvt. Ltd and M/s. Maddi Seetha Devi have held that transfer of development rights is consideration for construction services rendered by the developer, and the value of such services is determined by the price charged for similar apartments sold to independent buyers.

Court's Interpretation and Reasoning:

The AAR observed that the developer entered into a development agreement dated 02.09.2016 with the society, subsequently amended by two supplementary agreements in 2021 and 2024. The project commenced only in March 2022 and was completed in July 2024, with the occupation certificate issued on 12.08.2024.

The developer received development rights (transfer of development rights, TDR/FSI) from the society and, in exchange, constructed flats were allotted to existing members free of monetary consideration. This constituted an exchange transaction under Section 7(1)(a) of the CGST Act, 2017.

Schedule II, Sr. No. 5(b) classifies construction of buildings intended for sale as supply of service. The developer's provision of constructed flats, amenities, parking, and bearing stamp duty and registration charges to existing members in exchange for development rights is a taxable supply of service.

The AAR further noted that the original agreement dated 02.09.2016 was not an executed agreement in the legal sense because it was amended substantially by subsequent agreements, which fixed definitive terms and obligations. The transfer of development rights is considered to have taken place under the first supplementary agreement dated 01.12.2021, which falls within the GST regime effective from 01.04.2019.

Key Evidence and Findings:

• The development agreement and supplementary agreements detailing the transfer of development rights and allotment of flats.
• Commencement and completion dates of the project, with the occupation certificate issued post-GST regime.
• Payments made by the developer to members for rent, shifting charges, brokerage, and corpus.
• Valuation of flats sold to independent buyers at market rates.

Application of Law to Facts:

The AAR applied the provisions of Section 7, Schedule II, and relevant notifications to hold that the supply of free flats and amenities to existing members is a taxable supply of construction services. The developer is liable to pay GST on this supply at the applicable rates (1% for affordable housing or 5% for non-affordable housing) without Input Tax Credit, as per Notification No. 03/2019-CT(R).

The value of such supply is to be determined as per Rule 27(a) of the CGST Rules, 2017, i.e., the price charged for similar flats sold to independent buyers nearest to the date of transfer of development rights or completion certificate.

Treatment of Competing Arguments:

The applicant contended that since the original agreement was entered into before the GST regime and supplementary agreements were extensions, no GST liability arises. The AAR rejected this, emphasizing that the original agreement was not executed in the legal sense as it was substantially amended, and the transfer of development rights occurred post-01.04.2019 under the supplementary agreements. The applicant's reliance on notifications applicable before 2019 was held inapplicable.

Conclusion:

GST is payable by the developer on the area given free of cost to existing members, including additional area, amenities, parking, and stamp duty and registration charges borne by the developer, as these constitute a supply of construction services in exchange for development rights.

Issue 2: GST Liability on Monetary Consideration Paid to Existing Members

Relevant Legal Framework and Precedents:

Monetary payments such as rent for alternate accommodation, brokerage, shifting charges, and corpus paid to members or society are examined under the GST law to determine whether they constitute supply of service by the developer or are merely part of the consideration for development rights.

Court's Interpretation and Reasoning:

The AAR noted that these payments are made by the developer as part of the overall consideration for acquisition of development rights and not as separate supplies of service by the developer. The payments are incidental to the redevelopment project and are made to facilitate the redevelopment process.

The developer's liability to pay GST arises on the supply of construction services (free flats) and not on these monetary payments, which are treated as part of the consideration paid to society members along with the free units.

Key Evidence and Findings:

• Payments made to members for rent, brokerage, shifting, and corpus as per the agreements.
• Nature of these payments as compensatory or facilitative rather than independent supplies.

Application of Law to Facts:

Since these payments are made by the developer and not received, they do not constitute supply by the developer and hence are not separately taxable under GST. The overall consideration for development rights includes these payments along with the free flats supplied.

Treatment of Competing Arguments:

The applicant argued that no GST liability arises on these payments. The AAR agreed with this position, clarifying that these are not supplies by the developer but part of the consideration for development rights.

Conclusion:

GST is not payable separately on monetary considerations such as rent for alternate accommodation, brokerage, shifting charges, or corpus paid to existing members or society, as these are part of the overall consideration for development rights.

Issue 3: Taxable Value for GST on Area Given Free of Cost

Relevant Legal Framework and Precedents:

Rule 27(a) of the CGST Rules, 2017 and paragraph 2A of Notification No. 11/2017 CT(R) dated 28.06.2017 prescribe valuation methods where consideration is partly or wholly not in money. The value of construction services in respect of apartments given in lieu of development rights is deemed to be equal to the total amount charged for similar apartments sold to independent buyers nearest to the date of transfer of development rights.

Court's Interpretation and Reasoning:

The AAR held that the taxable value of the free area, amenities, parking, and stamp duty borne by the developer is the gross amount charged by the developer to independent buyers for similar flats near the date of completion certificate or transfer of development rights.

This valuation method ensures that the GST liability reflects the market value of the supply and aligns with statutory provisions and notifications.

Key Evidence and Findings:

• Market price of flats sold to independent buyers at Rs. 19,000 per sq. ft. carpet area.
• Completion certificate date and timing of transfer of development rights.

Application of Law to Facts:

The value of supply for GST purposes is determined as per Rule 27(a) and Notification No. 11/2017 CT(R), equating the value of free units to the price charged for similar units sold to independent buyers.

Treatment of Competing Arguments:

The applicant's argument that no GST liability arises due to the original agreement predating GST was rejected, as the executed agreements and transfer of development rights occurred post-GST implementation.

Conclusion:

The taxable value of the area given free of cost to existing members is the market value of similar flats sold to independent buyers nearest to the date of transfer of development rights or completion certificate.

3. SIGNIFICANT HOLDINGS

On GST Liability on Free Area and Amenities:

"The supply of residential units to society members is considered a supply of construction services under Section 7 of the CGST Act, as it involves the construction of a building for the society in exchange for TDR/FSI."

"The developer is liable to pay GST on the allotment of flats given free of cost to society members."

On GST Liability on Monetary Payments to Members:

"Mere payments of monetary charges do not amount to supply of services on the part of the developer as he is paying these amounts. These amounts are in the form of consideration paid along with free units by the developer for acquiring development rights from the society."

On Valuation of Supply:

"The value of supply of the apartments to the existing members in lieu of the development right is equivalent to sale of similar apartment sold by the developer to the independent buyers nearest to the date on which development right is transferred."

Core Principles Established:

• Supply of free flats and amenities in redevelopment projects in exchange for development rights constitutes a taxable supply of construction services under GST.
• Monetary payments made by the developer to society members as part of redevelopment consideration are not separate taxable supplies.
• Taxable value of such free supply is determined based on the market price of similar flats sold to independent buyers near the date of transfer of development rights or completion certificate.
• Executed agreements with definitive terms post-GST implementation govern GST liability, not preliminary or original agreements predating GST.

Final Determinations:

Question 1: GST is payable on the area given free of cost, amenities, parking, and stamp duty borne by the developer to existing members.

Question 2: GST is not payable separately on monetary considerations paid to existing members or society, as these are part of the overall consideration for development rights.

Question 3: The taxable value for GST on area given free of cost is the market value of similar flats sold to independent buyers nearest to the date of transfer of development rights or completion certificate.