K.

VAITHEESWARAN
ADVOCATE &TAXCONSULTANT

Mobile: 98400-96876
E-mail : vaithilegal@yahoo.co.in / vaithilegal@gmail.com

‘VENKATAGIRI’
Flat No.8/3 & 8/4, Ground Floor, No.8
(Old No.9), Sivaprakasam Street,
T. Nagar, Chennai - 600 017, India
Tel.: 044 + 2433 1029 / 4048
402, Front Wing, House of
Lords, 15/16, St. Marks Road,
Bangalore – 560 001, India
◾ GST payments to vendors
◾ GST on RCM basis
◾ GST on construction for
customer
◾ GST on construction for
landowner
◾ GST on Development Rights
◾ ITC reversals – Completion
Certificate
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◾ Developer pays GST @ 18% on the
construction consideration
 18% charged on customer
 5% charged on customer but 18% paid to
Government
◾ No GST on the consideration for the land
◾ ITC availed
◾ Is this option available?

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◾ Notification No. 3/2019 – CTR amends Notification
No. 11/2017 – CTR
◾ Notification No. 11/2017 – CTR issued in exercise of
powers available under Section 9(1), 11(1), 15(5) and
16(1) of the CGST Act, 2017
 Power to notify rates – 9(1)
 Power to grant exemption – 11(1)
 Power to determine value for such supplies in the manner
prescribed – 15(5)
 Subject to conditions and restrictions as may be
prescribed, ITC is available – 16(1)

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◾ Power to notify rates is a simple power and there is
no power to specify conditions or restrictions
◾ Power to grant exemption does not confer power to
provide a deeming fiction where option is not
exercised
◾ Non-availability of ITC can be specified only through
Section 17(5) and not through a rate notification
◾ Section 16(1) does not confer power to deny credit
◾ Section 15(5) requires rules to be framed for
valuation in respect of notified supplies
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◾ Developers followed WCT category and discharged 18% GST
under Entry 3(ii), Notification No.11/2017 - CTR as composite
supply of works contract as defined in Section 2(119) of CGST
Act, 2017
◾ Entry 3(ii) deleted by Notification No.3/2019.
◾ Entry 3(xii) is the residual entry which refers to construction
services other than … …
◾ Contractors and sub-contractors
◾ Developers who followWCT
 Whether it can be called as other construction services?
 Whether it will fall under general residual services?
 Whether there is no entry for taxation sinceWCT is defined?

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◾ Lower rate with conditions is more under Section 11 in the form
of an exemption rather than a rate under Section 9.
◾ Lower rate with conditions as an exemption results in the
following:
 If the exemption is absolute, then the assessee has no
choice but to avail the exemption.
 If the exemption is conditional, then the assessee at his
option can choose not to avail the exemption;
◾ Conditional exemption is at the option of the assessee –
Decisions available
◾ Assessee can chose to ignore the conditional exemption
(5%) and discharge GST at 18% and avail ITC

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◾ If ITC availment was wrong and 5% rate was not available then full
rate of GST would be payable but that cannot be on the land
component.
◾ Given the nature of the condition it should be possible to take a
position that 5% method is not the only method
 Construction segment would attract 18%
 ITC would be available
 Undivided share segment would not be liable to GST

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◾ Land consideration Rs. 10,000 per sq. ft.
◾ Construction consideration Rs. 5,000 per sq. ft.
◾ Deduction under Notification – 1/3rd
◾ TaxableValue Rs. 10,000 per sq. ft.
◾ Can the assessee adopt the land value on actual basis since it is
beneficial?

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◾ This would result in levy of GST on land which is
impermissible.
◾ Supreme Court decision in the case of Wipro Ltd.
◾ Whether inclusion of land in the consideration is permissible?
◾ Entry 49, State List not amended by the 101st Constitutional
AmendmentAct

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◾ Munjal Manishbhai Bhatt v. UoI [2022] 138 taxmann.com 117 / 92 GST 327 / 62 GSTL 262
(Guj.)
 The legislative intent is to impose tax on construction activity undertaken by a
supplier at the behest of or pursuant to contract with the recipient
 There is no intention to impose tax on supply of land in any form and it is for this reason
that it is provided in the Schedule III to the GST Acts that the supply of land will neither
be a supply of goods nor a supply of services
 There is specific consideration agreed for sale of land and for construction of
bungalow
 When specific value of land and value of construction service is available, can the
notification provide for a fixed deduction towards land? The answer has to be in the
negative
 When the statutory provision requires valuation in accordance with the actual price paid
or payable for the service and when such actual price is available then tax has to
imposed on the actual value
 Deeming fiction can be applied only where the actual value is not ascertainable

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 Para 2, Notification No. 11/2017 – CTR which provides for a mandatory fixed
deduction of 1/3rd of total consideration towards value of land is ultra vires
the provisions as well as the scheme of the GSTActs
 Application of such mandatory uniform rate of deduction is discriminatory,
arbitrary and violative of Article 14 of the Constitution of India
 In our view, while maintaining the mandatory deduction of 1/3rd for value
of land is not sustainable in cases where the value of land is clearly
ascertainable or the value of construction service can be determined with
the aid of the valuation rules, such deduction can be permitted at the
option of the taxable person particularly in cases where the value of land
or undivided share of land is not ascertainable
 Para 2, Notification No. 11/2017 – CTR is read down to the effect that deeming
fiction of 1/3rd will not be mandatory in nature
 It will be available at the option of the taxable person in cases where the
actual value of land or undivided share in land is not ascertainable

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◾ This decision has clearly indicated that
 Land value can be on actual basis where it is ascertainable.
 Same analogy can apply when para 2 is applied to
different scenarios in the Notification.
 Court has also recognized that value of construction
service can be determined through Rules.
 In respect of landowner share, the method of cost + 10%
can be justified by relying upon this decision.

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◾ Where a Joint Development Agreement is executed before 01.07.2017, can
landowner share be taxed?
◾ Whether the provisions pertaining to GST in the context of development rights or
construction for landowner have any relevance to a Joint Development Agreement
that is executed before implementation of GST.
◾ The Tribunal in the case of CCE & ST v. Sri Lakshmi Promoters has held that if the JDA
is before 01.07.2010 then no service tax is applicable, whether or not sale agreement is
entered before 01.07.2010.
◾ From this, it can be construed that the date of JDA is the date on which liability arose
and that will not get affected by the date when the allotment or possession of units is
given to the landowner.
◾ State of Karnataka v. Lease Plan India Ltd. [2015] 58 taxmann.com 81 / 51 GST 273
(Kar.)
◾ Can Notification No.4/2018 or No.6/2019 even apply when development rights had
moved earlier?

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◾ JointVenture
◾ Different models
◾ Revenue share model
 No construction for owner
 No allocation of constructed area for owner
 All flats developed and marketed by builders
 Percentage of revenue shared with the owner

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◾ In the case of Mormugao Port Trust v. Commissioner of Cus. C. Ex & ST (2017) 48 STR 69
(Mum.-Trib.) the Mumbai Bench of the Tribunal has held that if the agreement is read as a
whole it clearly comes out that the assessee and SWPL were jointly undertaking a common
enterprise, the revenue of which was shared between the two.
◾ In so far as the other argument of the revenue that non-sharing of losses militates against
the principle of partnership being canvassed by the Assessee is concerned, the broad
principle of partnership of law applies to a transaction between co-venturer and joint venture
and not the entire PartnershipAct per se.
◾ Even under the Partnership Act there is no stipulation that the partners must necessarily
share losses.
◾ In any case, in a joint venture of the present type where jointly controlled operations are
being undertaken and one of the venturers brings in the land and the water front and the
right to exploit such water front as his contribution while the other venturer brings
in money to create infrastructure on the same as his capital, each of the partners is
responsible / liable for the loss of his capital in case the venture is not successful.
◾ There is no service rendered by the appellant and the money flow to the assessee from
SWPL under the nomenclature of royalty is not a consideration for rendition of any
services but in fact represents the appellant’s share of revenue arising out of the joint
venture being carried on by the assessee and SWPL.

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◾ In Cricket Club of India v. Commissioner of Service Tax, [2015] 40 S.T.R. 973 (Mum.-
Trib.), the Mumbai Bench of the Tribunal held that mere flow of money from one
person to another cannot be considered as consideration agreed upon for any specific
activity so as to constitute a service.
◾ The Supreme Court in the case of State of Bengal vs. Calcutta Cricket Club [2019] 110
taxmann.com 47 / 76 GST 614 / 29 GSTL 545 (SC) while holding that there cannot be
any service tax on a club based on the principle of mutuality also held that there has
to be an activity carried out by one person for another for consideration for service
tax to apply.
◾ In Niraj Prasad vs. Commissioner of C.EX. & S.T. (2020) 38 G.S.T.L. 78 (All-Trib.), the
appellant was party to a revenue sharing agreement and a demand was raised for
Service Tax on the amount received by the appellant under the Agreement. The
Allahabad Bench of the Tribunal held that in such a revenue sharing model agreement,
the appellant was not a service provider and not providing any service and was
therefore not eligible to pay service tax on the income received under the agreement.

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◾ Share of constructed area
◾ Is the developer liable to pay GST on construction
done for the land owner?
◾ Can it be said that there is a supply of service by the
developer to the landowner?
◾ Can it be said that since the cost of construction
pertaining to the landowner share has been captured
in the selling rate to the customers, there cannot be
any further levy?

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◾ The Hyderabad Bench of the Tribunal in the case of Vasantha Green
Projects v. Commissioner of Central Tax - Rangareddy - GST [2018] 95
taxmann.com 317 / [2019] 20 GSTL 568 (Hyd. - CESTAT) has held that it is
undisputed that the appellant provided construction services to
landowners and received legal rights on his share of land; constructed
villas and sold them.
◾ The Appellant had discharged service tax liability on the transaction with
prospective customers and for such customers the cost of land has been
included in the value.
◾ Since the value arrived for prospective customers included the
consideration paid or payable for the acquisition of land it cannot again
suffer service tax.
◾ The amount attributable to consideration received in the form of land
right from the owner stands included in the value of villas sold to
prospective customers.
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◾ This decision was followed by the Hyderabad Bench
subsequently in the case of PNR Infra Pvt. Ltd. in which the
appellant had included the cost of land over and above the
value of flats constructed and sold and paid service tax on
that and produced a certificate from the chartered
accountant. The Tribunal held that the amounts attributable
to the value of land has been considered as an addition to
the value that is charged on the flat owners who purchased
the flats from the appellant and hence there is no service tax
liability once again.

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◾ FaqirChand – Supreme Court
 An agreement between the owner of a land and a builder for construction of apartments
and sale of those apartments so as to share the profits may be a joint venture, if the
agreement discloses an intent that both parties shall exercise joint control over the
construction/development and be accountable to each other for their respective acts with
reference to the project.
 On facts there is a contract for construction of an apartment and there is consideration for
such construction flowing from the land owner to the builder (in the form of sale of
undivided share in the land and permission to construct and own the upper floors).
 The land owner is the consumer, builder is the service provider.
◾ Land / UDS given up by owner.
◾ Value of land / UDS given up by owner.

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◾ In exercise of the powers conferred by section 148 of the Central Goods and Services Tax Act,
2017, the Central Government, on the recommendations of the Council, hereby notifies the
following classes of registered persons, namely :-
 (a) registered persons who supply development rights to a developer, builder,
construction company or any other registered person against consideration, wholly or
partly, in the form of construction service of complex, building or civil structure; and
 (b) registered persons who supply construction service of complex, building or civil
structure to supplier of development rights against consideration, wholly or partly, in the
form of transfer of development rights,
◾ as the registered persons in whose case the liability to pay central tax on supply of the said
services, on the consideration received in the form of construction service referred to in clause
(a) above and in the form of development rights referred to in clause (b) above, shall arise at
the time when the said developer, builder, construction company or any other registered
person, as the case may be, transfers possession or the right in the constructed complex,
building or civil structure, to the person supplying the development rights by entering into a
conveyance deed or similar instrument (for example allotment letter)
◾ Notification was amended by Notification No. 23/2019 – CTR dated 30.09.2019 which stated
that nothing contained in this notification shall apply with respect to the development rights
supplied on or after 01.04.2019

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◾ This Notification has been issued under Section 148 of the CGST Act
whereby the followings classes of registered persons have been notified
as the persons liable to pay CGST:
 Promoter who receives development rights or FSI including additional
FSI on or after 01.04.2019 for construction of a project against
consideration payable or paid by him wholly or partly in the form of
construction service of commercial or residential apartment in the
project or in any other form including in cash.
 Promoter who receives long-term lease of land on or after 01.04.2019
for construction of residential apartments in a project against
consideration payable or paid by him in the form of upfront amount
(called as premium, salami, cost price, development charges or by any
other name).

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◾ The liability to payCGST is on the
 consideration paid by the promoter in the form of construction service of commercial or
residential apartments in the project for supply of development rights or FSI including
additional FSI;
 monetary consideration paid by the promoter, for supply of development rights or FSI
including additional FSI;
 upfront amount (called as premium, salami, cost price, development charges or by any
other name) paid by the promoter for long-term lease of land relatable to construction of
residential apartments in the project;
 supply of construction service by the promoter against the consideration in
the form of development right or FSI including additional FSI.
◾ The liability 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.
◾ The Notification provides that the tax is required to be paid under reverse charge basis in
accordance with Notification No.13/2017.

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◾ Section 148 of the CGST Act, 2017 provides that 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.
◾ This provision does not confer any power on the Government to issue a
notification on taxability of a transaction.
◾ The power is only in the context of procedures and process and not
for determining liability, if any.

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◾ No tax position
◾ Rate charged for similar apartment
nearest to the date on which
development right is transferred less
1/3rd towards land.
◾ Since the land already owned by the
owner GST at 18% for the
construction carried out for the
owner (akin to a contractor)
 Value could be comparable rate
 Value could be guideline value of land
given up by the owner
 Value could be agreed rate
 Value could be cost of construction plus
10%

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◾ Development rights – Residential projects
◾ No GST through an exemption notification subject to conditions
◾ In case completion certificate is obtained and there are unbooked
units, promoter has to pay GST on development rights under RCM
@18%
◾ GST to be paid on issue of CC or first occupation whichever is
earlier
◾ Liability will be calculated by taking into account carpet area of
unbooked units as against carpet area of total units
◾ Where promoter is liable to pay on development rights notification
provides that value shall be deemed to be equal to value of similar
apartments charged by the promoter from independent buyers
nearest to the date on which the developments rights are transferred
to the promoter.

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◾ Development rights in immovable property
can be considered as benefits attached to
land and hence would take the character of
immovable property.
 Chheda Housing Development Corpn.
 Anand Behara
 DLF Commercial Projects

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◾ Whether there is a supply in the course or furtherance of business?
◾ In order that a transaction may be treated as 'business transaction', it
must be a transaction that answers the above description from the
standpoint of both the parties to the transaction. It cannot be a business
transaction from the standpoint of one party to the transaction and
something else from the other. So viewed, a single transaction where an
owner of immovable property agrees to sell his land to a society may or
may not constitute a business transaction depending upon whether the
seller is in the business of selling property for profit - Bhanushali Housing
Co-operativeSociety Ltd. (SC)
◾ The purchase of property is an isolated transaction and the appellant has
not carried out any business either before or thereafter. On execution of
JDA, it cannot be said that the owner of land also intended to carry on
business using the subject land as stock in trade since he may well have
decided to part with the land for other reasons also - Devineni Avinash v.
Principal CIT [2018] 100 taxmann.com 75 (AP andTelangana)

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◾ The selling rate for a customer is to be identified as a tool
for valuation.
 Can it be applied given the fact that development rights are not
measured in terms of square feet.
 Selling rate would include land and the owner is not conferring
development right in respect of the retained land.
 What happens when there is no selling rate given the fact that
both parties lease out the constructed area?
 What the owner provides is the right to sell UDS as well as the
right to develop .
 Computation mechanism does not exist for identification of
value of development rights.
 If computation fails, the levy has to fail – CIT v. B.C. Srinivasa
Setty [1981] 5 Taxman 1 / 128 ITR 294 (SC).

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◾ No tax position
◾ Valuation as per the Notification
 Computation challenges
 Possible changes in the future
 RCM and no ITC

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◾ Developer developing land into plots and selling plots
 Land purchased from land owner
 Land developed into plots
 Developer sells the plots
◾ Developer and Landowner enter into JDA
 Land developed by the Developer
 Both Landowner and Developer sell respective share of plots
◾ Developer and Landowner enter into JDA
 Developer sells all plots
 Percentage of revenue shares with the Landowner

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◾ 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 clarified that sale of such developed
land is also sale of land and is covered by Sr. No. 5 of
Schedule III of the Central Goods and Services Tax Act, 2017
and accordingly does not attract GST.
◾ However, it may be noted that any service provided for
development of land, like levelling, laying of drainage lines
(as may be received by developers) shall attract GST at
applicable rate for such services.

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◾ Conveyance of plot attracts stamp duty and
registration
◾ When both parties sell plots, there is no question
of GST
◾ When developer sells all the plots and shares
revenue, revenue sharing arrangement?
 Position in income tax
 Capital gain treatment
◾ Can there be a GST on development charges
separately collected?
◾ Can development charges be considered as
incidental to sale of land and hence, not taxable?

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◾ In the context of service tax, the Chennai Bench of the Tribunal in
the case of Hallmark Infrastructure Vs. CGST has held that service
tax cannot be levied on the consideration collected as land
development charges. The Tribunal accepted the arguments that
the development activities were undertaken before sale of land and
hence the service is a self- service and there is no service provider –
service recipient relationship.
◾ Concept of self-service
◾ Without development the plot is not really marketable
◾ Development is critical for the plots to be identified as marketable
plots

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◾ In a typical Slum Redevelopment Project, the land would belong to the
Government / Municipality
◾ Developer would be awarded the contract to construct units for the slum
dwellers as per the terms of contract
◾ Consideration would be TDR or FSI which can be used by the developer in
another building
 In terms of Section 7(1), levy of GST is on supply for consideration
 What is being supplied by the Developer is only construction on land owned by SRA and
the consideration from Slum Rehabilitation Authority (SRA) is only for such supply.
 Even though some of the observations can be subject matter of another view, the
decision of the Bombay High Court in the case of Sumer Corporation v. State of
Maharashtra [2017] 82 taxmann.com 369 (Bom.) was to the effect that the TDR is a
measurable benefit and would therefore constitute consideration for carrying out the
construction work for SRA and the transaction is nothing but works contract.

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◾ As the consideration does not involve money, the open
market value can only be the amounts paid to a similar
contractor for carrying out identical work at the same time
when the supply being valued was made by the Company
◾ If Rule 27(c) is adopted, the general contract rate awarded by
SRA to contractors for construction of slum re-hab buildings
involving the same quality of materials would become the
basis for valuation for the purpose of GST

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◾ National Anti-Profiteering Authority (Now Competition
Commission)
◾ Reconciliation challenges
 Unbilled revenue
 GST on advances while accounting based on construction completion
method
◾ Impact of completion certificate / occupation certificate on ITC
 Whether ITC availed prior to 01.04.2019 needs to be reversed?
 What is the scope of unbooked units?
◾ Drafting of joint development agreements
◾ Customers’ understanding of GST
 RERA and GST
◾ Possible changes in future?
 Optional GST rate with ITC
 Merging stamp duty and registration into GST?
 Tax on land

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