TMI Blog2019 (11) TMI 994X X X X Extracts X X X X X X X X Extracts X X X X ..... eal and not what the service provider expends for the provisioning of the service. The total gain to the applicant or the total amount accruing to the applicant for the services is 25% of the amount at which the plots are sold. It has already been emphasised and held that the applicant has no right in the title of the land and therefore the applicant cannot be considered as the sellers of the plots. Their role is limited to aiding and assisting the landowners in the sale of the plots. They are only service providers in the whole process, be it development of the raw land into residential plots or their sale after the development. Therefore the entire amount received by them is liable to be taxed. Thus, 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. - KAR ADRG 119/2019 - - - Dated:- 30-9-2019 - SRI. HARISH DHARNIA, AND DR.RAVI PRASAD M.P. MEMBER Represented by : Sri. Sanjay Dhariwal Chartered Accountant ORDER UNDER SECTION 98(4) OF THE CENTRAL GOODS AND SERVICES TAX ACT, 2017 AND UNDER SECTION 98(4) OF THE KARNATAKA GOODS AN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e I, made or agreed to be made or agreed to be made without a consideration (1A) Certain activities or transactions, when constituting a supply in accordance with the provisions of sub-section (1), shall be treated either as supply of goods or supply of services as referred to in Schedule II. (2). Notwithstanding anything contained in sub-section (1) - (a) Activities or transactions specified in Schedule III; or (b) Such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services. (3) Subject to the provisions of sub-section (1), (1A) and (2), the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as- (a) a supply of goods and not as a supply of services; or (b) a supply of services and not as a supply of goods. 4.2 As per entry 5 of the Schedule III relating to Activities or transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ownership of the roads, drains, water supply mains, parks and open spaces, civic amenity areas to the authority, permanently without claiming any compensation thereof. The relevant provision is re-produced as under; Section 32 Formation of new extension or lay-outs or making new private streets.- (1) Notwithstanding anything to the contrary in any law for the time being in force, no person shall form or attempt to form any extension or lay-out for the purpose of constructing building thereon without the express sanction in writing of the Authority and except in accordance with such conditions as the Authority may specify Provided that where any such extension or layout lies within the local limits of a local authority, the Authority shall not sanction the formation of such extension or lay out without the concurrence of the local authority. Provided further that where the local authority and the Authority do not agree on the formation of or the conditions relating to the extension or layout, the matter shall be referred to the Government, whose decision thereon shall be final. (2) Any person intending to form an extension or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pply of service but can only enter agreement for sale of land. 5. With regard to second question, the applicant states as under 5.1 Without prejudice to the submissions made in question no. 1, Applicant submits that, though the price agreed with customers include cost of land as well as cost of development, there shall be levy of tax only on supply of service or goods or both but not on sale of land. The applicant refers to section 7 and clause 5 of Schedule III to the CGST Act. 5.2 On combined reading of the above provisions it is understood that, sale of land is excluded from the scope of supply , under Entry No. 5 of Ill Schedule. Therefore, irrespective whether the transaction is divisible or indivisible, sale of land shall be excluded from levy of GST. 5.3 For the purposes of ascertaining the value of land and supply of service the Applicant refers to Rule 31 of CGST Rules, which reads as under; 31. Residual method for determination of value of supply of goods or service or both - Where the value of supply of goods or services or both cannot be determined under rule 27 to 30, the same shall be determined using reasonable me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the applicant are discussed in the following paragraphs. 7.2 Para 2 of the said agreement defines the scope of activities entrusted upon the applicant. Para 2.1 authorises the applicant to enter upon the property and develop it into a residential layout. The attending obligations and limitations of the landowners and the applicant are discussed subsequently. 7.3 In pursuance to the agreement the applicant is required to carry out the following activities. Consequent to the irrevocable agreement the applicant enters the land and has the right to survey and fence the property and secure the same by placing security personnel and other means. 7.4 Para 4 provides that once the applicant has carried out the survey, they shall prepare the necessary plans/ drawings/ designs for the residential layout and provide the same to the land owners. The Landowners will consequently submit the plans to the Governmental Authorities to obtain the sanctioned plan. It is the landowners' responsibility to obtain all the required licences, sanctions, consents, permissions, no-objections and such other orders required for obtaining the sanctioned plans. Once the landown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive purchasers or prospective tenants and shall indemnify and hold the developer harmless against any loss, liability, cost, expenses, actions or proceedings and third party claims. 7.10 Para 19 provides that nothing in the agreement shall deem the relationship of the parties to be construed as a partnership, agency or otherwise and/or an agreement to sell but shall be construed strictly in accordance with the terms of the agreement. 7.11 The agreement also provides that the applicant can raise loan from financial institutions and in this regard the applicant shall be entitled to obtain loan facility based on the security of 25% of the undivided share in property, the applicants Revenue share including the development rights available to the applicant. This para further provides that the repayment of the borrowings and liabilities shall be the sole responsibility of the applicant. 8. After having examined the salient features of the agreement we visit the arguments put forth by the applicant while concluding their views about the first question. 8.1 The main thrust of the applicant is that they are primarily engaged in the sale of land and the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activities change the nature of the barren land and give it a character of a marketable land. The scope of these activities is further borne out in Para 5 of the agreement. The activities to be undertaken by the applicant are in the nature of development of land into residential layout. The agreement provides that the applicant can enter into sale agreements. However this activity is incidental to the main activity of development of land. The sale is entrusted to the applicant as the applicant has invested huge sums in the development of the land and it is a measure to protect his financial exposure in the matter. Here it becomes evident that the core competence and the activity actually carried out by the applicant is that of development of land and not the sale of land. 9.3 There are a good number of provisions in the agreement which indicate that the applicant has no right over the land and consequently the applicant cannot claim to be engaged in the activity of sale of land as envisaged in the provisions of entry at Serial number 5 of said Schedule III. The provisions of this entry will apply only to those persons who are the owners of the land and not to persons who a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emnified by the landowners on any issue related to the title of the land. This again shows that the applicant has no claim on the title of any portion of the land. Once they have no right vested in them, they cannot hold themselves out as sellers of land as envisaged in Entry 5 of Schedule Ill. In such an arrangement the applicant can only be considered to have extended their services to the landowners in the sale of the plots. 9.9 Para 20 of the agreement relates to raising of loan by the applicant in relation to the development of land. The applicant can raise loan on the basis of the security of 25% of the undivided share in the property. The agreement, in the same sentences qualifies that this represents the applicant's revenue share. This shows that the agreement recognizes the applicants right only in the form of revenue share to the extent of 25% of the cost of each plot sold. 9.10 On the basis of the aforementioned provisions of the agreement it would be in order to conclude that activities undertaken by the applicant are not qualified to be covered under entry number 5 of Schedule Ill of the said Act. Thus the activities undertaken by the applicant am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r both , whether by the recipient or by any other person . . 10.3 In this context we see that the applicant receives consideration equal to 25% of the value at which each of the plots is sold. This amount constitutes the consideration for the services provided by the applicant. Section 15 of the CGST Act, 2017 provides that 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 where the supplier and the recipient are not related and the price is the sole consideration. It is seen here that the applicant does not get any physical possession of 25% of the plots as understood by the applicant. The agreement provides that the applicant gets 25% of the amount at which each of the plots is sold. This shows that the consideration that the applicant receives is in the form of money and not in the form of land. The only peculiar feature of this arrangement is that the landowners do not arrange any cash amount on their own to pay to the applicant for their services. They do not have to invest any personal amount in this manner and as and when a plot is sold the amount is shared and the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t should not be included in the value and only the cost of the services should be considered for levy of tax is not acceptable. Consideration for a service is the total value that the service provider gets in the deal and not what the service provider expends for the provisioning of the service. The total gain to the applicant or the total amount accruing to the applicant for the services is 25% of the amount at which the plots are sold. It has already been emphasised and held that the applicant has no right in the title of the land and therefore the applicant cannot be considered as the sellers of the plots. Their role is limited to aiding and assisting the landowners in the sale of the plots. They are only service providers in the whole process, be it development of the raw land into residential plots or their sale after the development. Therefore the entire amount received by them is liable to be taxed. 11. In view of the foregoing, we rule as follows RULING Q No. 1: The activities as envisaged in the agreement between the applicant and the landowners amount to supply of service and is liable to be taxed under GST. Q No. 2: Rule 31 app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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