TMI Blog2021 (9) TMI 320X X X X Extracts X X X X X X X X Extracts X X X X ..... tion as it does not involve transfer of development rights is not sustainable - Section 148 allows the Government, on the recommendations of the GST Council, to notify a certain class of registered persons and to prescribe special procedures with regard to payment of tax and administration of such persons. Payment of Tax encompasses value to be adopted for payment of such tax (measure) and time of payment of such tax (point of taxation). Vide Para 2A, the value to be adopted for construction service in respect of apartment handed over to the landowners against the development right received from such land owners are prescribed and the Time of Supply is notified vide Notification No. 06/2019-Central Tax (Rate) - the class of persons i.e., the promoters who receive development rights for construction against consideration payable in the form of construction of commercial or residential apartments or in any other form including cash and the value to be adopted for such construction services and the 'time of Supply' for payment of tax on such construction services rendered. In the case at hand, from the submissions of the applicant, it is evident that the applicant though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he agreement entered into between the applicant and the owners of the land in as much as the levy is imposable on the date of completion of the construction as per Notification No. 06/2019 -Central Tax (Rate) dated 29.03.2019 - Notification no.3/2019-Central Tax (Rate) dt. 29.03.2019 is applicable to this transaction even if the actual cost of construction is available. - TN/33/ARA/2021 - - - Dated:- 17-8-2021 - SHRI B. SENTHILVELAVAN, I.R.S., AND TMT. T. PADMAVATHI, MEMBER, Note: Any appeal against the Advance Ruling order shall be filed before the Tamil Nadu State Appellate Authority for Advance Ruling, Chennai under Sub-section (1) of Section 100 of CGST ACT/TNGST Act 2017 within 30 days from the date on which the ruling sought to be appealed against is communicated. At the outset, we would like to make it clear that the provisions of both the Central Goods and Service Tax Act and the Tamil Nadu Goods and Service Tax Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the Central Goods and Service Tax Act would also mean a reference to the same provisions under the Tamil Nadu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e owners and the Applicant. Some of the key terms of the JDA, that are significant for the questions raised in the application are reproduced for reference below: The Applicant is obligated to construct 5133 sq ft of saleable area in entirety; Out of the total area constructed, area measuring 3422 sq.ft, representing two flats will be allotted to the owners(each flat comprising 1711 sq. ft of constructed area); The Applicant will also pay a sum of ₹ 20,00,000 to the owners, in addition to the flats allotted to them; Balance 1711 sq.ft of saleable area representing one flat will be allotted to the Applicant or its nominees; As a consideration towards construction of the property by the Applicant, owners agree to convey / transfer 953.33 sq.ft of undivided share of land to the Applicant or its nominees; Applicant may market its share referred above to prospective purchasers; Applicant is duty bound to obtain all the necessary statutory approvals from the appropriate authorities for carrying out the construction; All the costs in relation to the construction of the property shall be borne only by the Applicant and that the owners are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred by Section 15 (5) of CGST Act, 2017. Further, there are no rules prescribed in respect of construction services provided in lieu of development rights. Considering the above submissions, the Applicant has submitted that, Notification no 03/2019- Central Tax (Rate) is ultra vires Section 15 (5) of CGST Act, 2017 and consequently Applicant has to resort to valuation rules. 2.3 In view of the facts, the applicant has stated that Notification no 03/2019-Central Tax (Rate) is inapplicable to the instant case and the Value of supply for the services provided by them have to be the cost of construction plus 10% or actual cost of construction in terms of Rule 30 or 31 of CGST Rules, 2017 as the case may be. 3.1 Due to the prevailing pandemic situation and in order not to delay the proceedings, the applicant was addressed through the email address mentioned in their application to seek their willingness to participate in the digital hearing vide email dated 10.02.2021. The authorized representative appeared for the hearing virtually on 19.02.2021. On admissibility of questions it was informed that Q.No.6 raised by them is not admissible and the same was accepted. They reiterate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of development rights. However, it is clearly evident from the perusal of the agreement that, construction services are provided by Applicant to the land owner(s) in lieu of the transfer of UDS by the land owners. Incidentally, for executing its obligation, the Applicant gets permission from the land owner to enter the land and develop the same in the form of constructed apartments. It is obvious that, without land owners permitting the Applicant to enter the land and develop the property, Applicant's obligation cannot be fulfilled. Merely because the land owners permit the developers to enter the land, it cannot be construed that, land owners have transferred development rights against consideration in the form of the constructed apartments. It is also important to note that, both parties to the agreement have to fulfil / perform list of other obligations as specified in the agreement. Each and every obligation / activity to be performed by the either parties cannot be dissected and construed as rendition of separate service by either parties. In other words, it is the substance and object for which the parties enter into a contract, which is relevant in determining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reafter and the submissions of the Jurisdictional authorities. The applicant has stated that they are incorporated under the Limited Liability Partnership Act, 2008 and they are engaged in the business of providing works contract and construction services. They had entered into a Joint development agreement with K. Alamelu and N. Rama who are the owners of the property measuring 2860 sq.ft situated at, 2nd cross street, Shastri Nagar, Adyar, Chennai - 600020. The applicant has stated that the owners approached them for developing the property and entered into an agreement for this purpose on 17th day of April 2019. They are before this forum for obtaining a ruling regarding the aspect valuation of the transaction and have filed the application for the following questions: - 1. Whether paragraph 2A of Notification No. 03/2019-Central Tax (Rate) dated 29th March, 2019, is applicable to those agreements entered on or before 29th September 2019 with unregistered persons? 2. If the answer to question (1) is affirmative, whether Notification no 03/2019-Central Tax (Rate) dated 29th March, 2019 is applicable, when the actual cost of construction of services are known? 3. If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sale deed conveying undivided shares are registered. From these facts stated by the Applicant, it is seen that the owners have transferred the UDS and also engaged the Applicant to develop the property into apartments comprising of 3 flats. The applicant has been vested with the responsibility of obtaining necessary approvals and paying necessary statutory fees and also bearing all cost incurred for such construction / development. Further the owners have entered into a Joint Development Agreement with the applicant. Thus it is seen that in the instant case, vide the JDA, the applicant is vested with the responsibility of developing the land into apartment for which by the clauses of JDA, the applicant gets a share of UDS in the land and right to construct an area of 1711 sq.ft. 7.2 Applicant has stated that there should be transfer of development rights or FSI to a promoter and for transferring such rights/FSI, land owner must receive consideration in the form of constructed apartment. They have submitted that in this case, in consideration to the landowners agreeing to convey proportionate share of UDS in favour of those who buy flats from the applicant, specified number o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to transfer proportionate FSI for a consideration in the form of constructed flats/units., which has been done in the instant case. The owners have transferred the UDS of land along with the development rights as consideration for the construction. In this respect, Joint Development Agreement dt. 17.07.2019 entered into between the land owners and the Applicant has to be analysed. The following is the extract of points agreed upon: JOINT DEVELOPMENT AGREEMENT E. The Owners approached the DEVELOPER who has sufficient construction experience, knowledge and expertise to develop the Schedule A property a desired by the owners in to a Residential Building complex (hereinafter referred to as THE SAID BUILDING) and the DEVELOPER has agreed to develop the schedule A property. F. After detailed study and planning, the DEVELOPER has agreed to construct 5133 sq.ft of saleable area in the Schedule A property consisting of stilt floor plus three floors, consisting of one flat per floor. All the approvals cost and development cost shall be borne by the developer . NOW THIS JOINT DEVELOPMENT AGREEMENT WITNESSETH AS FOLLOWS:- .. 2. The Developer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s stated by the applicant. Here in the instant case, the owners have vested the rights to develop the immovable property owned by them, into a residential apartment, with the applicant. So the contention of the applicant that this para would not be applicable to this transaction as it does not involve transfer of development rights is not sustainable. 8.1 The legal provisions as applicable is to be analyzed for clarity. (i) Para 2A was inserted on 29.03.2019 to the existing Notification no.11/2017-CT(Rate) dt.28.06.2017 which is as follows: - (iv) after paragraph 2, the following paragraph shall be inserted, namely, - 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate is being shifted to date of issue of completion certificate. 7.4 The liability of builder to pay tax on construction of houses given to land owner in a JDA is also being shifted to the date of completion. Payment of Tax encompasses value to be adopted for payment of such tax (measure) and time of payment of such tax (point of taxation). Vide Para 2A, the value to be adopted for construction service in respect of apartment handed over to the landowners against the development right received from such land owners are prescribed and the Time of Supply is notified vide Notification No. 06/2019-Central Tax (Rate), which is extracted below: Notification No. 06/2019-Central Tax (Rate) dt. 29th March, 2019 G.S.R (E).- In exercise of the powers conferred by section 148 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on the recommendations of the Council, hereby notifies the following classes of registered persons, namely:- (i) a promoter who receives development rights or Floor Space Index (FSI) (including additional FSI) on or after 1st April, 2019 for construction of a project against consideration payable or paid by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, who are unregistered before September 2019, when the clause 2A of the Notification No. 11/2017-C.T (Rate) dated 28.06.2017 as amended, was amended to 'person' instead of 'registered person', the time of supply in the case at hand falls after such amendment only. Here the date of completion is yet to arrive and so the developer being the taxable person would be liable to pay the tax on such date of completion. 8.4 In the instant case, the applicant who is registered has received the development rights and the consideration being the UDS of 1711 sq.ft has been allotted to him. The applicant is rendering services of construction of residential apartment and has also paid monetary consideration to the landowners as provided in clause (a) and (b) of Notification No.06/2019 above. The value and rate to be applied is that available at the Time of Supply. In the instant case, the 'Time of Supply' falls after the amendment in the Para 2A making the method of valuation to be adopted for the construction service extended to the land owners both registered or unregistered against the development rights and therefore, the applicant has to adopt the value as per Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dependent buyer, whereas the actual cost of construction is available for the apartments built for the land owners. They have relied on the judgment of the Hon'ble Supreme Court in the case of Wipro Ltd Vs. Assistant Collector of Customs Others [2015 (4) TMI 643], wherein it has been held that provisions of deemed valuation will apply only in case where the actual cost is not ascertainable/ available. They also submit that these provisions of GST have been borrowed from the provisions of customs laws and hence the said judgment of the Apex Court becomes applicable to the case in hand. Hence they wish to obtain ruling as to whether Notification no.3/2019 prescribing a notional value of construction will be applicable when the actual cost of construction is available with them. In this case, it has been brought out clearly that the provisions of Para 2A has been included in Notification No. 11/2017-C.T.(Rate) dated 28.06.2017 as per the provisions of Section 15(5) of the CGST Act, which is as under: (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 Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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