#TaxmannPPT | GST Legal and Practical Scenarios for Taxing Real-estate Industry with Case Laws

Legal and Practical Scenarios for taxing

Real-Estate Industry

21st May 2024

Khandhar Mehta & Shah

CA. Rashmin Vaja

Taxability Pre & Post 31-03-2019

Applicability of GST on various charges collected by Developers

Condition to be fulfilled for a New Residential Project (RREP & REP)

Taxability of Transferable Development Rights and Transfer of Development Rights

Taxability of Long-term Lease of 99 Years

Re-development models – Taxability & Valuation

ITC Reversal as per Rule 42 (Pre & Post 31-03-2019)

Plotting of Land and its intricacies

Recent Litigation matters for Builders/Promoters

Indirect

Taxable Event Manufacture Provision of Service Import & Export Sale of goods within State Inter-State Sales On Entry of Goods in a state Supply

Authority for levy of Tax

Entry No. 84, List I, Schedule VII

Residuary

Entry No. 97, List I, Schedule VII

Entry No. 83, List I, Schedule VII

Entry No. 54 of List II (VAT) and 92A of List I (CST)

Entry No. 92A of List I of Schedule VII

Entry No. 52 of List II, Schedule VII Article 246A Part XI

Ideal Taxation & Constitutional Background

“Ved Vyas in his famous epic ‘Mahabharat’, about tax in ‘Ramarajya’, said that ‘the state tax be such which should not prove to be a burden on the subject; the King should behave like those bees which collect honey without causing harm to the tree.

-Justice Vineet Kothari while citing the Mahabharata in Karnataka Karsamadhan Judgement

Entry 49 of List II of Seventh Schedule - Article 246 -Taxes on lands and buildings is a State subject.

However, Article 246A of the Constitution grants concurrent powers to both the Center and the States to make laws regarding taxes on goods and services, which are overriding powers.

Article 366(26A) of Constitution defines Services means anything other than ‘goods’ –Whether “services” can cover immovable property ??

As per para 6(a) of Schedule II of CGST Act, works contract shall be treated as supply of service

As per Article 366(29A) of Constitution of India, tax on transfer of property in goods involved in execution of works contract is deemed to be sale of goods

Basic understanding of Construction Sector under GST

Coverage under definition of Goods and Services

 “goods” means –

• every kind of movable property

• other than money and securities

• but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.

 “services” means –

Anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination for which a separate consideration is charged;

[Explanation : For the removal of doubts, it is hereby clarified that the expression “services” includes facilitating or arranging transactions in securities;]

 “works contract” means –

a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract;

 Section 7 prescribes Scope of Supply. It is very wide term which also includes sale, transfer, barter, exchange, license, rental, lease or disposal of goods or services for a consideration in course of furtherance of business.

Meaning of term “Services” is limited ?

What to consider – Goods or Services ?

 Schedule II provides the list of activities to be treated as supply of goods or supply of services

Clause

5. Supply of services

The following shall be treated as supply of services, namely:-

(a) renting of immovable property;

(b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier.

Hence, where consideration (part or other) for a unit/flat received before Completion Certificate, it will be considered as supply of services and GST will be applicable. Where entire consideration for a unit/flat received after Completion Certificate, it will be treated as neither supply of goods nor supply of service and GST will not be applicable

 Schedule III provides the list of transaction which should be treated neither supply of goods nor supply of service, which includes:

a) Sale of Land [in service tax “immovable property” was excluded, which means land and its rights]

b) Sale of Building, i.e., residential or commercial units where completion certificate is received

Hence, where completion certificate is not received in case of residential or commercial units, GST will be applicable.

‘Immovable Property’ ‘Land’

STATUTE DETAILS

Section 2(26) of General Clauses Act, 1897:

Section 2(z) of Real Estate (Regulation and Development) Act, 2016:

“Immovable Property” shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth

“Immovable Property” includes land, buildings, rights of ways, lights or any other benefit arising out of land and things attached to the earth or permanently fastened to anything which is attached to the earth, but not standing timber, standing crops or grass.

Section 3 of Transfer of Property Act, 1882: “Immovable property" does not include standing timber, growing crops or grass.

Section 2(6) of Registration Act, 1908:

Section 3 (p) of The Right To Fair Compensation And Transparency In Land Acquisition, Rehabilitation And Resettlement Act, 2013

“Immovable property” includes land, buildings, hereditary allowances, rights to ways, lights, ferries, fisheries or any other benefit to arise out of land, and things attached to the earth or permanently fastened to anything which is attached to the earth, but not standing timber, growing crops nor grass.

“land” includes benefits to arise out of land, and things attached to the earth or permanently fastened to anything attached to the earth;

Section 3(4) of Bombay Land Revenue Code, 1879: ‘land’ includes benefits to arise out of land and things attached to the earth or permanently fastened to anything attached to the earth and also shares in or charges on the revenue or rent of village or other defined portions of territory”

Transaction Whether GST is payable ?

Sale of Land

Sale of Building

Sold either as it is or after some development such as levelling, laying down of drainage lines, water lines, electricity lines, etc. No

Where entire consideration is received after issuance of Completion Certificate (CC or BU)

Where full or part consideration is received before issuance of Completion Certificate (CC or BU)

After BU Booking No

Before BU Booking Yes

Construction Sector under GST

GST Rate Upto 31-03-2019

Residential Complex

Commercial Complex

Affordable Units

GST @ 8% with ITC

Non-affordable Units :

GST @ 12% with ITC

GST @ 12% with ITC

GST Rate from 01-04-2019

Residential Complex

Commercial Complex

Affordable Units

GST @ 1% without ITC

Non-affordable Units :

GST @ 5% without ITC

GST @ 12% with ITC

Residential Real Estate Project (RREP)

Real Estate Project (REP)

Carpet Area (as per RERA) of Commercial apartment is not more than 15% of the Total Carpet Area

Carpet Area (as per RERA) of Commercial apartment more than 15% of the Total Carpet Area

Disclosure of Correct Value & Rate in GST Returns

 Taxpayer must disclose full GST Rate on 2/3rd Taxable value for

Recent Gujarat High Court Judgement

MUNJAAL MANISHBHAI BHATT V/S. UNION OF INDIA

The division bench of the Gujarat High Court comprising of Justice J. B. Pardiwala and Justice Nisha M. Thakore has read down Para 2 of Notification No. 11/2017 mandating 1/3rd deduction of Land as ultra-virus.

In recent judgement of Munjaal Manishbhai Bhatt v/s. Union of India, it is held that mandatory adopting 1/3rd of total amount charged towards value of land in construction contracts in cases where land cost is ascertainable “is ultra-vires the provisions as well as the scheme of the GST Law.”

Hon’ble Gujarat High Court opined that application of such mandatory uniform rate of deduction is discriminatory, arbitrary and violative of Article 14 of Constitution of India.

Hon’ble Gujarat High Court held that mandatory deduction of 1/3rd value of land in construction contracts is not sustainable in cases where the value of land is ascertainable or where the value of construction service can be derived with the aid of valuation rules.

Hon’ble Gujarat High Court held that 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.

Scenario

Value of Construction Service Value of Land As per contract Land Value as per para 2 of Notification Land Value as held by Hon’ble Gujarat HC

Advances, Adjustment & Exempted Supply in Returns

Disclosure of 1/3rd Deemed Value of Land in GST Returns

As per the Valuation provision notified in NN 11/2017, value of construction services is equal to total value charged less 1/3rd value of land. Therefore only 2/3rd value is to be disclosed in GST Returns. Further full rate i.e 1.5% , 7.5% or 18% is to charged & disclosed in GST Returns. In our view, it is recommended not to disclose the 1/3rd portion in GST Returns as exempted.

Said receipt is to be disclosed as exempt supply in GST Returns and ITC reversal wherever applicable in case of ongoing project & commercial project needs to paid.

Rate of Tax & ITC eligibility in GST Regime

GST on other charges collected by Builder & Society

Composite or Independent Supply

 Section 2(30) of CGST Act "composite supply" means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply;

 Section 2(74) of CGST Act "mixed supply" means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply.

 Section 2(90) of CGST Act "principal supply" means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary;

 Explanation to Notification no. 03/2019 dtd 29-03-2019 :

Gross amount shall be the sum total of; -

B. Amount charged for the transfer of land or undivided share of land, as the case may be including by way of lease or sub lease;

C. Any other amount charged by the promoter from the buyer of the apartment including preferential location charges, development charges, parking charges, common facility charges etc

 Section 15. Value of Taxable Supply.-

(2) The value of supply shall include-

(a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State GST Act, the UT GST Act and the GST (Compensation to States) Act, if charged separately by the supplier;

(c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;

(d) interest or late fee or penalty for delayed payment of any consideration for any supply.

Puranik Builders Limited – Maharashtra AAAR

Question before AAAR:

a. Whether other charges received by the applicant will be treated as consideration for construction services of the company and classified under HSN 9954 along with the main residential construction services of the company or whether the same will be treated as consideration for independent services of the respective head?

b. Consequently, what will be the applicable effective rate of GST on services underlying the other charges?

Ruling delivered by AAAR:

Perception of consumer is an important factor in determining whether the services provided are bundled or not.

AAR refers the Supreme Courts observation “dominant intention test”, intention of contracting parties is of paramount importance.

Test that different elements are integral to one overall supply, if one or more is removed, nature of supply would be affected, has to be satisfied.

Nature of other charges in respect of independent services/ activities which are not inextricably linked and do not fulfill test of composite supply.

• Water Connection Charges

• Electricity meter and deposit for meter

• Development charges • Legal Fees

and

Share municipal Taxes. (after occupancy period)

Formation and registration of org. and legal charges

Share money, application & entrance fees of org.

Infrastructure charges

Applicability on other charges collected by Builder

Electricity, Sewerage and Water Connection Charges

Common Infrastructure Development Charges

(Road, Fire Safety, Street Light, Playground, Garden etc.)

Customer Advances for Flat / Office

PLC/Floor Rise/ Parking Charges/Legal Charges

Subscription Charges, Booking Fees, Administration Fees

Other Miscellaneous Charges

Club Development Charges / Internal Development Charges / External Development Charges

Interest on Late Payment (Only if actually collected )

Maintenance Deposit

Stamp Duty and Registration Charges

of Club

for Cancellation of Booking

Extra Civil Work Charges

Applicability

on other Charges collected by Society

Affordable Housing Scheme

Affordable Residential Apartment means

Project description

New project commences on or after 01.04.2019

Ongoing project where builder has not exercised option to pay Tax @ 8%

Conditions

a) For Metropolitan cities (Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata and Mumbai), area of residential unit must be less than or equal to 60 Square Meters;

b) For Non-Metropolitan cities area of residential unit must be less than or equal to 90 Square Meters; AND

c) Total Value of residential unit (whether in metro or non-metro must be less than or equal to Rs. 45 Lacs)

Ongoing projects covered under any affordable scheme as per earlier Notification

Old Schemes also covered under Affordable Housing:

 Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awaas Yojana

 Works pertaining to “ln-situ redevelopment of existing slums using land as a resource, under the Housing for All (Urban) Mission/ Pradhan Mantri Awas Yojana (Urban)

 works pertaining to the “Beneficiary led individual house construction / enhancement” under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana

 works pertaining to the “Economically Weaker Section (EWS) houses” constructed under the Affordable Housing in partnership

 works pertaining to the “houses constructed or acquired under the CLSS for EWS/LIG/MIG-1/MIG-2

 a single residential unit otherwise than as a part of a residential complex

 low-cost houses up to a carpet area of 60 square meters per house in an affordable housing project which has been given infrastructure status

 a residential complex predominantly meant for self-use or the use of their employees

Example related to Affordable Housing Project:

Total value includes:

Consideration charged for residential apartment:

- Charges towards share of land

- Any other charges by builder such as preferential location charges, development charges, parking charges, common facility charges etc.

Conditions for Concessional Rates for New Project & Ongoing Project opted for New Rate

Conditions to be fulfilled for New Rate 1% / 5%

CASH only

GST to be paid by CASH only .

ITC

Maintain project wise inwards (ITC) from registered & unregistered dealer.

Disclosure

ITC not to be availed & shall be disclosed in GSTR-3B every month

Utilization of ITC not allowed. 80% from RD Mandatory to purchase 80% input goods & input services from registered dealer *

RCM on shortfall Tax @ 18% to be paid in shortfall of 80% from RD dealer # Mandatory RD purchase Cement & Capital goods shall be purchase from RD dealer only 20% relaxation Not allowed

* 80% of value of input and input services (excluding TDR, Long term lease, Electricity, HSD, Motor spirit, natural gas)

# Shortfall from mandatory purchase from registered dealer – Taxpayer needs to pay tax @ 18% under RCM and require to submit details in a prescribed form on GSTN by end of the quarter following the financial year i.e. 30th June after end of the financial year

Exclusion & Issues in mandatory 80% threshold :

Exclusion

Notified in notification no. 03/2019 dtd, 29-03-2019

1. Services by way of grant of development rights

2. Long term lease of land (against upfront payment in the form of premium, salami, development charges etc.)

3. FSI (including additional FSI)

4. Electricity

5. High speed diesel, motor spirit, natural gas]

Clarified in Real Estate FAQs issued by CBIC:

1. Purchase of land

2. Salary Cost

Certain other exclusions as per our view

1. Provisions of expenses / write off entries

2. Stamp duty / Franking cost

3. Interest cost (from bank / unsecured loans)

4. Fees paid to government

Issues

 Mandatory purchase of 80% to be computed only for Input Goods & Input Services (not applicable on Capital Goods)

 Capital Goods are mandatorily purchase from registered dealer.

 Tax on new residential units is to be paid @ 1% / 5% in cash mode only and without availing & utilizing ITC (Even if other conditions are not fulfilled)

 As per FAQ-II, Inward supplies of exempted goods/services shall be included in the value of supplies from unregistered persons while calculating 80% threshold.

 Interest is exempted under GST law, whether interest paid to banks which are registered under GST is to be calculated as supplies from registered or unregistered persons.

 Inward from the composition suppliers- whether to include or exclude.

 Excess / shortfall from mandatory threshold – not to set off in next year

Review of Mandatory Conditions

Total procurement by a promoter for a project

Non-GST expenditures

TDR, FSI, Lease premium, Salary, Electricity , Depreciation, Provisional items, petrol ,diesel etc.

Exclude it from calculation

Procurement of Capital Goods from unregistered person

Promoter needs to pay GST on Capital Goods under RCM at applicable rates

RCM not applicable

Procurement of goods and services by promoter from registered person ≥ 80% Yes

No

Whether Cement is procured from an unregistered supplier?

Yes

Promoter needs to pay GST on Cement under RCM at applicable rates No RCM not applicable

Promoter is liable to pay GST under RCM for shortfall in criteria of 80% *

RCM in case of supplies from unregistered person

Category of supply of goods and services

Supply of such Goods and Services or both (other than services by way of TDR, Long term lease of land or FSI) which constitute the shortfall from the minimum value of goods or services or both required to be purchased by a promoter for construction of project from the registered person.

Supplier Recipient Rate of tax Time of Supply

Tax is to be calculated for the full financial year or part thereof (up to date of BU) and to be paid till June of next FY.

Supply of Cement which constitute the shortfall from the minimum value of goods or services or both required to be purchased by a promoter for construction of project from the registered person.

Unregistered

Person Promoter

Tax is to be paid on monthly basis in which it is Procured Capital Goods supplied to a promoter for construction of a project.

Applicable Rates

Taxability of TDR & ToDR



“TDR” means – Transferable Development Rights’ (TDR) means certificates issued in respect of category of land acquired for public purposes either by the Central or State Government in consideration of surrender of land by the owner without monetary compensation, which are transferable in part or whole. The TDR Certificate inter-alia should mention the area surrendered and the cost of that area as per the circle rate.

TDR Guideline issued by NITI Aayog read with Para 2.1.46 of Consolidated FDI Policy Circular dated 28-8-2017

“ToDR” means – Transfer of ‘Development Rights’ means supply of ‘Development Rights’, by Owner of the land to a Developer / Builder / Construction Company, for constructing a complex, building or civil structure. Here, the said owner avails the ‘Construction Service’ from such Developer / Builder against a consideration, wholly or partly, in form of the said constructed complex, building or civil structure by getting possession thereof from such Developer / Builder. (In the case of Prahitha Construction Pvt Ltd- High court held that GST is applicable on ToDR. Further, Supreme Court Rejects Stay of demand and direct the petitioner to pay tax on TDR. Further SPL has been accepted for further hearing.)

Abr.

Type

TDR

Transferable Development Rights

ToDR

Transfer of Development Rights

Issuer Public Authority Landowner

Form TDRc Certificate Development Agreement

Purpose In form of Consideration for surrender of rights of land, Slum redevelopment Landowner transfer development rights to promoter/developer for area sharing or revenue sharing

Taxability

Neither Supply of Goods Nor supply of Services as notified 243W/243G

Supply of service taxable under entry at SI. No. 16 (iii) (Heading 9972) @ 18%

Journey of Development Rights under GST

(01-07-17 to 31-03-2019)

 Initial reference to the word "development rights" appears in Notification No. 04/2018 dated 25-Jan-2018.

 It operates under the assumption that a "supply" exists between the landowner and developer & vice versa. Meaning transfer of Development Rights is a “Supply”.

As per Section 13 of CGST Act

Date of transfer of possession or right in the constructed area by entering into a conveyance deed or similar instrument (for example allotment letter)

As per Section 15 of CGST Act & Rules

Journey of Development Rights under GST (01-04-2019 onwards)

NN 05/2019 dtd. 29-03-2019

 W.e.f 01-04-2019, the liability to pay GST on development rights shifted from the supplier (forward charge) to the recipient (reverse charge). There will be no liability on part of landowner for transfer of development rights.

 Now, Promoter is liable to pay tax on both development rights under reverse charge and construction services provided to landowner under forward charge.

 Further, promoters are not allowed to avail or utilize Input Tax credit for payment of tax for Residential Projects.

Taxability of development rights in different regime

•Immovable Property excluded from the definition of ‘Service’ Service Tax upto 30-06-2017

GST 01-07-2017 to 31-03-2019

•Not Taxable

• Taxable under FCM

• Notification 04/2018 CT (R) 25.01.2018 under Forward Charge Mechanism (FCM)

GST 01-04-2019 onwards

• Taxable under RCM

•Notification 05/2019 CT (R) 29-03-2019 under Reverse Charge Mechanism (RCM)

Transfer of Long-Term Lease of 99 years

Issues covered under Long term lease

Long term lease of Industrial Plots

Long term lease in case of JDA

Long term lease land by Local Authority

Long term lease as a part composite supply of construction of Flat

Transfer of Long-Term Lease of 99 years

In case of Industrial Plots

Granting of Long-term lease

(Plot to Industrial Units)

 State Industrial Development Corporation (such as GIDC, MIDC etc.) across the country gives land on long term lease basis (more than 30 years) to industrial units.

 Lease deed also permits the lessee to assign his interest in the given plot (for the remaining part of lease) to any other person subject to the approval of State Industrial Development Corporation.

 Let's discuss whether GST is applicable on (a) when the industrial plot is initially allotted, and (b) when the original allottee transfers their leasehold rights to another industrial unit.

Granting of Long-term lease (Original Lease)

State Industrial Development Corporation Industrial Units (Lessee)

Granting of Long-Term Lease of Industrial Plot

Exemption

(Entry 41 of NN 12/2017)

On upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable in respect of service by way of granting of long-term lease of thirty years, or more)

Condition for exemption (Entry 41 of NN 12/2017)

Any violation or change in land use will hold the original lessor, original lessee (industrial units), and any subsequent lessee or buyer jointly liable for the central tax amount that would have been payable on the upfront lease amount, along with interest and penalty. Lease or sale agreements must explicitly state the exemption of central tax on long-term leases and ensure compliance by all parties involved.

Exemption Entry 41 of NN 12/2017- CTR

Upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable in respect of service by way of granting of long term lease of thirty years, or more of industrial plots or plots for development of infrastructure for financial business, provided by the State Government Industrial Development Corporations or Undertakings or by any other entity having 20 per cent. or more ownership of Central Government, State Government, Union territory to the industrial units or the developers in any industrial or financial business area]

Explanation.- For the purpose of this exemption, the Central Government, State Government or Union territory shall have 20 per cent. or more ownership in the entity directly or through an entity which is wholly owned by the Central Government, State Government or Union territory.

NIL

Provided that the leased plots shall be used for the purpose for which they are allotted, that is, for industrial or financial activity in an industrial or financial business area:

Provided further that the State Government concerned shall monitor and enforce the above condition as per the order issued by the State Government in this regard:

Provided also that in case of any violation or subsequent change of land use, due to any reason whatsoever, the original lessor, original lessee as well as any subsequent lessee or buyer or owner shall be jointly and severally liable to pay such amount of central tax, as would have been payable on the upfront amount charged for the long term lease of the plots but for the exemption contained herein, along with the applicable interest and penalty

Assigning of lease hold right (Sub-Lease)

Industrial Units (Original Lessee)

Assigning of lease hold rights in Industrial Plot

Another Industrial Units (Sub-Lessee)

Taxability

Department View:

• Across the country, tax authorities are issuing notices to industrial units (sub-lessees) for not eligible for exemption for this transaction of assignment of lease. Hence, tax authorities have started demanding GST @ 18% on the lease arrangement between original lessee and sub-lessee.

GCCI (Gujarat Chamber of Commerce & Industry) has filed writ petition challenging the applicability of GST on transfer of leasehold land in GIDCs.

Transfer of Long-Term Lease of land to promoter in case of construction of project

Granting of Long-term lease (To Builder/Promoter)

Local Authority (Lessor)

Exemption

(Entry 41B of NN 12/2017)

Granting of Long-Term Lease for project

Promoter (Lessee)

Limitation of Exemption

(Entry 41B of NN 12/2017)

The said transaction is exempted subject to the condition that the constructed residential units sold before issuance of completion certificate and GST is paid on them.

RCM

(Entry 5C of NN 13/2017)

In case of flats sold after issue of completion certificate (CC), exemption of TDR, FSI, long term lease shall be withdrawn. However, such withdrawal shall be limited to 1% of value in case of affordable houses and 5% of value in case of other than affordable houses.

In case of units sold after CC, Promoter is liable to pay GST under Reverse Charge (RCM) on amount paid to landowner (Lessor) @ 18% on units sold after issuance of completion certificate on the proportionate amount.

Such amount of 18% of GST cannot exceed 1% / 5% of GST on units sold after CC.

Granting of Long-term lease (To Builder/Promoter)

Exemption Entry 41B of NN 12/2017- CTR

Description of Service Rate

Upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable in respect of service by way of granting of long term lease of thirty years, or more, on or after 01.04.2019,for construction of residential apartments by a promoter in a project, intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier.

Heading 9972

The amount of GST exemption available for construction of residential apartments in the project under this notification shall be calculated as under:

[GST payable on upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable for long term lease of land for construction of the project] x (carpet area of the residential apartments in the project ÷ Total carpet area of the residential and commercial apartments in the project).

Condition

Provided that the promoter shall be liable to pay tax at the applicable rate, on reverse charge basis, on such proportion of upfront amount(called as premium, salami, cost, price, development charges or by any other name) paid for long term lease of land, as is attributable to the residential apartments, which remain unbooked on the date of issuance of completion certificate, or first occupation of the project, as the case may be, in the following manner –

[GST payable on upfront amount(called as premium, salami, cost, price, development charges or by any other name) payable for long term lease of land for construction of the residential apartments in the project but for the exemption contained herein] x (carpet area of the residential apartments in the project which remain un- booked on the date of issuance of completion certificate or first occupation ÷ Total carpet area of the residential apartments in the project);

NIL

Provided further that the tax payable in terms of the first proviso shall not exceed 0.5 per cent. of the value in case of affordable residential apartments and 2.5 percent. of the value in case of residential apartments other than affordable residential apartments remaining un- booked on the date of issuance of completion certificate or first occupation.

The liability to pay central tax on the said proportion of upfront amount (called as premium, salami, cost, price, development charges orby any other name) paid for long term lease of land, calculated as above, shall arise on the date of issue of completion certificate or first occupation of the project, as the case may be.]

Sn Category of Supply of Services

Long term lease of land (30 years or more) by any person against consideration in the form of upfront amount (called as premium, salami, cost, price, development charges or by any other name) and/or periodic rent for construction of a project by a promoter.

Any person Promoter.

(j) the term “promoter” shall have the same meaning as assigned to it in clause (zk) under section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2017).

Chapter 99

Supply of services other than services by way of grant of development rights, long term lease of land (against upfront payment in the form of premium, salami, development charges etc.) or FSI (including additional FSI) by an unregistered person to a promoter for construction of a project on which tax is payable by the recipient of the services under sub- section 4 of section 9 of the Central Goods and Services Tax Act, 2017 (12 of 2017), as prescribed in notification No. 07 / 2019- Central Tax (Rate), dated 29th March, 2019, published in Gazette of India vide G.S.R. No.254(E), dated 29th March, 2019.

Explanation. - This entry is to be taken to apply to all services which satisfy the conditions prescribed herein, even though they may be covered by a more specific chapter, section or heading elsewhere in this notification

GST on long term lease of land as a part of composite supply of construction of flat by promoter to customer.

land

Rate entry - NN 11/2017 – CTR (NIL rate on lease)

16. Heading 9972

(i) Services by the Central Government, State Government, Union territory or local authority to governmental authority or government entity, by way of lease of land.

(ii) Supply of land or undivided share of land by way of lease or sub lease where such supply is a part of composite supply of construction of flats, etc. specified in the entry in column (3), against serial number 3, at item [(i), (ia), (ib), (ic), (id), (ie) and (if)].

Provided that nothing contained in this entry shall apply to an amount charged for such lease and sub-lease in excess of one third of the total amount charged for the said composite supply.

Total amount shall have the same meaning for the purpose of this proviso as given in paragraph 2 of this notification.

(iii) Real estate services other than (i) and (ii) above.

Paragraph 2 of NN 11/2017

-

-

-

Para 2. In case of supply of service specified in column (3), in item (i) ,(ia), (ib), (ic), (id), (ie) and (if) against serial number 3 of the Table above, involving transfer of land or undivided share of land, as the case may be, the value of such supply shall be equivalent to the total amount charged for such supply less the value of transfer of land or undivided share of land, as the case may be, and the value of such transfer of land or undivided share of land, as the case may be, in such supply shall be deemed to be one third of the total amount charged for such supply.

Explanation. –For the purposes of this paragraph and paragraph 2A below, “total amount” means the sum total of,(a) consideration charged for aforesaid service; and (b) amount charged for transfer of land or undivided share of land, as the case may be including by way of lease or sublease.]

PLC as a part of Lease Premium

Circular No. 177/09/2022-TRU dtd 03-Aug-2022

Issue 10 of Circular: Whether location charges or preferential location charges (PLC) collected in addition to the lease premium for long term lease of land constitute part of the lease premium or upfront amount charged for long term lease of land and are eligible for the same tax treatment.

10.2 As per entry 41 of the notification No. 12/2017- Central Tax (Rate) dated 28.06.2017 upfront amount, which is defined as “upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable in respect of service by way of granting of long term lease (of thirty years, or more) of industrial plots or plots for development of infrastructure for financial business, provided by the State Government Industrial Development Corporations or Undertakings or by any other entity having 20 per cent or more ownership of Central Government, State Government, Union territory to the industrial units or the developers in any industrial or financial business area”, is exempt from GST

10.3 Allowing choice of location of plot is integral part of supply of long-term lease of plot and therefore, location charge is nothing but part of consideration charged for long term lease of plot. Being charged upfront along with the upfront amount for the lease, the same is exempt.

10.4 Accordingly, as per recommendation of the GST Council, it is clarified that location charges or preferential location charges (PLC) paid upfront in addition to the lease premium for long term lease of land constitute part of upfront amount charged for long term lease of land and are eligible for the same tax treatment, and thus eligible for exemption under Sl. No. 41 of notification no. 12/2017- Central Tax (Rate) dated 28.06.2017.

Joint Development Agreements

Taxable events under Joint Development Agreement

Area Sharing in Joint Development Agreement

GST Implication on Transfer of Development Rights

Landowner Developer Transfer of Development Rights Issues

PROMOTER

Person liable to Tax

GST Rate

Exemption

Time of Supply

Valuation

/

From 01-04-2019, Liability of GST on transfer of development rights shifted from landowner to promoter under RCM 13/2017 CT(R) dtd. 28-06-2017 as amended by NN 05/2019 CT(R) dtd. 2903-2019

18% GST GST on transfer of Development Rights is payable @ 18% under RCM

Sr. No 16. item (iii) of NN 11/2017 CT(R) dtd. 28-06-2017 – Heading 9972

TDR for GST on residential units booked before completion certificate is exempted from GST 04/2019-CT(R) 29-03-2019

On or before issuance of Completion certificate / First Occupation

For Residential Units – for monetary or non-monetary consideration

For Commercial Units – for non-monetary consideration NN 06/2019 dtd 29-03-2019 as amended by 03/2021 dtd 02-06-2021

Commercial Units – For Monetary Consideration

Deemed to be equal to the value of similar apartments charged by the promoter from the independent buyers nearest to the date on which such development rights or FSI is transferred to the promoter.

Section 13 of CGST Act

Para 1A of NN 12/2017 inserted by NN 04/2019 CT(R) dtd 29-03-2019

GST Implication on Construction Services to Landowner

Landowner

Construction Services

Person liable to Tax PROMOTER is liable to pay GST on construction services provided to landowner by promoter under forward charge.

GST Rate

Exemption

Time of Supply

1 % or 5% or 12% as applicable to type of area allocated to landowner–residential –affordable , non-affordable or commercial

NA

Valuation

NN 11/2017 as amended , also refer condition in entry 3 (i)(a) to (d)

After 1/3rd land deduction

NA

On or before issuance of Completion certificate / First Occupation for nonmonetary consideration NN 06/2019 dtd 29-03-2019 as amended by 03/2021 dtd 02-06-2021 for Monetary Consideration

Section 13 of CGST Act

deemed to be equal to the total amount charged for similar apartments in the project from the independent buyers, other than the person transferring the development right or FSI (including additional FSI), nearest to the date on which such development right or FSI (including additional FSI) is transferred to the promoter, less the value of transfer of land, if any, as prescribed in paragraph 2 above.

Para 2A of NN 11/2017 inserted by NN 03/2019 CT(R) dtd 29-03-2019

Under Construction flats to Customers

GST Applicability – Area Sharing in JDA

GST Applicability – Revenue Sharing in JDA

Input Tax Credit (ITC) Reversal

Reversal as per Rule 42 in case flats sold after BU

Ongoing Project opted for old rate

Commercial Project (REP)

New Residential Project (RREP/REP)

ITC available (Turnover based ITC reversal as per Rule 42 exist upto 31-032019)

ITC available (Carpet Area based ITC reversal as per amended Rule 42)

ITC not available (Availed it and Reversed in same month)

Ongoing Residential Project opted for new rate

ITC not available (Availed it and Reversed in same month)

Reversal- in case of Units sold after BU (Rule 42)

Till 31.03.2019

• Input Tax Credit was required to reverse ITC based on taxable and Exempt supplies achieved in a particular Financial Year. Accordingly Input Tax Credit in the year when the builder receives Completion Certificate / BU permission were only considered for ITC reversal calculations and not the entire project ITC.

• With effect from 01.04.2019, criteria for ITC reversal for Builders is shifted from Turnover basis to Area based. ITC availed starting from 01.07.2017 or project started whichever is later during the entire project would have to be considered while calculating ITC reversal On or after 01.04.2019

Gujarat High Court in Alembic Ltd (TAX APPEAL NO. 140 of 2019)

Applicability of ITC Reversal as per Rule 42

CC / BU Received in Pre 01-04-2019 Post 01-04-2019

Rule 42 Applicability

Pre-amended Rule 42(1) & Rule 42(2) exist before 01-04-2019

Post Amended Rule 42 w.e.f 01-04-2019

ITC Reversal Turnover based Carpet Area based

Calculation on Month wise ITC (then Yearly Re-calculation) Project wise ITC

ITC pertains to

ITC availed after BU Date will be considered as common ITC ITC availed from 01-07-17 till date for the project will be considered as common ITC

Manner Tax period wise Project wise

Formula

CC- Completion Certificate

BU – Building Use Permission

ITC for tax period x Exempt Turnover / Total Turnover

Total ITC for project x Exempt Carpet Area / Total Carpet Area

Reversal as per Rule 42 - Example

Carpet Area of the Project (in Sq.Mtrs.) 40,000

Unsold Carpet Area on the Date of Receipt of BU (in Sq. Mtrs.) 12,000 (Amt in Cr.)

Manner of Rule 42 Reversal - Part 1

Manner of Rule 42 Reversal – Part 2

Step 1 Monthly

Reversal as per Rule 42(1)

Step 2 Yearly re-calculation as per Rule 42(3)

Step 3 Payment of short reversal Upto 30-Sep of Next FY

Step 4

Reclaim of excess reversal Upto 30-Sep of Next FY

Step 5

Pay interest on short reversal from 1st April till payment.

Applicability of amended Rule 42 upto 31-03-2019

• A Writ petition has been filed to declare Rule 42(3) of CGST Rules, 2017 as ultra vires the constitution of India.

• The main contention is whether Input Tax Credit (ITC) availed prior to 01-04-2019 must be reversed as per amended Rule 42 or Rule 42 exist upto 31-032019, in case completion certificate received before 31-03-2019 Said writ petition has been admitted in Calcutta High Court, hearing & order is awaited.

Redevelopment of Residential Societies

1 Society to Developer (ToDR) Exempt* On such proportionate value of TDR/FSI/Upfront amount attributable to residential apartments sold to New Members after BU Issuance of Completion Certificate

2 Developer to Society/Old Members Taxable

Equal to the value of similar apartments sold nearest to the date of issuance of completion certificate [Less] 1/3rd Value of Land

3 Developer to New Members Taxable Transaction Value

ToDR means Transfer of Development Rights

Amount received or milestone achieved; Whichever is earlier

* Purely residential project will get full exemption at the initial stage, but builder will have to pay tax under RCM on proportionate basis if some units remain unsold after receipt of BU

GST implication on free units

9. In case of redevelopment or slum rehabilitation project, (new or an existing project) whether the constructed units supplied to existing occupiers by the developer free of monetary consideration are taxable?....

Yes, units supplied free of cost also attract GST as their consideration is not money but TDR/ FSI or rights relatable to land on which construction takes place…

Valuation of Construction Services for free units to existing occupiers in redevelopment society

Para 2A. Where a registered person transfers development right or FSI (including additional FSI) to a promoter against consideration, wholly or partly, in the form of construction of apartments, the value of construction service in respect of such apartments shall be deemed to be equal to the Total Amount charged for similar apartments in the project from the independent buyers, other than the person transferring the development right or FSI (including additional FSI), nearest to the date on which such development right or FSI (including additional FSI) is transferred to the promoter, less the value of transfer of land, if any, as prescribed in paragraph 2 above.

Redevelopment Practical Example

GST on Developed Plots

Definition of Project – GST & RERA

GST Act 2017 define the term “Project” in Notification 12/2017 CTR as amended by 04/2019 dtd 29-03-2019:

Clause (viii) The term “project” shall mean a Real Estate Project or a Residential Real Estate Project

Clause (ix) the term “Real Estate Project (REP)” shall have the same meaning as assigned to it in clause (zn) under section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2017).

Clause (x) The term “Residential Real Estate Project (RREP)” shall mean a REP in which the carpet area of the commercial apartments is not more than 15 per cent. of the total carpet area of all the apartments in the REP;

Rera Act 2016 define “Real Estate Project” under clause (zn) of section :

(zn) "real estate project" means :

• the development of a building or a building consisting of apartments, or

• converting an existing building or a part thereof into apartments, or

• the development of land into plots or apartment, as the case may be, for the purpose of selling all or some of the said apartments or plots or building, as the case may be, and includes the common areas, the development works, all improvements and structures thereon, and all easement, rights and appurtenances belonging thereto;

GST on developed Plot

 Section 7 of the CGST Act defines the Scope of Supply, provides for those activities which shall neither be treated as a supply of goods nor as a supply of services covered under Schedule-III.

 Sale of Land is neither covered under supply of goods nor supply of services as per Schedule – III of CGST Act. Therefore, transactions involving the sale of land are not subject to GST.

 However, when transfer of land is combined with the construction services, there could be GST implications that require attention.

Vacant Plot + Basic Development

levelling, laying down of drainage lines, water lines, electricity lines Boundary wall etc.

= Developed Plot

Recent circular on Sale of land with basic development

Circular No. 177/09/2022-TRU dtd 03-Aug-2022

Issue 14 of Circular: Whether sale of land after levelling, laying down of drainage lines etc., is taxable under GST ?

14.1 Representation has been received requesting for clarification regarding applicability of GST on sale of land after levelling, laying down of drainage lines etc.

14.2 As per Sl no. (5) of Schedule III of the Central Goods and Services Tax Act, 2017, ‘sale of land’ is neither a supply of goods nor a supply of services, therefore, sale of land does not attract GST.

14.3 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.

14.4 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.

Advance Rulings and Circular on Developed Plots

GST on developed Plot with Additional Amenities

 Section 7 of the CGST Act defines the Scope of Supply, provides for those activities which shall neither be treated as a supply of goods nor as a supply of services covered under Schedule-III.

 Sale of Land is neither covered under supply of goods nor supply of services as per Schedule – III of CGST Act. Therefore, transactions involving the sale of land are not subject to GST.

 However, when transfer of land is combined with the construction services, there could be GST implications that require attention.

Vacant Plot

Development

levelling, laying down of drainage lines, water lines, electricity lines Boundary wall etc.

Extra Development Landscaping, Club House, Luxurious Villa etc.

Taxability of Components of Developed Plots

Although such receipts are towards no supply, for the purpose of ITC reversal, it is advisable to disclose such receipts as Exempt supply in GSTR-1 as well as

M/s Godrej Properties Limited – Karnataka AAR

1. Whether applicant is liable to charge GST, if booking of plot, receipt of consideration and agreement for sale is entered as well as sale deed is executed after the release certificate, on the following components:

a. Sale of Plot b. Basic Infrastructure Development charges c. Other Common amenities & facilities charges.

2. Whether applicant is liable to charge GST, if booking of plot and / or receipt of consideration and / or agreement for sale is entered prior to the release certificate and sale deed is executed after the release certificate, on the following components:

a. Sale of Plot b. Basic Infrastructure Development charges

Other Common amenities & facilities charges.

3. What is the applicability of GST if the sale price is a consolidated price in agreement for sale towards land cost, basic infrastructure development charges and other common amenities and facilities charges?

Anti-Profiteering for Real Estate Project

Anti-Profiteering under GST

 Section 171 of CGST Act mandates that “any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices.”

 Thus, a person is considered to be profiteering if the prices of goods or services are not reduced despite:

1. A reduction in the tax rate on the supply of goods or services

2. The benefit of input tax credit being available

 In pre-GST era, Central Excise duty was payable on most construction material at 12.5%. In addition, VAT was payable on construction material at 12.5% to14.5% in most of the States & the construction material also suffered entry tax. The input tax credit of the above taxes was inadmissible for meeting Service Tax liability of the builder, thus leading to cascading of input taxes on constructed flats & a higher effective , tax incidence. But GST regime allows full input tax credit for offsetting the headline rate of12%, thereby reducing the effective tax incidence.

 If the Anti-Profiteering Authority comes to the conclusion that any registered person has profiteered, such person shall be liable to pay penalty equivalent to ten per cent. of the amount so profiteered:

Timeline of Anti Profiteering Measures & Litigation

28 Nov 2017 Establishment of NAA (National Anti-Profiteering Authority)

23 Nov 2022 Shifting the Authority from NAA to CCI- Competition Commission of India w.e.f Dec 2022

01 Dec 2022 NAA is set to wind up

No provision for an appeal against the NAA & CCI under GST law. The only recourse is to file a writ petition in the High Court.

2023 More than 100 companies filed writ petition challenging the constitution validity of Anti Profiteering Provision

29 Jan 2024 Delhi High Court upheld the constitutional validity of the Anti-profiteering provisions under GST law

19 Apr 2024 Supreme Court issue notice to Central Govt, CBIC, GST Council, NAA & CCI on a petition challenging Delhi High Court verdict, upholding the constitutional validity of anti-profiteering provisions filed by a real estate company.

Constitution Validity of Anti-Profiteering Provisions are currently pending before Supreme Court

Flawed Methodology adopted by NAA

 Illustration of two identical real estate projects being developed by Developers A & B with the only difference being the advance payment received by them prior to the Goods and Services Tax Regime.

 If the methodology adopted by NAA /DGAP is to be accepted, Developer A would be required to pass on 15% benefit to the flat buyers and Developer B who received 80% of the payment/amount post-Goods and Services Tax receive would be required to pass no benefit to the flat-buyers.

Issues in Anti-Profiteering Provision for Real Estate

 Explanation to Section 171 of CGST - “the expression "profiteered" shall mean the amount determined on account of not passing the benefit of reduction in rate of tax on supply of goods or services or both or the benefit of input tax credit to the recipient by way of commensurate reduction in the price of the goods or services or both”

 Meaning of word commensurate not defined in GST law

 There is no clear methodology for passing on benefits from tax rate reductions or increased ITC availability.

 NAA/DGAP has followed same methodology for different type of industries

 Appeal mechanism against NAA order is not available in GST law, taxpayer has to approach high court by filing writ petition.

 For Real Estate Industry , NAA/DGAP has followed the methodology of difference of ratio of ITC to Turnover under PRE & POST GST.

 Factors like seasonal demand, festivals, Home loan interest rate changes in GST period, location must be considered in pricing of flats.

RCM on payment to Government / Local Authority

As a Public Authorities

 As per definition of ‘Business’ under Section 2 (17) (i) of CGST Act, 2017, it includes any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities.

 In view of the above definition of business, any activity or transaction carried out/provided by the Govts. in which they are engaged as public authorities shall constitute a supply leviable to GST, if it is made against a consideration except those transactions which are specifically notified as non-supplies under Section 7(2)(b) of CGST Act

 Definition as per RTI Act (h) "public authority" means any authority or body or institution of self- government established or constituted(a) by or under the Constitution; (b) by any other law made by Parliament; (c) by any other law made by State Legislature; (d) by notification issued or order made by the appropriate Government, and includes any- (i) body owned, controlled or substantially financed; (ii) non-Government organisation substantially financed, directly or indirectly by funds provided by the appropriate Government;

 Section 2 (53) of Central GST Act -"Government" means the Central Government;

 Section 2 (53) of State GST Act " Government " means the Government of State.

 Section 2 (69) of CGST Act "local authority" means-

(a) a "Panchayat" as defined in clause (d) of article 243 of the Constitution;

(b) a "Municipality" as defined in clause (e) of article 243P of the Constitution;

(c) a Municipal Committee, a Zilla Parishad, a District Board, and any other authority legally entitled to, or entrusted by the Central Government or any State Government with the control or management of a municipal or local fund;

(d) a Cantonment Board as defined in section 3 of the Cantonments Act, 2006 (41 of 2006);

(e) a Regional Council or a District Council constituted under the Sixth Schedule to the Constitution;

(f) a Development Board constituted under article 371 8[and article 371J] of the Constitution; or

(g) a Regional Council constituted under article 371A of the Constitution;

 “Governmental Authority” means an authority or a board or any other body, -

(i) set up by an Act of Parliament or a State Legislature; or

(ii) established by any Government, with 90per cent. or more participation by way of equity or control, to carry out any function entrusted to a Municipality under article 243W of the Constitution or to a Panchayat under article 243G of the Constitution.

 “Government Entity” means an authority or a board or any other body including a society, trust, corporation,

(i) set up by an Act of Parliament or State Legislature; or

(ii) established by any Government, with 90per cent. or more participation by way of equity or control, to carry out a function entrusted by the Central Government, State Government, Union Territory or a local authority.]

Neither supply of goods nor supply of services

Notified activities not treated as Supply under GST

 As per Section 7 of CGST Act, it is mentioned that any activity covered under schedule III and any activity notified by government shall be neither treated as goods nor services.

 Extract of provision contained in Section 7(2) of CGST Act is as below: Notwithstanding anything contained in sub-section (1),-

• (a) activities or transactions specified in Schedule III; or

• (b) such activities or transactions undertaken by the Central Government, a State Government, or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services.

Relevant Notification & Activities

 In relation to the above provisions, the government has issued notifications specifying list of activities or transactions undertaken by Central Government, State Government or any local authority. As per Section 7(2)(b), all the activities are neither treated as supply of goods nor supply of services.

 As per Notification No. 16/2018-Central Tax (Rate) read with Notification No. 14/2017-Central Tax (Rate), “Services by way of any activity in relation to a function entrusted to a Panchayat under article 243G of the Constitution or to a Municipality under article 243W of the Constitution” undertaken by the Central Government or State Government or Union Territory or any local authority in which they are engaged as public authority, shall be treated neither as a supply of goods nor a supply of service w.e.f. 27-07-2018.

 Before 27-07-2018, same services mentioned above (Services provided by local authority under article 243W & 243G of constitution) is covered under S.no. 4 and 5 of exemption notification 12/2017-CT(R) dated 28-06-2017.

RCM on Payment to Government

Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding, -

(1) renting of immovable property, and (2) services specified below-

(i) services by the Department of Posts

(ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport;

Services supplied by the Central Government, State Government, Union territory or local authority by way of renting of immovable property to a person registered under the Central Goods and Services Tax Act, 2017 (12 of2017).

Central Government, State Government, Union territory or local authority

Any person registered under the Central Goods and Services Tax Act,2017  As per entry 5 of RCM notification no. 13/2017 CTR dtd 28-6-17 (as

Central Government, State Government, Union territory or local authority

Any business entity located in the taxable territory.

Function entrusted under constitution :

12th schedule of Article 243W

1. Urban planning including town planning.

2. Planning of land- use and construction of buildings.

3. Planning for economic and social development.

4. Roads and bridges.

5. Water supply for domestic, industrial, and commercial purposes.

6. Public health, sanitation conservancy and solid waste management.

7. Fire services.

8. Urban forestry, protection of the environment and promotion of ecological aspects.

9. Safeguarding the interests of weaker sections of society, including the handicapped and mentally retarded.

10. Slum improvement and upgradation.

11. Urban poverty alleviation.

12. Provision of urban amenities and facilities such as parks, gardens, playgrounds.

13. Promotion of cultural, educational, and aesthetic aspects.

14. Burials and burial grounds; cremations, cremation grounds and electric crematoriums.

15. Cattle pounds; prevention of cruelty to animals.

16. Vital statistics including registration of births and deaths.

17. Public amenities including street lighting, parking lots, bus stops and public Conveniences

18. Regulation of slaughterhouses and tanneries.

11th Schedule to Article 243G

1. Agriculture, including agricultural extension;

2. Land improvement, implementation of land reforms, land consolidation and soil conservation.

3. Minor irrigation, water management and watershed development.

4. Animal husbandry, dairying and poultry.

5. Fisheries.

6. Social forestry and farm forestry.

7. Minor forest produce.

8. Small scale industries, including food processing industries.

9. Khadi, village and cottage industries.

10. Rural housing.

11. Drinking water.

12. Fuel and fodder.

13. Roads, culverts, bridges, ferries, waterways and other means of communication.

14. Rural electrification, including distribution of electricity.

15. Non-conventional energy sources.

16. Poverty alleviation programme.

17. Education, including primary and secondary schools.

18. Technical training and vocational education.

19. Adult and non-formal education.

Relevant exemption by CBIC

FAQ released on Government Services provided by Governmental authority

Question 19: Whether services in the nature of change of land use, commercial building approval, utility services provided by a governmental authority are taxable?

Answer: Regulation of land-use, construction of buildings and other services listed in the Twelfth Schedule to the Constitution which have been entrusted to Municipalities under Article 243W of the Constitution, when provided by governmental authority are exempt from payment of tax.

Monetary Limit | Notification No. 12/2017-CT (R) dated 28.06.2017

It provides that where the consideration against the services provided by Central Government, State Government, Union Territory or Local Authority does not exceed INR 5,000/- then such services shall be exempt from GST.

Exception | Notification No. 12/2017-CT (R) dated 28.06.2017 Specified services by Cent Gov, State Govt or Local Authority are exempted as :

Services by Central Govt, State Govt, or local Authority by way of

(a) Registration required under any law for time being in force

(b) Testing, calibration ,safety check or certification relating to protection or safety of workers or consumers or public at large.

Sovereign functions by Public Authorities

CBIC has earlier clarified the Sovereign Function and then clarifies as taxable:

Circular No. 96/7/2007-ST, dtd. 23-08-2007

“Activities assigned to and performed by the sovereign/public authorities under the provisions of any law are statutory duties. The fee or amount collected as per the provisions of the relevant statute for performing such functions is in the nature of a compulsory levy and are deposited into the Government account.

Such activities are purely in public interest and are undertaken as mandatory and statutory functions. These are not to be treated as services provided for consideration. Therefore, such activities assigned to and performed by a sovereign/public authority under the provisions of any law, do not constitute taxable services. Any amount/fee collected in such cases are not to be treated as consideration for the purpose of levy of service tax.

However, if a sovereign / public authority provides a service, which is not in the nature of statutory activity and the same is undertaken for consideration (not a statutory fee), then in such cases, service tax would be leviable as long as the activity undertaken falls within the scope of taxable service as defined.”

Circular No. 192/02/2016-ST dtd. 13-04-2016

“It is clarified that any activity undertaken by Government or a local authority against a consideration constitutes a service and the amount charged for performing such activities is liable to Service Tax. It is immaterial whether such activities are undertaken as a statutory or mandatory requirement under the law and irrespective of whether the amount charged for such service is laid down in a statute or not. As long as the payment is made (or fee charged) for getting a service in return (i.e., as a quid pro quo for the service received), it has to be regarded as a consideration for that service and taxable irrespective of by what name such payment is called. It is also clarified that Service Tax is leviable on any payment, in lieu of any permission or license granted by the Government or local authority.”

Refund by Builder/Customer in case of Cancellation of Booking

Refund or Adjustment in GST Return

Services Advance Received Receipt Voucher Contract cancelled before Supply of Service a) Refund voucher to be issued b) Adjust tax against output tax and where there is no output tax, refund can be claimed under 'Excess payment of tax’

Services Advance Received Tax Invoice Contract cancelled before Supply of Service a) Credit note to be issued u/s 34 for reduction of tax liability (upto September of next financial year)

b) Adjust tax against output tax and where there is no output tax, refund can be claimed under 'Excess payment of tax'

GST on Cancellation of Unit

Refund by Unregistered Person

Circular No. 188/20/2022-GST dtd 27-12-2022

Eligible to file refund

If time of issuance of Credit note not expired

Why Refund by Customer

Relevant date for filing Refund

Procedure to file Refund Application

Unregistered buyer, who had entered into an agreement with a builder for supply of services of construction of Flats/Building etc. and paid the amount towards the same along with GST to the builder and subsequently agreement got cancelled due to non-completion or delay in construction activity in time or any other reason.

Now unregistered buyer seeks refund of entire amount along with GST.

Refund claims are necessary only if the credit note issuance period has expired. If the time for issuing credit notes under Section 34 of the CGST Act hasn't expired at contract cancellation, suppliers can issue a credit note to unregistered persons.

As the time limit for issuing credit note is lapsed, the supplier cannot refund the GST to the customer. In such customer has to apply for refund himself.

In above cases, for the purpose of determining relevant date, date of issuance of letter of cancellation of the contract/ agreement for supply by the supplier will be considered as the date of receipt of the services by the applicant.

• Obtain a temporary registration on the common portal using his PAN; (in each state if required)

• Select the same state/UT where his/her supplier, in respect of whose invoice refund is to be claimed, is registered;

• Undergo Aadhaar authentication;

• Enter his bank account details (which is in his name and linked with his PAN) in which he seeks to obtain the refund of the amount claimed;

• Application for refund shall be filed in Form RFD-01 on the GST portal under the category ‘Refund for unregistered person’ .

• Also, separate application for refund has to be filed in respect of invoices issued by different suppliers.

Recent litigation matters for Real Estate Sector

Prahitha Constructions Pvt. Ltd |Telangana HC (TDR)

Grounds of Case

Petitioner filed writ in Telangana High Court to declare ToDR (Transfer of Development Rights) by way of a JDA as a sale of land and should be covered under Entry 5 of Schedule II of GST Act, 2017 and also declare Notification no. 04/2018-CT(R) imposing GST on ToDR under JDA be ultra-virus the constitution of India. Main Issues :

(a) Whether ToDR is in the nature of transfer of immovable property or nature of services would fall within scope of GST?

(b) Whether ToDR can be safely brought within the purview of an outright sale of Land?

Ruling delivered by High Court

Mere execution of JDA would not mean that right, title & ownership stands transferred to the developer.

Certain conditions/ milestone/ stages needs to be crossed before which developer would be entitled to have a certain element of right over the completed construction area.

Developer has right to enter property for execution of development activities and in exchange developer would receive proportionate share in land as consideration.

Petitioner is offering construction service to landowner in exchange for the development rights.

TDR is a service and not an outright sale of immovable property.

Notification No. 4/2018 is not creating charge on TDR rather only providing time of supply of TDR.

Sale of land or undivided share executed only after CC of project, indicating services by petitioner was supplied prior to CC and thus liable to GST.

There are two transactions, one is agreement between landowner and developer and another supply of construction service to landowner and thereafter sale of constructed area. Under no circumstances the two supplies be termed as sale of land.

SPL filed in Supreme Court

Petitioner filed SLP in Supreme Court to pass stay order for recovery of tax based on the Telangana High Court Order.

Supreme Court Rejects Stay of demand and direct the petitioner to pay tax on ToDR. Further SPL has been accepted for further hearing.

Safari Retreat Pvt Ltd – Orissa High Court (ITC)

Question before High Court

Whether the petitioner can avail of the benefit of ITC that has been accumulated on the purchase of inputs for the construction of the shopping mall that is intended to be let out?

Ruling delivered by High Court

The Honorable Orissa High Court, while considering the case and the provisions of Section 17(5)(d) of the CGST and OGST Act, 2017, held that the narrow interpretation that has been adopted by the department frustrates the objective of the Act and is not required to be accepted since the petitioner has to pay the huge amount without any reason.

Since the petitioner is using the property to let out on which he is covered under GST and not using it for his own purpose, even then, he is paying a huge amount of GST for which he is not accountable.

If the petitioner is required to pay GST on the rental income arising from the investment on which he has paid GST, he can avail of the input tax credit on the GST. Further, the court did not accept the prayer to hold the provisions of Section 17(5)(d) of the CGST Act to be ultra vires.

The Department has preferred an appeal before the Hon’ble Supreme Court of India against the judgement given by the Hon’ble Orissa High Court. Presently, the Apex Court has reserved the judgement (Civil Appeal No.- 2948/2023 & Date of Order-12/10/2023).

SLP filed in Supreme Court

Vasantha Green Projects – CESTAT Hyderabad

Grounds of Case

The main issue was the service tax demand on the flats provided by Vasantha Green Projects to landowners free of cost. The court had to determine if the value of the flats, representing consideration for securing development rights, which was already included in the value charged to prospective buyers, should also be subject to service tax liability.

 Para 7 “It would not be a rocket science to understand that the value which has been arrived at for sale of villas to prospective customers, would include the consideration paid or payable for acquisition of land. It is not a case that appellant has not discharged the service tax liability on the value received for the villas from prospective customers. In our view, if the consideration towards the acquisition of the land has been included in the value of the villas sold to prospective customers and appropriate service tax liability has been discharged the same value, it cannot be again made liable to service tax under the premise that sale value of the villas given to land-owners is a consideration on which service tax liability was not discharged”.

 Para 12 “This leads to conclusion that it is evident that appellant has complied the service tax liability on the construction undertaken on joint development basis on the value of construction which is mandated in Section 67 of Finance Act, 1994, read with rules made thereunder. In our view, if once the service tax liability has been discharged on the gross amount, demand of service tax on the same amount again would amount to double taxation.”

Observation SPL filed in Supreme Court

This case is pending before the Supreme Court for the consideration.

Tribunal

Alembic Ltd | Gujarat High Court (TAX APPEAL NO. 140

Whether the appellant was required to reverse proportionate credit out of the valid input service credits availed by them during the period till obtaining completion certificate ?

 “The eligibility/entitlement to credit has to be examined only at the time of receipt of input service and once it is found to be availed at a time when output service is wholly taxable, and the said credit is availed legitimately, the same cannot be denied and/or recovered unless specific machinery provisions are made in this regard”

 As at the time of taking credit, there was no existence of any exempted service, therefore, there is no application of Rule 6. That part of the service was exempted only after obtaining completion certificate and thereafter, the respondent was not required to avail the Cenvat credit on the input service, if any, received after obtaining the completion certificate

 The Tribunal therefore, rightly held that once the respondent are not required to reverse any credit availed by them on valid input services availed during the period 2010 till obtaining of completion certificate, the said amounts reversed by them under protest cannot be retained by the revenue authorities and have to be refunded to the respondent.

Ruling delivered by Court

Question before CESTAT

GST Implication on Builder in Gift City

Processing Area

• International Financial Service Centre (IFSC)

• International Techno Park & International Market Zone

• Commodity Exchanges

• Global Trading Exchanges

• Insurance

• Offshore Banking

• IT / ITeS

• KPO / BPO Services

• Foreign Universities

GIFT City

Non-Processing Area

• Related Commercial and Office Buildings

• Service Apartments & Residential Flats

• Hostels, Restaurants and Food Court

• Business Hotel, Shopping Centre, Retail Stores and Banks

• Training Center for Financial Services

• Medical Centre

• Entertainment Centre / Theatre

• Regulators Offices

Real Estate Transaction in Processing Area

• Undertake authorised operations for which approval has been granted by UAC

SEZ Unit

Will provide unit on rent/lease for carrying out operations

Processing area

• Construction of Units

• Allocate space

• Provide Infrastructure Facility

• Allocate space

• Provide Infrastructure Facility

Co-Developer Developer

Will provide land on long term lease and also provide development rights

Payment of Rent/Lease rental as per the agreed terms

Payment towards Development Right Payment of Lease Premium/Annual Lease Rent

* If taxpayer has taken registration as co-developer then he can provide infrastructure facility to SEZ unit. However, in case he want to carry any other authorised operation then he need to take registration as normal SEZ unit.

Real Estate Transaction in Non-Processing Area-Dual Use

Non-Processing area - Dual Use

• Use of Leased Property as residence

Customer

Will develop residential unit in Non-Processing area and will sell to customer on Long Term Lease of 99 years

• Construction of Units

• Allocate space

• Provide Infrastructure Facility

• Allocate space

• Provide Infrastructure Facility

Co-Developer Developer

Will provide land on long term lease and also provide development rights

Real Estate Project in Non-processing Area-Dual Use

Applicability of GST on Various charges collected by Developer Payment Towards

Co-developer

• Annual Lease Rent

• City Level Maintenance Charges

• Grant of Development Right

Developer

Real Estate Project in Non-processing Area-Dual Use

Real

Estate Transaction in Non-processing Area

Non-Processing area - Dual Use

• Use of Leased Property as residence

• Allocate space

• Provide Infrastructure Facility

• Allocate space

• Provide Infrastructure Facility

Customer Co-Developer Developer

Will develop residential unit in Non-Processing area and will sell to customer on Long Term Lease of 99 years

Will provide land on long term lease and also provide development rights

Q & A