06 September 2018
CASE STUDY – JOINT DEVELOPMENT AGREEMENT
Land Owner, (KM Pvt Ltd) is an Company who owns certain land in Jaipur. It is interested in the development of the said land however lacks the expertise. AAH (LLP), (“Developer”) is engaged in the business of real estate development and is looking for undertaking an “Affordable Housing Project” in Jaipur.
Both the Parties agrees to enter into a Joint Development Agreement (“Development Agreement”). As per the Development Agreement, the entire cost in relation to the project which inter-alia includes approvals and construction cost, will be borne by the Developer. The sharing ratio has been agreed, let say 05: 95 (5% KM Pvt LTd and 95% Developer). The Developer is contemplating following option as stated below to fulfill its obligation under the Development Agreement –
Option – ‘Revenue Sharing’ Model
5% of the revenue arising from the sale of the flats will go to KM Pvt LTd.
Other conditions are as follows;
1. The governing document is the Development Agreement between Developer and KM Pvt Ltd.
2. Developer will execute the MOFA ‘Agreement to Sell’ for all the flats and KM Pvt Ltd. will be a confirming party to this agreement.
Queries
a) Applicability of GST on the transaction between Developer and KM Pvt Ltd. under the option i.e. Revenue Sharing –
• In the hands of Developer • In the hand of KM Pvt Ltd.
b) In terms of the Notification No. 04/2018 Central Tax (Rate) dated 25.01.2018 what would be the Time of supply under the Revenue Sharing option-
• In the hands of Developer • In the hand of KM Pvt Ltd.
07 September 2018
The issue is doubtful, and there is difference of opinion. Further the question is not clear as to GST implication on whom? In general joint venture agreements do not attract GST. Say two professionals make a joint venture for combined practice; Is GST applicable- No. Let us see the agreement. There is a joint venture agreement in which land owner gives land for 5% revenue share- Is GST applicable on the supply made by land owner- No, it is sell of land for deferred revenue. There is no concept like applicability or non applicability of GST on joint venture agreements. GST liability is required to be determined, based on the agreement on various transactions.
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