BEFORE THE AUTHORITY FOR ADVANCE

RULINGS FOR THE STATE OF UTTARAKHAND

(Goods and Services Tax)

Present:

Shri Anurag Mishra (Member)

Shri Amit Gupta (Member)

In

Application No: 03/2020-21

Note Under Section. 100(1) of the Uttarakhand Goods and Services Tax Act, 2017. an appeal against this ruling lies before the appellate authority for advance ruling constituted under section- 99 of the Uttarakhand Goods and Services Tax Act, 2017, within a period of 30 days from the date of service of this order.

AUTHORITY FOR ADVANCE RULING

GOODS & SERVICE TAX UTTRAKHAND

RULING

1. This is an application under Sub-Section (1) of Section 97 of the CGST/SGST Act, 2017 (herein after referred to as Act) and the rules made thereunder filed by Shri Abhishek Darak, House No-1, Plot No.- 293, Ward 10-A, Near Gurukul Gandhiham, Kutch, Gujarat (here in after referred to as the applicant') is not registered with the GSTN and seeking advance ruling on the following questions:-

a. Whether the activity of development and sale of land is taxable under GST;

b.If yes, then what will be the classification of the above activity;

c. If the answer to the first question is yes, what will be the taxable value of the supply stated in first question;

d.If the answer to the first question is yes, will ITC be admissible.

2. Advance Ruling under GST means a decision provided by the authority or the appellate authority to an applicant on matters or on questions specified in sub section (2) of section 97 or sub section (1) of section 100 in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant.

3. As per the said subsection (2) of Section 97 of the Act advance ruling can be sought by an applicant in respect of :-

(a) Classification of any goods or services or both

(b) Applicability of a notification issued under the provisions of this Act,

(c) Determination of time and value of supply of goods or services or both,

(d) Admissibility of input tax credit of tax paid or deemed to have been paid

(e) Determination of the liability to pay tax on any goods or services or both

(f) Whether the applicant is required to be registered

(g) Whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both within the meaning of that term

4. Since applicant has sought advance ruling on classification of supply, determination of value of supply, admissibility of ITC & determination of tax liability, therefore, in terms of said Section 97(2) (a), (c ), (d) & (e) of the Act, the application filed by the applicant was admitted. Accordingly hearing was fixed on 07.08.2020 which was attended by the Shri Amit Aswal, CA on behalf of the applicant and reiterated the submissions given with the application. He further stated that because of RERA Act, they have to build road, provide drainage, electricity poles etc During the course of hearing Ms Preeti Manral (DC) ,concerned officer of SGST-Uttarakhand was also present and stated that firstly application could not be entertained as the applicant has not stated the project. Secondly, she gave three rulings of different AARs whereby it has been considered taxable.

5. On perusal of application, we find that the applicant is an individual and planning to purchase a land and develop it with an infrastructure as per the requirement of the approved planning authority and sell units of the purchased land as plots to customers. The details are as under:-

a. Forming land into layout after obtaining necessary plan approval from the development authority, get all the permissions required to take up, commence & complete what would be layout, comprised of individual sites;

b. levelling the land;

c. construction of boundary wall;

d. construction of roads;

e. laying of underground cables & water pipelines;

f. laying of underground sewage lines with sewer treatment plants;

g. development of landscaped gardens etc;

h. demarcation of individual plots;

i. construction of overhead tanks;

j. other infrastructure works;

k. common amenities like garden, community hall etc

Further sale of such sites is done to end consumer who may construct houses/villas in the plots.

6. The applicant stated that sale of land is excluded from the scope of supply under entry no. 5 of Schedule III appended to the Act. They further stated that in terms of definition of composite supply & principal supply" , the predominated supply is land and development activity is incidental to the sale of land. Moreover, the development activity is naturally bundled with the sale of land, thus the same is fall in the ambit of entry no. 5 of Schedule III appended to the Act. As regards to the value aspect of said supply, the applicant stated that the provisions of Rule 27 to 30 do not apply to the transaction, therefore the value shall be determined as per 31 of Rules. They also stated that in case the activity is taxable, thus they are entitled for ITC in terms of Section 16(1) of the Act and if in case the said supply is classified as 'works contract service", the ITC still available to them.

7. Admissibility of the Application : The concerned officer has given the order of Maharashtra AAR in the case of Saint Gobain India (P) Ltd (Order No GST ARA - 51/2019-20/B-38 dated 17.03.2020). She has raised the objection regarding admissibility of the application in the present case. The applicant has submitted written submission in this regard whereby he has brought our attention to Section 95 of CGST Act, 2017 and the same is reproduced below,-

95. In this Chapter, unless the context otherwise requires, -

(a) "advance ruling" means a decision provided by the Authority or the Appellate Authority for the National Appellate Authority] to an applicant on matters or on questions specified in sub-section (2) of section 97 or sub-section (1) of section 100 [or of section 101C], in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant;

(b) "Appellate Authority" means the Appellate Authority for Advance Ruling referred to in section 99;

(c) "applicant" means any person registered or desirous of obtaining registration under this Act;

(d) "application" means an application made to the Authority under sub-section (1) of section 97;

(e) "Authority" means the Authority for Advance Ruling referred to in section 96.

[(f) "National Appellate Authority" means the National Appellate Authority for Advance Ruling referred to in section 101A.]

In the present case we find that the applicant has proposed to undertake the required project and therefore has filed the application for clarification on the questions under the Act. Therefore, the application is covered under Section 95(a) of the Act. As far as the Ruling of Maharashtra AAR in the case of Saint Gobain is considered, the facts of the case are different since in the case of Saint Gobain they are proposing to manufacture a new product for which classification is sought and since the product is not available for testing therefore the classification cannot be given.

We find that no such issue is there in the present case . The issue is sale of developed land for which no testing is required. Further we find support of admitting the present application in the judgment of Hon hie Supreme Court given in the case of National Co-operative Development Corporation Vs Commissioner of Income Tax, decided on 11.09.2020. The Court was of the opinion that a vibrant system of Advance Ruling can go a long way in reducing taxation litigation. This is not only true of these kinds of disputes but even disputes between the taxation department and private persons, who are more than willing to comply with the law of the land but find some ambiguity.-

"Instead of first filing a return and then facing consequences from the Department because of a different perception which the Department may have, an Advance Ruling System can facilitate not only such a resolution, but also avoid the tiers of litigation which such cases go through as in the present case. In fact, before further discussing this Advance Ruling System, we can unhesitatingly say that, at least, for CPSEs and Government authorities, there would be no question of taking this matter further once an Advance Ruling is delivered, and even in case of private persons, the scope of any further challenge is completely narrowed down."

Therefore, in terms of Section 97(2) of the Act, the present application is admitted.

8. Now coming to the issue whether the activity of development and sale of land is taxable under GST or otherwise. In this context, on going through the legal provisions & submissions made by the applicant, we have different views in this matter and are discuss as under:

(A) [Ruling per: Amit Gupta, Member]:

I find that the applicant is planning to purchase land and develop it with infrastructure by levelling of land, demarking Plots, Constructing Road, building drainage line, installing water line, erection of electricity line etc. as per the requirement of the approved Plan Passing Authority and sell units of the purchased land as plots to the customers. I find that the applicant has given his written submission whereby he has given that as per RERA, 2016 he has to follow certain rules and regulations before selling the land to the end customers. As per Section 3 and 4 of RERA, 2016 the applicant has to register with RERA and mandatorily get the Plan approved from the local authority which is Mussorie Dehradun Development Authority (MDDA) in his case. 1 further find that he has stated that no separate charges will be made for development activities undertaken by the applicant such as construction of road, electrification, levelling of land etc... The only document will be sale deed of the land on payment of stamp duty as per the statutorily laws. Before deciding the taxability of the sale of developed plot (land), let me elaborate the relevant provisions of CGST Act, 2017.

CHAPTER III

LEVY AND COLLECTION OF TAX

Scope of supply

7. (1) For the purposes of this Act, the expression "supply" includes-

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

(b) import of services for a consideration whether or not in the course or furtherance of business; [and]

(c) the activities specified in Schedule I, made or agreed to be made without a consideration;

[(1A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they 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 of4[sub-sections (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.

The relevant part of Schedule II and Schedule III is reproduced below:

SCHEDULE II

ACTIVITIES [OR TRANSACTIONS] TO BE TREATED AS

SUPPLY OF GOODS OR SUPPLY OF SERVICES

1. -------------------

5. Supply of services

The following shall be treated as supply of services, namely: -

(a) renting of immovable property;

(b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier.

Explanation.-For the purposes of this clause-

(1) the expression "competent authority" means the Government or any authority authorised to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely:-

(i) an architect registered with the Council of Architecture constituted under the Architects Act, 1972 (20 of 1972); or

(ii) a chartered engineer registered with the Institution of Engineers (India); or

(iii) a licensed surveyor of the respective local body of the city or town or village or development or planning authority;

(2) the expression "construction" includes additions, alterations, replacements or remodelling of any existing civil structure;

(c) temporary transfer or permitting the use or enjoyment of any intellectual property right;

(d) development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software;

(e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and

(f) transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration.

6. ------------------------------

SCHEDULE III

ACTIVITIES OR TRANSACTIONS WHICH SHALL BE

TREATED NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES

1.------------------

5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.

6. --------------------

The Charging section under the Act is Section 9 which is reproduced below

Levy and collection

9. (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person.

I find that for any taxation under GST there should be supply of goods or services or both as given in section 9(1) of the Act. From the plain reading of Schedule III, sale of land has been treated as neither supply of goods nor services. But it is subject to Paragraph 5(b), schedule II i.e. sale of building. In the present application, the applicant is going to undertake certain development activities so that RERA and other statutorily laws are complied with. The main issue which is to be decided is whether certain other ancillary activities which are going to be undertaken by the applicant makes the sale of land fall it under paragraph 5 (b) of schedule II or paragraph 5 of Schedule III annexed to Section 7 of CGST/SGST Act.

After the development of land, the applicant is going to make sale deed in favor of end customers which may construct houses/ villas etc. on that piece of land. I find that the land which is going to be sold does not have complex, civil structure, building or a part thereof. The entire activity which has been undertaken by the applicant is for the development of that area so that plots can be demarcated and sold. The entire activity is done to make the area livable and provide basic facilities to the future residents.

Moreover, as per paragraph 5(b) of Schedule II, the tax will not be charged when the consideration is received after the completion certificate is issued by the competent authority. In the present case since there is no construction of any civil structure on the developed plot by the applicant there is no need of completion certificate by the applicant. For the area as a whole there will be development activities as per local bye laws but the same is not a part of sale to the end customer. There is absolutely no provision of completion certificate by any competent authority in respect of sale of land.

I further find that there is no contractual relationship between the applicant and the end customer. In paragraph 5 (b) of schedule II there is intention for sale to buyer and therefore there is agreement between the parties. In the present case the entire consideration is to be received at the time of sale deed for the sale of land upon payment of applicable stamp duty. So I find that the sale of developed plot cannot fall under paragraph 5(b) of schedule II.

I also find that the legislature has given same meaning to developed plot and undeveloped plot in schedule III. The sale of building is to levied under GST subject to clause (b) of paragraph 5 of schedule IL So there is no ambiguity as far as the sale of land (developed or undeveloped) is concerned.

The concerned officer, SGST-Dehradun has given three citations of various AAR on rate of tax. These are -

a. Karnataka ADRG 119/2019 dated 30.09.2019 in the case of M/S Maarq Spaces Pvt Ltd.

b. MP AAR order no 02/2020 dated 06.01.2020 - M/s Vidit Builders.

c. Gujarat AAR order no GUJ/GAAR/R/2019/21 dated 20.09.2019 - M/s Satyaja Infratech

I find that the facts of the case in M/s Maarq spaces and M/s Vidit builders are different from the present case as the applicant is the owner of the land and he has not entered into agreement with anyone. As far as the ruling of M/s Satayaja Infratech is concerned, I differ from AAR for the reasons stated above and the reasons are summarized below-

a. The legislature has not created difference between sale of developed plot and sale of undeveloped plot as it talks about sale of land in schedule III. Whatever difference has been created is with respect to sale of building subject to Clause (b) of paragraph 5 of Schedule IL

b. The sale of land is neither supply of goods nor supply of services therefore tax cannot be levied under Section of CGST/SGST Act.

c. The sale of land does not constitute either of anyone -composite supply, mixed supply, exempted supply etc as it neither supply of goods nor supply of service.

d. There is no construction of civil structure on the developed plot so it will squarely fall under paragraph 5 of schedule III.

In view of the above, since the sale of developed plot does not constitute supply of goods or services, there is no question of tax (CGST/SGST) on the sale of land. All other questions are not required to be answered since there is no tax on the sale of land.

(B) [Ruling per: Shri Anurag Mishra, Member]-

I find that the applicant is planning to purchase land and develop it with infrastructure by levelling of land, demarking Plots, Constructing Road, building drainage line, installing water line, erection of electricity line etc. as per the requirement of the approved Plan Passing Authority and sell units of the purchased land as plots to the customers.

I observe that plot development is a scheme which involves developing a land layout after obtaining necessary approval from the development authority and subsequent sale of such sites. Generally, the sellers of plots of land charge the property rates based on the built-up and not the basis of the actual measure of the plot. A super built-up area comprises such area utilized for providing common amenities like infrastructure facilities like roads, water tanks, etc. on a proportionate basis, which means in addition to the land the seller charges a price for such other amenities included. Thus, the sale of land is not equivalent to the sale of a developed plot and is a completely different transaction.

The applicant, is the owner of the land who develops the land with an infrastructure such as drainage line, water line, electricity line, land levelling etc. As per the requirements of the approved plan passing authority. With these developments of the land the applicant will sale these developed land as plots.

This view was also accepted by the Supreme Court in Civil Appeal Nos. 4432-4450 of 2012 , arising out of S.L.P. (C) Nos. 3499-3517 of 2011, in the case of M/s Name Construction P. Ltd. Vs. Union of India & Ors. The Supreme Court gave the ruling that "an applicant who may be the owner of the land and improves such land with infrastructure facilities as a result of the obligations mandated by the Plan Passing Authority, sells such land as developed plots." And such sale price charged from the buyer comprises the cost of the land including the amenities attached to it.

It is mentioned in the para 18 of this judgement, "To the extent the transfer of the site with developments in the manner and to the extent indicated earlier was apart of the transaction, the appellant company had indeed undertaken to provide a service."

I, therefore, observe that it is a case where a clear cut assurance was made to the purchasers as to the nature and the extent of development that would be carried out by the applicant as a part of the package under which sale of fully developed plots with assured facilities was to be made in favour of the purchasers for valuable consideration. To the extent the transfer of the site with developments in the manner, is a part of the transaction, thus the applicant had indeed undertaken/proposed to provide a service.

I , thus, observe that in paragraph 5 of schedule III the term is sale of developed land and which is different from the sale of developed plot. Sale of land in schedule III refers to sale of undeveloped land so the present case is different from the paragraph 5 of Schedule III.

In view of the above, I observe that the applicant is going to undertake substantial development of the land before giving it out for sale to the end customers. Since these development activities are covered in clause (b) of paragraph 5 of schedule II therefore the sale of developed land will be treated as supply of service in terms of paragraph 5 of schedule II and thus, taxable in the eye of law.

9. Since both the members have different views on the taxability of 'sale of developed land/plot', the other issues related to it becomes irrelevant and hence, the ruling cannot be given to such related issues.

RULING

In light of above discussion & findings, we have different views in respect of the services (supra) proposed to be rendered by the applicant. Since we have different views on that particular issue, we are making a reference to the Appellate Authority for hearing and decision on said issue in terms of Section 98(5) of the Act ibid which provide that where the members of the Authority differ on any question on which the advance ruling is sought, they shall state the point or points on which they differ and make a reference to the Appellate Authority for hearing and decision on such question.