Applicability of GST on work executed under JDA on land owner’s portion -AAR Ruling

GST applicability on work executed under JDA on land owner’s portion on the value at the time of transfer of possession of land owner’s’ portion of flats-AAR Ruling

ABCAUS Case Law Citation:
ABCAUS 3115 (2019) (08) AAR

Important case law relied upon by the parties:
Vaswani Estates Developers Pvt. Ltd

The Applicant was a company incorporated under the Companies Act 1956 and is registered under the Goods and Services Act, 2017.

The Applicant was engaged in construction and sale of residential apartments and residential complexes under joint development agreements.

The Applicant have· executed projects under JDA with Land Owners for .an agreed ratio of built-up area. Construction was commenced during pre-GST regime and continued under GST regime. Substantial portion of the work had. been sub contracted to another registered person.

The Applicant had sought advance ruling as to Whether GST is payable towards work executed under JDA on land owner’s portion where work commenced during pre­ GST and continued under GST Law. If tax is applicable the valuation for  payment of  tax?

As per the applicant, the Joint Development Agreement (JDA) is an agreement between a land owner and developer, where land owner contributes land and developer develops the property with the condition to share the developed properties whereby land owner transfers undivided interest in land to the Developer’s share of flats and developer agrees to construct buildings on the land belonging to the land owner.

The applicant submitted that that in terms of Hon’ble High Court., the ‘Tribunal held that transaction falling under JDA between land owner and developer does not fall under the definition of sale or works contract but barter ·and not liable for tax under State VAT Act on the ·ground that JDA sans monetary consideration. However, in. terms of Section 7 of CGST Act 2017 supply  includes  barter  also if  it  is in  the  course  of  furtherance  of business. Further in terms of Section 2(31) of the CGST Act 2017 consideration in relation to supply includes money or  otherwise . Hence the supply “for the consideration other than money also squarely falls under the definition of “Supply”. Therefore construction of a building by developer for land owner in exchange of undivided interest in land falls under the definition of “Supply” and attracts tax under GST.

The Applicant, with regard to valuation for the purpose of payment of GST on land owner’s built up area submitted that tax shall be levied under ·Section 9 and the value be determined under section  15 of  the CGST Act 2017. The  applicant stated that the contractual understanding between the supplier and recipient is essential in order to impose tax under GST and in terms the said understanding only the provisions of supply and determination of consideration are governed. Therefore GST can’t be imposed in the absence of a contractual agreement. submitted that the value of work executed for land owner shall be the value of land as on the date of entering into JDA.

The. applicant further submitted that the work executed  under GST alone shall be made applicable in terms of Section 142 of CGST Act 2017 and Sub-sections (10) & (11) of the said section provide for applicability of tax under earlier law and GST law. The applicant concluded that tax is leviable under earlier law to the extent of work  executed  under  earlier  law   and  not under GST law. Ln other words, tax shall be applicable under GST Law, only on the portion of work executed under GST Jaw.

The Advance Ruling Authority held that in the instant case the supply was in the form of barter and the consideration was in the form of development rights and was in the course of furtherance of business. ‘Hence the activity squarely fell under “supply”· under CGST Act 2017.

GST applicability on work executed under JDA on land owner’s portion

The AAR ruled that the Applicant was liable to pay GST towards work executed under Joint Development Agreement on Land owner’s portion, on the value to ,be arrived at in terms of para 2 of the Notification No. 11/2017-Centra1 Tax (Rate) dated 28.06.2017 at the time of transfer of possession of the land owner’s’ portion of the flats.

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