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TMI Blog2021 (9) TMI 320X X X X Extracts X X X X X X X X Extracts X X X X ..... e GSTIN 33AAHFT892OF1Z6. They have sought Advance Ruling on 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 the answer to the question (1) or (2) is negative, which valuation rule is applicable for identifying the value of supply for construction services rendered? 4. What will be the value of supply, in case, Applicant adopts Rule 30 of CGST Rule, 2017? 5. What will be the value of supply, in case, Applicant adopts Rule 31, instead of Rule 30 of CGST Rule, 2017 in terms of proviso to Rule 31 of CGST Rules? 6. Whether paragraph 2A of Notification no 03/2019-Central Tax (Rate) dated 29th March, 2019, is ultravires Section 15(5) of CGST Act, 2017 and hence is inapplicable until there is prescription of rules in terms of Section 15 (5) read with Section 2(87) of CGST Act, 2017. The Applicant has submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The applicant has stated that as on date, pending minor works, the construction work for the owner's portion is substantially completed in all aspects. The transaction will be complete in all aspects, in terms of the JDA, once the key is handed over to the landowners. 2.2 On interpretation of law, the applicant has submitted that, Paragraph 2A in Notification no 03/2019-Central Tax (Rate) is applicable only when a registered person transfers development right. They have further stated that paragraph 2A was amended vide Notification No. 20/2019- Central Tax (Rate) dated 30th September, 2019, wherein, the word 'registered' mentioned in Notification no 03/2019-Central Tax was omitted.; it is evident from the above that, for the period commencing from 29th March 2019 until 29th September, 2019, paragraph 2A was applicable only to a registered person transferring development rights; however, with effect from 30th September, 2019, paragraph 2A was applicable to any person transferring the said development rights. The applicant is of the view that, Notification no.03/2019- Central Tax (Rate) dated 30th March, 2019, prescribing a notional value of construction service is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Joint Development Agreement, paperbook (referred by him), construction agreement with owners/others and the method of valuation proposed by them with workings and proof. 4.1 In furtherance to the hearing held on 19.02.2021, the applicant submitted the copy of agreement dt. 17.04.2019 entered into between them and the land owners Mrs Alamelu & Mrs Rama Swaminathan, for provision of construction services in lieu of UDS along with excerpts of relevant notifications, provisions of law and the case law they relied upon. They further submitted the following documents on 25.03.2021. * Synopsis of Advance ruling application filed * Copy of construction agreement between developer and third party * Workings for the proposed valuation to be adopted by the applicant * Self-attested copy of actual cost incurred for construction service rendered by them. 4.2 In their additional submissions the applicant has inter-alia stated as follows; * Following points emerge from the analysis of Para 2A of Notification 03/2019 i. A person must transfer development right or FSI to a promoter; ii. For transferring such development rights or FSI, land owner must receive consideration in the for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 005 (10) TMI 494-Supreme Court 4.3 Registry issued a letter dt. 12.04.21 requiring the applicant to submit proof of valuation and certified copy of valuation which were required to be submitted. Applicant vide their letter dt.14.07.21 submitted a certified copy of valuation, CA Certificate to substantiate veracity of cost workings and proof of valuation. They also submitted that the delay in submission of documents was due to lock down restrictions. 4.4 The applicant was addressed vide letter dt.28.07.21 offering them another Personal hearing in view of the change in the constitution of the bench due to change in the state authority for Advance ruling. Accordingly another PH was fixed on 10.08.21, wherein the authorized representative of the applicant, Shri.J.Srinivasan, Tax consultant, appeared and reiterated their submissions. Further he emphasized that the development rights have been transferred before 29th September 2019 and as the owners are not registered, Notification no.3/2019 dt. 29.03.2019 is not applicable to their case. Decision of the Hon'ble Supreme Court in the case of M/s. Wipro Ltd was referred wherein it has been pronounced that whenever actual value is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of Rule 30 of CGST Rule, 2017 in terms of proviso to Rule 31 of CGST Rules? 6. Whether paragraph 2A of Notification no 03/2019-Central Tax (Rate) dated 29th March, 2019, is ultravires Section 15(5) of CGST Act, 2017 and hence is inapplicable until there is prescription of rules in terms of Section 15 (5) read with Section 2(87) of CGST Act, 2017. Of the above questions, Q.No.6 is not applicable under Section97(2) of the CGST Act, which has already been communicated to the applicant in the first Personal hearing held on 19.02.2021 and accepted by the applicant. Hence the ruling in respect of Questions 1 to 5 being sought on the applicability of notification issued under the provisions of the CGST Act, 2017 and also on determination of time and value of supply of goods or services or both is found admissible under the provisions of the CGST Act, 2017. 7.1 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 Rs. 20,00,000/- to the owners, in addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of development rights is involved as stipulated in the notification no.3/19 cited supra. Further they state that such transactions will fall in the purview of para 2A of the said notification if and only if there is transfer of development rights. 7.3 The term development right has not been defined in the GST Law or the notification issued in this regard. However as per The Real Estate (Regulation and Development) Act, 2016, Development is defined under Section 2 (s) as follows: (s) "development" with its grammatical variations and cognate expressions, means carrying out the development of immovable property, engineering or other operations in, on, over or under the land or the making of any material change in any immovable property or land and includes re-development;" It is a general practice for the landowner to transfer development rights in the land to the promoter. In lieu of such rights, along with the proportionate share in the land, the developer provides money and/ or a fixed quantity of flats to the land owner or share in the revenue from sale of the flats or combination of three. For the construction services provided by the developer to the landowner, the landow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DEVELOPER or their nominee/ s by executing and registering a power of attorney in favour of the DEVELOPER or its nominee simultaneously upon DEVELOPER obtaining approval from statutory authorities........ 8. The OWNERS shall at no point of time be liable to contribute any moneys for or towards the construction of the building or any part thereof. The OWNERS shall also not be liable to pay any further money s to the DEVELOPER on account of any escalation in the cost of construction of the Building. 9. All the cost incurred in obtaining necessary sanctions, permits and approvals for the construction of the new building shall be borne by the DEVELOPER. All expenses such as Architect fees, scrutiny fees, legal charges, development charges, deposits, vector charges etc., shall be borne by the DEVELOPER. 18. The Stamp duty, Registration Fees and other expenses incidental to the transfer of the Saleable undivided interest to the DEVELOPER or its nominees shall be borne by the DEVLOPER or its nominees." Thus from the above conditions of the JDA, it is observed that there is a transfer of development rights from the owners to the applicant in as much as the owners approached the appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :- "148. The Government may, on the recommendations of the Council, and subject to such conditions and safeguards as may be prescribed, notify certain classes of registered persons, and the special procedures to be followed by such persons including those with regard to registration, furnishing of return, payment of tax and administration of such persons". From the above, it is seen that 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. 8.2 GST council in its 34th Meeting decided as under: "Decisions taken by the GST Council in the 34th meeting held on 19th March, 2019 regarding GST rate on real estate sector Treatment of TDR/ FSI and Long term lease for projects commencing after 01.04.2019 7. The following treatment shall apply to TDR/ FSI and Long term lease for projects commencing after 01.04.2019. 7.1 Supply of TDR, FSI, long term lease (premium) of land by a landowner to a developer shall be exempted subject to the condition that the constructed flats are sold before issuance of completion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of development rights or FSI (including additional FSI) relatable to construction of residential apartments in project; (d) the supply of construction service by him against consideration in the form of development rights or FSI (including additional FSI), - shall arise 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." Above provisions notifies 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. 8.3 The very basis for the charge of tax in any taxing statute is taxable event, i.e., the point of time when tax will be imposed. The tax becomes payable when liability to pay tax arises and liability to pay tax arises by the happening of the taxable event. The taxable event under GST Act is supply of goods or services or both. In the instant case, the taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l.No. Question Answer 26. How to determine value of construction services provided by the promoter to land owner in lieu of transfer of development rights, when land owner is not registered? Value of construction services provided by the promoter to land owner in such cases shall be determined based on the total amount charged by the promoter for similar apartments in the project from independent buyers, other than the land owner, nearest to the date on which such development right etc. is transferred to the promoter, less the value of transfer of land, if any, as prescribed in paragraph 2 of Notification No. 11/2017-CT(R) dated 28.06.2017." From the above, it is very clear that the Value of construction services provided by a promoter to land owner being a non-registered person shall be determined based on the total amount charged by the promoter for similar apartments in the project from independent buyers, other than the land owner, nearest to the date on which such development right etc. is transferred to the promoter, less the value of transfer of land, if any, as prescribed in paragraph 2 of Notification No. 11/2017-CT(R) dated 28.06.2017. 9. The second question of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hoice of adoption of any other value. As the law has provided for such valuation, the contention that para 2A is not applicable when the actual cost of construction is available does not hold water as we cannot go beyond the law pronounced. Hence the valuation as prescribed in the said para 2A becomes squarely applicable in the present case. 10. From the above, it is clear that Para 2A of the Notification no. 3/19 is applicable to the transaction between the applicant and the owners of the land and the valuation shall be done as stipulated therein. Applicant has preferred questions 3 to 5 in case the answer to question (1) and (2) is negative. Now that the answer to questions (1) and (2) being affirmative, the questions 3 to 5 become redundant and hence are not required to be answered. In respect of question no.6, the same being in the nature of discussing the legality of the provisions of law, it was found inadmissible under Section 97 (2) of the CGST, 2017, which fact was communicated to the applicant during the Personal Hearing held on 19.02.2021 and the applicant agreed on the same being inadmissible. Hence the same also is not answered herein. 11. In view of the above, we ru ..... X X X X Extracts X X X X X X X X Extracts X X X X
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