Applicability of Goods & Services Tax (GST) on plot of land with sewerage line, electricity pole, water line etc. continue to confuse developers. The Gujarat Appellate Authority for Advance Rulings (GAAAR) has affirmed Authority for Advance Rulings (AAR) tax to be levied. This is contrary to rulings by Goa and Madhya Pradesh’s AAR.
In the present matter, Surat-based Dipesh Anilkumar Naik, appealed before the GAAAR as against the ruling of AAR which had held that the sale of a developed plot ( i.e., sale of land/plot after developing common facilities like water line, telephone line, electricity line, garden, common areas, water harvesting system, drainage system, water pipelines, laying of underground cables, demarcation of individual plots and other facilities as mandated by the development authority) is not equivalent to the sale of land, but tantamount to the rendering of service and would be subject to levy of GST.
Super built-up area vs plot
After going through all the facts and arguments, GAAAR observed that in the activity of plot development, the activities such as leveling the land, construction of boundary wall, construction of roads, laying of underground cables and water pipelines, laying of underground sewerage lines with sewer treatment plant, development of landscaped gardens, drainage system, water harvesting system, demarcation of individual plots, construction of overhead tanks, other infrastructure works and further amenities like garden, community hall etc. are also offered in some schemes.
Sale of such sites is done to end customers who may construct houses/villas in the plots. The sellers charge the rate on super built-up basis and not the actual measure of the plot. The super built-up area includes the area used for common amenities, roads, water tank and other infrastructure on a proportionate basis. Thus, in effect, the seller is collecting charges towards the land as well as the common amenities, roads, water tank and other infrastructure on a proportionate basis and all these are an intrinsic part of the plot allotted to the buyer.
“The above facts clearly indicate that sale of developed plot is not equivalent to sale of land but is a different transaction. Sale of such plotted development tantamount to supply/rendering of service,” GAAAR said while taking note of views by the Supreme Court (Narne Construction Pvt. Ltd, 2013).
It also said that the said transaction will attract GST at the rate of 18 per cent.
On the other hand...
Earlier, Goa AAR had said selling plots with electric poles, drainage lines and approach roads will be simply selling of land and thus not attract GST. “Land is excluded in entirety and in all circumstances whereas building is includable within the scope of supply only upon meeting certain specific criteria,” AAR said in a 2021 ruling. The Madhya Pradesh AAR also took the similar view when its clarification was sought in Bhopal Smart City Development Corporation Ltd. by holding that sale of developed land for smart city development is not exigible to GST.
According to Harpreet Singh, Partner with KPMG in India, with two favourable rulings by AAR of Goa and Madhya Pradesh and one adverse ruling by Appellate AAR in Gujarat, developers would find difficult to decide which one to follow, especially if they are operating in a State where no ruling has been issued. “This is another instance which emphasis the need of formation of Central Advance Ruling Authority to ensure certainty of tax positions to avoid litigation.”