Gujarat Authority for Advance Rulings issues GST orders on sale of developed plots and concessional GST rate for affordable housing
Recently, the Gujarat Authority for Advance Rulings (AAR) issued two orders on the following –
1. Applicability of GST when developed plots are sold after the completion of infrastructure facilities such as land levelling, drainage, water, electricity, etc.
2. Availability of a concessional GST rate for affordable housing on a part of a township, where a common building approval has been obtained for an entire township being developed.
GST on sale of developed plots1 Facts
The applicant owned a vacant plot of land and intended to sell it to customers in a plotted form. The authorities (i.e. jila
panchayat) required the applicant to mandatorily develop basic amenities such as sewerage and drainage, water and electricity connections, land levelling for roads, pipeline facilities for drinking water, streetlights, telephone lines, etc. before the land is sold to prospective buyers. The applicant intended to sell individual plots to different buyers without constructing any residential dwellings other than the aforesaid basic amenities.
The applicant sought a ruling on whether GST is applicable on the sale of plots when the above-mentioned activities are undertaken.
AAR’s order
● The AAR observed that only if an activity relates exclusively to the transfer of title/ ownership of land would it fall outside the ambit of GST. Activities such as segmenting land into a layout, obtaining permissions, levelling land, construction of
boundary walls, construction of roads, laying of underground cables and water pipelines, etc. are generally carried out when developed plots are sold.
● The AAR drew an analogy from the Supreme Court’s decision in the case of M/s Narne Construction Private Limited,2 where it was observed that the sale of plots after completion of activities such as open drains, sewerage lines, streetlights, etc.
would constitute as “services” under the Consumer Protection Act, 1986 (Consumer Protection Act).
● The AAR held that the sale price is calculated on the super built area, which includes the cost of the land as well as the cost of the said common amenities and infrastructure on a proportionate basis, and is not calculated considering solely the actual size of the plot. Thus, the sale of developed plots is taxable under GST, as the same is not equivalent to only sale of land.
GST rate on affordable housing when a common approval has been obtained for an entire township3
Facts
The applicant was engaged in the construction of a residential and commercial township in Gujarat. This township was subdivided into two parts (say, A and B).
The residential units constructed in part B were intended to be in the small and affordable housing category. Accordingly, it was submitted that more that 50% of the total floor space index (FSI) was utilised for housing units having a carpet area of up to 60 sq. metres.
Parts A and B were separately registered under the Real Estate (Regulation and Development) Act, 2016 (RERA). However, a common building permission for the entire project was obtained by the applicant from the concerned authority.
The question before the AAR was whether the benefit of the reduced GST rate prescribed for affordable housing could be availed for part B of the project.
AAR’s order
● The AAR observed that the definition of “housing project” is not available under GST regulations and would generally mean the development of a project having common facilities, a play area, common entrance, common land, etc.
● When a singular permission has been obtained from the concerned authorities for the entire township having a common entrance, facilities, open areas, etc., the entire township should be considered as a single housing project. The buyer of units in part A of the project is an equitable owner of the common areas, as is a buyer of units in part B. Therefore, part B is not an independent/ standalone housing project, and thus, the total FSI utilised in part B alone cannot be considered to satisfy the 50% criteria for affordable housing.
● Hence, the AAR held that the concessional rate of GST would not be available in the instant case.
PwC comments
● The AAR’s order on the sale of developed plots deviates from an industry practice, that activities undertaken to make plots ready for sale or undertaken post sale constitute a “sale of land” and would not tantamount to “services” for the purposes of GST. However, the AAR relied upon ancillary activities undertaken to develop the plots and the treatment of such
transactions under the Consumer Protection Act to determine its taxability.
● The ruling on the applicable rate on affordable housing also departs from the prevailing industry position of treating each project registered under RERA as an independent project. Further, w.e.f. 1 April 2019, GST regulations have been substantially aligned with RERA to iron out various ambiguities, which demonstrates the intention of the Government.
1Advance Ruling no. GUJ/GAAR/R/2020/11 dated 19 May 2020
2M/s Narne Construction Private Limited v. Union of India [2013] (29) S.T.R 3 (SC) 3 Advance Ruling no. GUJ/GAAR/R/2020/14 dated 19 May 2020
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