The transactions in immovable property have been a hotbed of disputes in VAT as well as Service tax. In GST also there does not seem to be end to confusion. Across India different practices of selling of apartments. In some parts of India only 1 agreement for sale of apartment is done, in some 2 agreements entered at the time buyer approaches developed. In some other cases to the extent of completed building along with the value of land there is a registration. Subsequently the finishing agreements are made. In some cases the land is not transferred to the buyer at all but to a society. In some cases partnership firms are formed which are dissolved at the end and property shared. Society gets the construction done and provides a bundle of rights.
Under GST as we understand, the supply of goods and services to the receiver are to be taxed. Here the issue could be that the buyer approaches a developer when 90% of the property is complete and enters into one of the above agreements.
Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
The entry covers two activities namely;
- Sale of land
- Sale of building not covered in Para 5 of the Schedule II
Para 5 of the Schedule II provides for 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. In other words, where the whole consideration has been received after issuance of completion certificate, no GST would be applicable on such sale of constructed buildings.
This entry basically intended to exclude sale of an immovable properties being land and completed buildings from the purview of GST. By plain reading of the entry, it could be understood as:
- Only sale of land is excluded from GST levy and not renting, leasing, sub letting etc.
- Sale of land and Completed Buildings are covered where in the benefits arising out of land say development rights, crops, civil structures, complex other than building are not exempted.
- Construction of building is covered under the ambit of GST as far as whole consideration is not received after obtaining Certificate of completion. If sold while in phase of construction, liability would accrue.
Sale: The term sale has not been defined under the GST Act, however the meaning in Stamp Duty regime of State governments would occur only on registration of the property in name of the purchaser.
One of the modes for transferring title is 'Sale'. The deemed sales as defined under Article 366(29A) of the Constitution are also included in the 'Sale'. Those transactions where the transfer in title takes place by way of sale of land or completed building are excluded from the levy of GST. The classical concept of sale has three concepts:
(a) Agreement to transfer title
(b) Supported by consideration
(c) An actual transfer in title of goods. (by registration)
Immovable Property as per General Clauses Act, 1987 would include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth. It is important to note that the exclusion from payment of GST is given only on sale of land and completed building.
There could be a doubt on whether landlords right to build on land, transfer of TDR and other benefits arising out of land could be covered under this exclusion for “land”. Clarity maybe necessary otherwise many disputes would start on these aspects. Conservatively going by the strict interpretation of the entry, supply of all the immovable property other than land and completed building would be subject to GST. The fact that the ITC would be available on the TDR for the developer may also reduce this issue into a pure cash flow problem rather than a permanent cost.
This article has been adapted from the Book on Classification & Exemption to be published by Bharat Law House by end August 2107.
The authors can also be reached at madhukar@hiregange.com, vasant.bhat@hiregange.com and nagendra@hiregange.com.
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