20 August 2012
Case 1: A owns the Land. B is the Builder/Developer. A transfer development rights to B for construction of flats on such land. In this case the consideration payable by builder against development rights may be in two forms:
(i) Monetary Consideration: On per acre/ha basis or payment or lumpsum basis
(ii) Non-Monetary Consideration: The Builder in this case transfer certain flats to the Land Owner against development rights.
Query:
Whether in this Construction Model who is actual owner of Land and who is actual owner of Superstructure. Whether transfer of development right is same as sale of land.
Whether transfer of development rights is an activity or a consideration
As per CBEC Education Guide, when there is transfer of flats by builder to land owner then it is construction service provided by builder to landowner against consideration as development rights. Thus, simply speaking where there is non- monetary consideration then development rights become a consideration.
Pls. clarify the liability of service tax on above transactions between landowner or builder. with supporting case laws and reasoning.
Further whether above said model can be said as Joint Venture.
The flats are allotted to landowner for purchasing the development rights/land then the value of these flats would be equal to the value of similar flats charged by the builder/developer from the second category (Prospective buyers) of service receivers. In case the prices of flats/houses undergo a change over the period of sale (from the first sale of flat/house in the residential complex to the last sale of the flat/house), the value of similar flats as are sold nearer to the date on which land is being made available for construction should be used for arriving at the value for the purpose of tax.
The clarification was given in the Circular No. 151/2/2012-ST dtd.10.02.2012 and in the educational guidenace note . The monetary cosideration for the construct service provided by the builder/developer can not be determined. So, the government has taken the value of similar flats as consideration for the flats alloted to lansowner.
20 August 2012
The value of Development rights is the real consideration for the construct service provided to the lanowner by the builder/developer. But there is limitation in determining the true value of development rights and consideration for the service provided is taken from the similar flats.
My query is not how valuation has to be made in such case.
You have discussed the case where flats are alloted to land owner against development rights (i.e. non-monetary consideration).
Now suppose instead of flats some monetary payment is made to the landowner for development rights then what will be the service tax implications.
It is still not clear whether transfer of development rights is a consideration or activity. I think it can be activity also and transfer of flats is merely consideration against such activity. Then there can be no construction service provided.
20 August 2012
In case of transfer of development rights what is the service element?? There is nothing to show as providing any service. Development rights are the intangible assets in form of commercial & legal rights. How can transfer of intangible assets be a service???? I certainly believe that it can never be considered as service is provided by transferor of development rights.
20 August 2012
Also, for your futher clarification- I would like to draw your attention to para 2.6 of Educational gidance note on service tax "Mere transfer of title in goods or immovable property by way of sale, gift or in any other manner for a consideration does not constitute service". Thanks
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