2025 (6) TMI 1233 - AAR - GST

Levy of GST - sale of land under Item No. 5 of Schedule III of the CGST/TNGST Act or not - Execution of a Sale Deed by the landowner for the undivided share of land (UDS) area including the built-up area constructed by the applicant - HELD THAT - In the instant case the Joint Development Agreement between the landlord and the developer-promoter is dated 22nd Nov 2023 and therefore the various situations described in the notification shall be applicable to the applicant and accordingly appropriate GST has to be paid by them to the government on both the transactions with landowner (handing over of 2 flats as mentioned in the JDA) as well as with the prospective buyers if the said transactions are before the issuance of completion certificate or before the date of first occupation of any of the residential units. The applicant is very clear on the applicability of GST on the flats handed over to the landlord or sold to the prospective buyers. However with the issuance of G.O.Ms. NO.131 Commercial Tax and Registration Department (I) dated 01.12.2023 the applicant contends that the composite value which is the component of the value of land and building for the purpose of registration and stamp duty charges is sle of land and therefore claimed that their activity shall be treated neither as supply of goods nor as a supply of service in terms of item No. 5 of Schedule-III of the CGST/TNGST Act 2017. While the applicant is very clear about the time of supply of service the query is about the taxability of the composite value of land (UDS) and residential unit as appropriate stamp duty and registration charges have been paid by them on the composite value as per the new norms introduced by the Registration department of the State government. Therefore the applicant is contending that there is sufficient ground for them to claim exclusion as sale of land under item No. 5 of Schedule-III of the Act. The applicant is a builder promoter and their activity falls within the Serial No.3 (ia) of N/N. 11/2017 Central Tax (Rate) dated 28.06.2017 as amended vide N/N. 3/2019 Central Tax (Rate) dated 29.03.2019 which attracts levy of GST. The execution of the sale deed by the land owner for the undivided share of land area is a critical determinant in establishing whether the transfer of land qualifies as an independent transaction. If such execution is completed before or independent of the construction activity undertaken the exclusion of the land value from GST liability shall be substantiated. For a composite contract where consideration is not bifurcated GST is liable to be paid on the entire transaction value subject to one third deduction of land value. After the introduction of new norms read with the circular if the composite value of the project is considered for registration of residential units as part of single agreement where land cost and construction cost cannot be vivisected GST would apply on the transaction value post deduction of land value. The applicant s claim of exclusion of entire value of both UDS and the area including the built up area as Sale of land resulting in non-liability in their hands on the construction of built up area to the buyers for the sale of apartment that were allocated to them as per the Joint Venture Development Agreement does not fall under Item No.5 of Schedule III of the CGST Act / TNGST Act. Conclusion - The applicant s claim of exclusion as sale of land for the Sale Deed executed by the landowner for the UDS area including the built up area constructed by the applicant resulting in non-liability in their hands on the construction of built up area to the buyers for the sale of apartment that were allocated to them as per the Joint Venture Development Agreement does not fall under Item No.5 of Schedule III of the CGST Act / TNGST Act.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Authority for Advance Ruling (AAR) are:

- Whether the execution of a Sale Deed by the landowner for the undivided share of land (UDS) area, including the built-up area constructed by the applicant, qualifies as a sale of land under Item No. 5 of Schedule III of the CGST/TNGST Act, thereby excluding the transaction from GST liability.

- Whether the applicant, as a developer and builder engaged in construction and sale of residential apartments, is liable to pay GST on the construction of built-up area sold to buyers, notwithstanding the composite value registration norms introduced by the Tamil Nadu Registration Department.

- The applicability and interpretation of the composite valuation norm introduced by the Tamil Nadu Government for stamp duty and registration purposes on the combined value of land and building, and its impact on GST liability.

- The implications of the Joint Development Agreement (JDA) structure on GST liability, particularly in relation to the transfer of developmental rights and the timing of GST payment vis-`a-vis completion certificate or first occupation.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Whether the execution of Sale Deed by the landowner for UDS including built-up area constitutes sale of land under Item No. 5 of Schedule III of CGST/TNGST Act, exempting it from GST liability.

Relevant Legal Framework and Precedents:

- Item No. 5 of Schedule III of CGST/TNGST Act excludes sale of land from the definition of supply, hence no GST is applicable on pure sale of land.

- Entry 5(b) of Schedule II of the CGST/TNGST Act treats construction of buildings or complexes intended for sale as supply of service, attracting GST unless entire consideration is received after issuance of completion certificate or first occupation.

- Notification No. 11/2017-CT (Rate) and its amendment Notification No. 3/2019-CT (Rate) prescribe GST rates and valuation methods for construction services.

- The Registration Act, 1908 governs stamp duty and registration of property transactions, distinct from GST law.

- Tamil Nadu Government's G.O.Ms. No. 131 and Circular No. 45438/L1/2023 introduced composite valuation (land + building) for stamp duty and registration purposes.

Court's Interpretation and Reasoning:

- The AAR noted that the composite value norm is introduced solely for stamp duty and registration purposes under state law and does not alter the GST law or its interpretation.

- Stamp duty and registration charges are state-imposed taxes and are outside the scope of GST, which applies only to supply of goods and services.

- The applicant's contention that the composite value registration implies the entire transaction should be treated as sale of land (and thus exempt from GST) was rejected because GST law specifically treats construction of buildings as supply of service, not exempted merely by the manner of registration or stamp duty valuation.

- The AAR emphasized that the composite value registration does not affect the GST liability on the construction activity, which remains taxable under GST law.

Key Evidence and Findings:

- The applicant's Joint Development Agreement entitles them to construct and sell apartments, retaining two flats for sale and transferring two to the landowner.

- The applicant executed sale deeds on composite values post the new stamp duty circular.

- No completion certificate or first occupation had been issued, so GST liability on construction services applies.

- No allotment letter or conveyance deed for landowner's share was produced to exclude GST liability.

Application of Law to Facts:

- The applicant's activity of constructing and selling apartments before completion certificate issuance falls under taxable supply of service per Schedule II Entry 5(b).

- The composite valuation for stamp duty does not change the nature of supply under GST.

- The sale deed executed by the landowner for UDS including built-up area does not confer exemption from GST on construction services supplied by the applicant.

Treatment of Competing Arguments:

- Applicant argued that composite value registration implies sale of land, thus invoking Item No. 5 of Schedule III and exempting GST.

- The AAR distinguished the domains of stamp duty and GST law, rejecting the applicant's argument as there is no amendment or clarification in GST law to support such exclusion.

Conclusions:

- The execution of sale deed on composite value does not exempt the applicant from GST liability on construction services.

- The claim of exclusion under Item No. 5 of Schedule III is not tenable.

Issue 2: Applicability of GST on construction services under the Joint Development Agreement prior to completion certificate or first occupation.

Relevant Legal Framework and Precedents:

- Entry 5(b) of Schedule II of CGST/TNGST Act defines construction of buildings intended for sale as supply of service liable to GST unless full consideration is received post completion certificate or first occupation.

- Notification No. 11/2017-CT (Rate) and its amendment No. 3/2019-CT (Rate) specify GST rates and valuation methods for construction services.

- Reverse Charge Mechanism (RCM) applies for developer's supply of construction services to landowners under JDA.

Court's Interpretation and Reasoning:

- The applicant's JDA falls within the ambit of taxable supply of construction services, attracting GST on both the flats handed over to landowner and those sold to buyers prior to completion certificate or first occupation.

- The GST liability arises on the value of construction services, with a deemed one-third deduction for land value as per Notification No. 11/2017-CT (Rate).

- The applicant's acknowledgment of GST applicability on these transactions confirms the legal position.

Key Evidence and Findings:

- The applicant's JDA dated 23.11.2023 and subsequent transactions confirm supply of construction services before completion certificate.

- No completion certificate or first occupation occurred before sale transactions.

Application of Law to Facts:

- The applicant's activity constitutes a taxable supply of construction services under GST.

- GST is payable at prescribed rates on the value of construction services after deducting deemed land value.

Treatment of Competing Arguments:

- The applicant did not dispute GST applicability on construction services but sought to exclude entire composite value from GST on grounds of sale of land.

- The AAR upheld GST liability on construction services irrespective of composite valuation for stamp duty.

Conclusions:

- The applicant is liable to pay GST on construction services supplied under the JDA before completion certificate or first occupation.

Issue 3: Impact of composite valuation norm introduced by Tamil Nadu Government on GST liability.

Relevant Legal Framework and Precedents:

- Stamp duty and registration charges are governed by the Registration Act, 1908 and state government notifications.

- GST law is a separate statute focusing on supply of goods and services, excluding stamp duty and registration fees from taxable value.

Court's Interpretation and Reasoning:

- The composite valuation norm introduced by Tamil Nadu Government for stamp duty and registration is administrative and revenue-related, not legislative amendment to GST law.

- GST law does not recognize composite valuation for determining taxability; it applies its own valuation rules.

- The composite valuation does not affect the character of the transaction under GST law.

Key Evidence and Findings:

- Circular No. 45438/L1/2023 and G.O.Ms. No. 131, Commercial Tax and Registration Department, Tamil Nadu, relate only to stamp duty and registration.

- No GST law amendment or clarification was issued to reflect the composite valuation norm.

Application of Law to Facts:

- The composite valuation norm is irrelevant for GST liability determination.

- The applicant cannot rely on stamp duty valuation norms to claim GST exemption.

Treatment of Competing Arguments:

- Applicant contended that composite valuation should be treated as sale of land for GST purposes.

- AAR rejected this, emphasizing the statutory separation between GST and stamp duty laws.

Conclusions:

- Composite valuation introduced for stamp duty and registration purposes does not affect GST liability or valuation.

3. SIGNIFICANT HOLDINGS

- "The composite value registration of both land (UDS) and constructed residential units adopted for assessing amount of stamp duty and registration shall not entitle the applicant to claim exclusion from the taxability under GST."

- "The Government of India, after making detailed examination of construction and the real estate industry has issued the Notification No. 03/2019-CT(Rate) dated 29-03-2019 that covers all the scenarios that the industry would encounter and enumerated methods to arrive at the quantum of GST to be paid by the service provider."

- "The execution of the sale deed by the land owner for the undivided share of land area is a critical determinant in establishing whether the transfer of land qualifies as an independent transaction. If such execution is completed before or independent of the construction activity undertaken, the exclusion of the land value from GST liability shall be substantiated."

- "The applicant's claim of exclusion of entire value of both UDS and the area including the built up area as 'Sale of land' resulting in non-liability in their hands on the construction of built up area to the buyers for the sale of apartment that were allocated to them as per the Joint Venture Development Agreement does not fall under Item No.5 of Schedule III of the CGST Act / TNGST Act."

- "For the purpose of GST, the applicant's activity constitutes supply of service as per entry 5(b) of Schedule II of CGST/TNGST Act 2017, and appropriate levy of GST is attracted."

- "GST is levied at 3.75% each under CGST and TNGST Acts on the total amount charged for such supply of flat/apartment less deemed one third value for transfer of land or undivided share of land as per SI.No.3 item No.(ia) of Notification No.11/2017, Central Tax (Rate), dated 28.06.2017 as amended vide Notification No.3/2019, Central Tax (Rate), dated 29.03.2019."