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Taxability of plots
By H C Krishnaveni
Jul 10, 2020

THE project of developing a residential layout / plots on by a registered Housing Co-operative society has many dimensions / arrangements. Most of the housing societies engage the services of the agency to convert the land to plots / sites to be sold to their members. The arrangements between the society and the developer can be in the form of JDR / TDR / turnkey basis etc. The taxability of the plots if developed under JDR and TDR is not under doubt as per the provisions of CGST Act 2017. This aspect of taxability was re-iterated by AAR ruling in the case of M/s. Maarq Spaces Private Limited [TOG-969-ARA-GST-2019] wherein it was held that the developer who is not holding the title in the land is supplying the services of developing the plots on the land owned by a different person i.e. the landowner. M/s Maarq spaces was engaged by a housing society to develop a layout / plots on the land which was not in their name. Hence the crux of the ruling was the finding that "The seller can claim that he is engaged in the supply of land by way of sale only if he himself enjoys the title of the land. Anyone who does not possess any title of the land cannot be considered as the seller".

There may be another arrangement "Turnkey basis" where the developer was responsible for purchase of the land, undertake all the necessary works and handover the plots to the society for onward sale to the members of the society. The society will collect the monies from their members and pay the same to the developer for the purchase of the land from landowner and also development of the layout/plots. There exists neither TDR nor JDR with the landowner which would indicate that the rights in the land is retained with the landowner or the arrangement is on a revenue sharing model. The developer has not entered into any JDR Joint Development Agreement with the landowner but has purchased the land outright from the landowners with the advances received from the society.

Section 9 of the CGST Act 2017 proposes to levy and collect CGST/SGST on all intra-state supplies and collected and shall be paid by the taxable person. The primary condition for any activity / transaction to be levied with CGST/SGST is that the same has to fit in the definition of "Supply". As per section 7(1) of CGST Act 2017 "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. However section 7(2)(a) of the CGST Act 2017 states activities or transactions specified in Schedule III shall be treated neither as a supply of goods nor a supply of services. As per the entry 5 under schedule III " Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building " was neither supply of goods nor supply of services.

The primary condition for a supply to be considered as "Sale of land" is the ownership or the title of such land. In the case where the project of development of plots is executed on turn-key basis, the developer will be the holder of the title for the land. The developer will purchase the land, register the land in his name and carryout all the activities on the land for conversion as plots on his own. Except for converting the land into plots no other construction activity resulting in immovable property is undertaken on the land. Consequent to the land being converted into plots without any construction the same is handed over to the society. For this activity the developer may invest his own money or may be paid some by the society.

As per the General Clauses Act, 1897, Land includes the immovable property and the benefits arising out of land. The development of land into plot will not change the basic character of land. The same will remain an immovable property and is known as "plot / site" of land even after development. It is pertinent to mention that while transferring the plots to the society and while registering the plots, the owner of the land is the developer. The transaction will be liable for stamp duty as fixed by the Govt. The transaction of transfer / sale of plots which is nothing but transfer of land and will fall under schedule III of the CGST Act 2017. Consequently the sale / transfer of the plots is intrinsically land and is neither Supply of goods or supply of service.

Alternatively there can be another line of argument for "taxing" the transaction of sale of plots. The development activity undertaken by the developer on his land purchased will constitute works contract service under section 2(119) of the CGST Act. It has been opined that the supply of plots has to be considered as a composite supply as per section 2(30) of the CGST Act involving sale of land and provision of service i.e. WCS. In this connection it is observed that Land neither falls under the definition of goods nor services under section 2(52) or 2(102) of CGST Act 2017 respectively. It is agreed that the developer has carried out activity which is classifiable under WCS. But under the definition of WCS the activity has to be carried out on immovable property. The composite supply will have two components viz. principal supply and ancillary supply. The sale of plots will have the principal supply of land since the same suffers stamp duty. The WCS is carried out on this piece of land and is ancillary supply. This sale of land, even if considered as composite supply, is covered under schedule III and can be considered as supply of neither goods nor services.

From the above, it can be conveniently concluded that the sale of plots on turn-key basis by the developer who will be holding the title of the land, will not be considered as supply under CGST Act 2017.

[The views expressed are strictly personal.]