TMI Blog2023 (2) TMI 929X X X X Extracts X X X X X X X X Extracts X X X X ..... the land has rendered a service to the purchasers. The consideration that the buyer pays is with the intention of purchasing the plot. The consideration is not for receiving a service of development of land. The activity of developing the land is only incidental to the sale of land. The dominant intention here is the sale of land and not the provision of service of development. In the case of plotted development where a large parcel of land is subdivided into small plots for sale to buyers, the development of land is a mandatory prerequisite to the sale of plots as per the Town Country Planning Act. Where the parcel of land is being sold as is, such development work is not mandated by any law. In this case the Respondent is undertaking the development works as per the statutory requirement and any amounts received from interested buyers is only an advance for the purchase of land and not for the development works - The buyer approaches the developer and pays advances with the intention of getting an apartment built for him. Therefore, until the completion certification is received from the competent authority, the developer is rendering a service of construction to the buyer. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MBER Represented by: Shri. N. Sundaram, Assistant Commissioner, Bangalore South Commissionerate. PROCEEDINGS (Under Section 101 of the CGST Act, 2017 and the KGST Act, 2017) 1. At the outset we would like to make it clear that the provisions of CGST, Act 2017 and SGST, Act 2017 are in pari materia and have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the KGST Act. 2. The present appeal has been filed under section 100 of the Central Goods and Service Tax Act 2017 and Karnataka Goods and Service Tax Act 2017 (herein after referred to as CGST Act, 2017 and SGST Act, 2017) by the Assistant Commissioner of Central Tax, Bangalore South Commissionerate, (herein after referred to as Appellant/Appellant Department) against the Advance Ruling No. KAR/ADRG 31/2022 dated 8th September 2022. Brief Facts of the case: 3. Ms. Rabia Khanum, No. 19/2-6, Ranoji Rao Road. Basavanagudi, Bengaluru - 560 004 (hereinafter referred to as 'Respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s will then become the property of the authorities and is not sold or transferred to any individual; that the transfer of the ownership of the said plots will happen under The Transfer of Property Act. The Respondent also stated that they will not be entering into any agreement with any prospective buyer where consideration is separately identified between cost of the plot and cost of development; that they enter into agreement of sale with the prospective customers towards sale of individual sites and receive advances for the same and on receipt of full consideration, the sale deed will be executed: that all the prospective buyers are aware of the fact that they will be purchasing a plot worthy of constructing a house to live since the authorities will be maintaining and managing the amenities required for living. The Respondent has stated that all unsold plots will be put to sale after completion of the works related to basic necessities, handing over of works of the roads, drains, parks, playgrounds, bus stops, etc to the authorities. 6. The Authority for Advance ruling examined the case of the Respondent and vide ruling No. KAR/ADRG 31/2022 dated 8th September 2022 and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , construction or development of common facilities and selling such developed plots of land along with the common facilities to individual buyers; that the Respondent has admitted that the development activities are required for human inhabitation and all prospective buyers are aware of the fact that they will be purchasing a plot worthy of constructing a house; that the Agreement with the prospective buyers will include the development of basic amenities and that the Respondent makes a clear assurance to the purchasers regarding the nature of development. The Appellant Department contends that to the extent the transfer of the site with developments in the manner specified is a part of the transaction, the Respondent indeed provides a service; that the sale of developed land referred to in paragraph 5 of Schedule III of the CGST Act, is different from the sale of developed plots; that the sale of land referred to in Schedule III refers to sale of undeveloped land. Since the Respondent is going to undertake substantial development of the land before giving it out for sale to end customers, these development activities are covered in clause (b) of para 5 of Schedule II and will be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... radesh AAAR order in respect of Bhopal Smart City Development Corporation Ltd - MP/AAAR/01/2022 dated 13th April 2022. 7.5. In view of the above, the Appellant Department prayed that the order of the lower Authority be set aside and hold that GST is applicable for consideration received on sale of sites wherein sale transaction is initiated before completion of development activity. The activity is classifiable under Heading 9954 (Construction service) attracting 18% tax on the gross value received from the buyers. GST is not applicable on sale of plots after completion of all development works provided the sale transaction is not initiated before completion. In other words, GST is payable on entire consideration received by the developer even after completion, if agreement is entered into before completion. GST is also payable on the advance received towards sale of site in terms of Section 12(b) of CGST Act @18% on the gross value of advance. 8. The Respondent filed a counter to the grounds of appeal vide letter dated 8th Dec 2022 wherein they submitted that they own 3 acres of land which they propose to convert for residential usage by forming small plots and sell to ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is in the context of the Consumer Protection Act, 1986 and is not relevant for interpreting a taxing statute; that the Gujarat High Court in the case of Munjaal Manishbhai Bhatt vs UOI has held as above and set aside the advance rulings which proposed to tax sale of land. As regards the reliance placed on the decision in the case of M/s Maarq Spaces Pvt Ltd, they submitted that the Authority had rightly held that the applicant (developer) has no right over the land and consequently cannot claim to be engaged in the activity of sale of land developed by them: that the purview of entry No 5 of Schedule 111 is applicable to persons who are owners or who have the right to sell the land; that in the present case, the Respondent is the rightful owner of the land and hence the plots sold by her after development of basic amenities is not taxable in terms of entry 5 of Schedule III of the CGST Act. The Respondent also relied on the advance ruling given by Haryana AAR in the case of M/s Informage Realty Pvt Ltd and Goa AAR in the case of Shantilal Real Estate Services wherein it has been held that sale of developed plots is not taxable in terms of entry 5 of Schedule III. In view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t will not provide immunity from payment of tax. The Appellant Department's contention is, once agreement is entered into with the prospective buyer and consideration received by the developer, in the course of development of plot, it would be works contract and GST is payable. PERSONAL HEARING: 10. The Appellant-Department and the Respondent Company were called for a virtual personal hearing on 9th December 2022 which was adjourned on the request of the Appellant Department. Another opportunity for hearing was given on 17th Jan 2023. The hearing was conducted on the Webex platform following the guidelines issued by the CBIC vide Instruction F.No 390/Misc/3/2019-JC dated 21st August 2020. The Appellant Department was represented by Shri. N. Sundaram, Assistant Commissioner, Bangalore South Commissionerate and Shri. Prashant, Superintendent, Bangalore South Commissionerate. The Respondent was represented by Shri. Santosh S., Authorized representative. 10.1 The Assistant Commissioner of Central Taxes representing the Appellant Department stated that the Department is aggrieved by the ruling given by the lower Authority holding that GST is not applicable on the consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In view of the above submissions, the Appellant prayed that the order of the lower Authority be modified to the extent that GST is applicable for consideration received on sale of sites wherein sale transaction is initiated before completion of development; that the activity be classifiable under Heading 9954 (Construction services) attracting GST at 18% on the gross value received from the buyer; that GST is applicable on the advance received towards the sale of site in terms of Section 12(b) of the CGST Act at the rate of 18% on the gross advance received; that GST is not applicable on the sale of plots after completion of all development works undertaken to be provided by the Developer to the buyer. 10.2. In his rebuttal, Shri. Santosh S, Authorised representative of the Respondent supported the ruling passed by the lower Authority and submitted that the Respondent is the land owner who is selling the land and the development activities are undertaken by her at the behest of the local authorities; that the developed infrastructure is handed over to the local authority on completion of development; that the infrastructure is not sold to the purchaser of the land; that the legi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic amenities which are required for human inhabitation. The Planning authorities issue a work order detailing the work that needs to be completed before the plots are ready for sale. The development work includes formation of roads, formation of rain water drains, laying of electricity cables, water pipes, sewerage lines, drilling of borewells for supply of water, construction of water tank for storage and supply of water, setting up of a power station and obtaining connection from Electricity Board for supply of electricity etc. On completion of the development activity, plots will be released for sale by the sanctioning authority. On receipt of the full consideration, the ownership of the residential plot will be transferred to the buyer under the Transfer of Property Act. 13. In this context, the Respondent had approached the lower authority to seek a ruling on whether the consideration received for the sale of sites is taxable; whether the advance received towards the sale of site is liable to GST and whether GST is applicable on sale of plots after completion of development works. The lower authority referred to entry 5 of Schedule III of the CGST Act and the clarification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivate street. (1) The State Government shall by rules prescribe the standards to be followed and minimum extent of Land to be considered for approval of Layout for sub dividing a plot and prescribe the minimum extent of area to be earmarked for park, open spaces and civic amenity sites and laying out roads. Every person who intends to develop a single plot or sub divide his plot by making a layout on or after the date of the publication of the declaration of Local Planning Area under section 4-A. shall submit detailed plan of the layout of his plot showing layout of roads, subdivided plots and earmarking area for park and open spaces and civic amenities to such extent and in such manner, as prescribed. (2) The Planning Authority may, within the prescribed period, sanction such plan either without modification or subject to such modifications and conditions as it considers expedient or may refuse to give sanction, if the planning authority is of the opinion that such plan is not in any way consistent with the proposals of the Master Plan. Provided that where the Master Plans are not finally approved, in such cases the Planning Authority may sanction the layout plan a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and demarcated for park, playground and the roads in the layout to the Local Authority and the area reserved and demarcated for civic amenities to the Planning Authority without claiming any compensation: (b) shall also obtain the registered mortgage agreement of all the corner sites in the layout to the Planning Authority: and (c) ensure that the project is registered under the Real Estate (Regulation and Development) Act, 2016 (Central Act 16 of 2016). (ii) After obtaining above documents the planning Authority shall release forty percent of the sites scattered in the layout showing the building sites released affixing the seal of the Authority on the provisionally approved layout plan which shall be sent to the Local Authority for issue of khat a of such sites for registration purpose under the Karnataka Stamps Act, 1957 (Karnataka Act 34 of 1957) and the Registration Act. 1908 (Central Act XVI of 1908). (iii) The Planning Authority shall ensure the completion of all development works including all infrastructure facilities as specified under sub-section (2-A), on conducting inspection by the concerned Authority or Agency or Department within three years from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Act 14 of 1976), the Karnataka Gram Swaraj and Panchayat Raj Act. 1993 (Karnataka Act 14 of 1993) or the Bruhat Bengaluru Mahanagara Palike Act, 2020 (Karnataka Act 53 of2020) as the case may be. (3) No compensation shall be payable for the refusal or the insertion, imposition or modification or conditions in the grant of sanction. (4) If any person does any work in contravention of sub-section (1) or in contravention of the modifications and conditions of the sanction granted under sub-section (2) or despite refusal for the sanction under the said sub-section (2), the Planning Authority may direct such person by notice in writing to stop any work in progress and after making an inquiry in the prescribed manner, remove or pull down any work or restore the land to its original condition. (5) Any expenses incurred by the Planning Authority under sub-section (4) shall be a sum due to the Planning Authority under this Act from the person in default. (6) Any person aggrieved by the decision of the Planning Authority under subsection (2) or sub-section (4) may. within thirty days from the date of such decision appeal to such authority as may be prescribed. (7) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... showing the sites which are released for transfer of title to the allottee by registration and a copy of the 1st phase layout plan is sent to the local authority for issue of Khata. Similarly, in the 2nd phase, 30% of the layout area will be released after obtaining a completion certificate from the concerned Authority/Agency/Department regarding completion of development works. A copy of the 2nd phase layout plan will be issued by the Planning Authority for transfer of title of the sites by registration and issuance of Khata, In the 3rd phase, the remaining 30% of the layout area will be released for sale of sites after obtaining a completion certificate from the concerned Authority/Agency/Department regarding completion of development works. A copy of the final layout plan will be issued by the Planning Authority for transfer of title of the sites by registration and issuance of Khata by the local authority. 17. As can be seen from the above provisions, the transfer of title in the land to individual buyers can be done by the developer only after completion of the development works. The above provisions also make it clear that the owner of the land carries out the required de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purchase of land and not for the development works. The Appellant Department has drawn a parallel to the construction service provided by a developer to a purchaser of a flat and argued that any amounts received by the developer during the phase of construction of the apartment and before receipt of the completion certificate, will be taxable under GST under construction service. In the same way, the Appellant has argued that the amounts received by the developer of a plot before receipt of the completion certificate, will be subject to GST as a construction service to the purchaser. We do not agree with this line of argument. In the case of construction of an apartment, the developer is no doubt rendering a service to the buyer since the construction activity is done at the behest of the buyer. The buyer approaches the developer and pays advances with the intention of getting an apartment built for him. Therefore, until the completion certification is received from the competent authority, the developer is rendering a service of construction to the buyer. However, any buyer who approaches a developer for purchase of an apartment after receipt of the completion certificate, is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parcel of land can take place only after the development of the land. 21. The Board in it's Circular No 177/09/2022 dated 3rd August 2022 has clarified in Para 14.3 that land may be sold either as it is or after some development such as levelling, laying down of drainage lines, water lines, electricity lines, etc; that sale of such developed land is also sale of land and is covered by SI.No 5 of Schedule III of the CGST Act. The relevant Para 14 of the Board's Circular No 177/9/2022 dated 3rd August 2022 is reproduced as under:- 14. Whether sale of land after levelling, laying down of drainage tines etc., is taxable under GST 14.1 Representation has been received requesting for clarification regarding applicability of GST on sale of land after levelling, laying down of drainage lines etc. 14.2 As per SI no. (5) of Schedule III of the Central Goods and Services Tax Act. 2017, 'sale of land' is neither a supply of goods nor a supply of services, therefore, sale of land does not attract GST. 14.3 Land may be sold either as it is or after some development such as levelling, laying down of drainage lines, water lines, electricity lines, etc. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not inclined to import the decision of the Supreme Court in the Name Construction case to this case before us for the simple reason that the Apex Court examined the matter in the light of the provisions of the Consumer Protection Act. The object of the said Act was to provide a mechanism to protect the rights of consumers and to provide a speedy and simple redressal to consumer disputes. The object of the GST law is to tax transactions involving a supply of goods and services and entry 5 of Schedule III of the CGST Act declares that the sale of land is being neither a supply of goods or service. The objects of the two statutes being entirely different, it is trite law of interpretation of statutes that one cannot adopt the ratio of the decision given in the context of one statute to interpret another statute when both statutes are not pari materia. We also note that this was the view taken by the Gujarat High Court in the case of Munjaal Manishbhatt vs UOI (2022 (62) G.S.T.L 262 Guj) wherein one of the issues examined by the High Court was the issue of taxability on transfer of developed plot to the customer. 23. The Appellant Department has also relied on the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CGST Act; that the advances received before completion of the development works is also not subject to GST in as much as the same is towards the sale of developed land. We make it abundantly clear that any services procured by the owner from third parties for undertaking the development activity will be subject to GST at the applicable rates. We also do not hesitate to mention that if the owner is found to be providing any development work over and above what is mandated by the KTCPA and the local authorities, the same will be considered as a service rendered to the buyer and tax on the same will apply. 25. The Board's Circular No 177/09/2022 dated 3rd August 2022 at Para 14.3 (reproduced at Para 20 ante), clarifies that sale of developed land does not attract GST. The entry No 5 of Schedule III to the CGST Act states that 'sale of land' is neither supply of goods or services. The term Sale has not been defined in the GST law but has been defined in Section 54 of the Transfer of Property Act, 1882 as transfer of ownership in exchange for a price paid or promised or part-paid and part-promised. '. The said Section 54 also states that such transfer, in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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