Sale of developed plots without receiving any advance from their customers for undertaking development activities is neither a supply of goods nor a supply of service

The Kerala Authority of Advance Ruling ("Kerala, AAR") in the matter of M/s Dharmic Living Private Limited [Advance Ruling No. KER/117/2021 Dated May 28, 2021], ruled that the sale of developed plots / land without receiving any advance from their customers for undertaking development activities is neither a supply of goods nor a supply of service as it is covered by Para 5 of Schedule III of the Central Goods and Services Tax Act, 2017 ("CGST Act").

M/s. Dharmic Living Private Ltd ("the Applicant") is a company registered in Tamil Nadu and engaged in the promotion of gated community villas in the State of Kerala for the prospective villa buyers.The Applicant started the activities in April 2019. They first identify locations suitable for the gated community villa projects and buy the land in their own name and take layout approval in their name and promote the villas to various villa buyers. And in another situation they identify locations suitable for the gated community villa projects and enter into agreement with the landlords for the purchase of the entire land area required for the project. The total area of land is divided into various plots and the layout approval is taken in the name of landlord and the villa approval is taken either in the name of landlord or in the name of villa buyers from concerned local authorities at their expense. In certain cases they redevelop the project that are uncompleted by other developers and will construct villas for the prospective villa buyers.

In some situation they buy land in their own name and develop the land and after getting lay out approval in their name will sell the plots to various prospective buyers without any construction activities. There is only the development of plots and sale of such developed plots. In such cases no advances are received from customers for undertaking the plot development and the plot is sold for a consideration to various buyers after the development work is over.

The Applicant has sought the Advance Ruling on certain issues:

• Whether the rate of GST applicable with effect from April 01, 2019 on Applicant on promotion of villa projects for the villa buyers is 1.5% / 7.5% (effective tax rate 1%/5%) without benefit of Input Tax Credit.
• Whether the GST tax rate of 1.5% / 7.5% is applicable on Applicant in their redeveloped projects undertaken after April 01, 2019 which were uncompleted and already started by developers before March 31, 2019.
• How the taxable value of construction of villa is to be calculated by Applicant on the projects developed and promoted by Applicant on the arrangement of agreement with landlord and landlord selling the plots directly to various villa buyers identified by the Applicant and whether out of the total value of the villa including land value, 2/3rd of the total value shall be taken for payment of GST at the rate of 1.5% / 7.5% (effective rate of 1% / 5% on the total value of villa).
• Whether the GST will be applicable when Applicant buy land and after development sell the developed plots to various customers.

The Hon’ble Kerala, AAR Ruled that the Applicant is liable to pay GST at the rate of 1.5% in respect of the services of construction of affordable residential apartments as per entry at Item (i) and at the rate of 7.5% in respect of the services of construction of residential apartments other than affordable residential apartments as per entry at Item No. (ia) of Sl No. 3 of Notification No. 11/2017 Central Tax (Rate) dated June 28, 2017 ("Services Rate Notification") subject to the conditions prescribed under the respective entries in the villa projects.

The Applicant is also liable to pay GST at the rate of 1.5% in respect of the services of construction of affordable residential apartments as per entry at Item (i) and at the rate of 7.5% in respect of the services of construction of residential apartments other than affordable residential apartments as per entry at Item No. (ia) of Sl No. 3 of Services Rate Notification subject to the conditions prescribed under the respective entries in the redeveloped projects undertaken by them after April 01, 2019.

Further the Kerala, AAR ruled that the taxable value of the construction services supplied by the applicant shall be governed by the provisions of Para 2 of Services Rate Notification as amended by Notification No. 03/2019 Central Tax (Rate) dated March 29,2019 and accordingly the Applicant is eligible to avail deduction of one-third of the total amount charged for the supply in arriving at the taxable value of the supply. And the sale of developed plots / land without receiving any advance from their customers for undertaking development activities is covered by Para 5 of Schedule III of the CGST Act and accordingly it is neither a supply of goods nor a supply of service. Therefore, such sale is not liable to GST.