Applicability of GST on sale of a developed plot

The authority of advance rulings has recently declared that ‘sale of developed plots’ with primary or basic amenities is not equivalent to ‘sale of land’ under the Goods and Service Tax Act of India and will accordingly attract GST. The construction industry has always had layers of indirect taxes in place, for instance, VAT was applicable on transfer of property during handover of flats, service tax was payable for rendition of the construction activity, amongst others. Then came the GST which combined all the indirect taxes into one and was applicable at the time of ‘supply’. The GST subsumed any form of transfer, sale, lease, barter under construction and all these activities would be categorized as a ‘supply’ under the Act except in the case of acquisition of building occupancy.

To not be liable to pay GST with respect to immovable property, then the transaction should take place under the pretense of ‘sale of land/building’ after OC/BCC (Occupancy Certificate / Building Completion Certificate). The Advance Ruling Authority’s latest stance on GST not being liable in case of ‘sale of land or building’ is extremely critical in nature. Schedule III of the CGST Act states that the sale of land or building will not be treated as ‘supply of goods and/or services’. However, the law categorizes the following under the terms ‘supply of services’ - construction of a building structure or a complex or a part thereof wholly or partly, except where the entire consideration has been received after the issuance of certificate of completion, where required by competent authority or before its first occupancy, whichever is earlier. There is no GST applicable on a sale of a building in case all payments have been made.

However, if the building is still under construction and there is no occupancy certificate that has been issued, then the transactions will attract a certain amount of GST. The law states that for transactions of such nature, the tax rates applicable are 1% and 5% where there is no provision to claim input tax credit. In a recent case that has come to light, the AAR held that the GST is payable by treating the transaction as a ‘service’ on the underlying assumption that the that the activities of the case applicant involve offering/supplying the plots for sale to its customers with an assurance of development of basic amenities and would accordingly qualify as a ‘supply’. With respect to the nature of the transaction between the applicant and his customer which involved a transfer of ownership of an immovable property, it still qualified as a ‘service’ under the GST law.

In this case, a clear assurance of developing the plot was made to the customers by the applicant as a part of the supply deal under which sale of fully developed plots with assured facilities was to be made in favour of the purchasers for valuable consideration. The sites due for basic infrastructure development by the applicant involves him undertaking a service for his customers therefore making him liable to pay GST.