Rohan Corporation India Pvt Ltd Vs Union Of India

FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT

In this petition, petitioner seeks for the following reliefs:-

“a) Issue a writ of certiorari quashing the Order OIO No 48/2022-23 GST Refund issued in FORM-GST-RFD- 06 dated 15/02/2023 passed by Respondent No.3 vide Annexure-A to the Writ Petition.

b) Direct Respondent No.3 to process the refund claim filed by the Petitioner and sanction the same without any further delay along with interest; and

c) Grant such other order or direction as deemed fit by this Hon’ble Court in the facts and circumstances of the case.”

2. The brief facts giving rise to the present petition are as under:

The petitioner is a private limited company engaged in the business and development of real estate projects having various commercial and residential projects in and around Mangalore. On 17.12.2022, the petitioner filed an application / refund claim before the respondents seeking refund of GST amount of Rs.14,32,64,614/-, pursuant to which, the 3^rd respondent issued a Show Cause Notice dated 24.01.2023 proposing to reject the refund claim of the petitioner, who filed a detailed reply countering all the allegations made in the Show Cause Notice. In pursuance of the same, the 3^rd respondent passed the impugned order dated 15.02.2023 rejecting the refund claim of the petitioner. Aggrieved by impugned order at Annexure – A dated 15.02.2023 rejecting the refund claim of the petitioner and for consequential directions to the respondents to sanction and pay / grant refund along with interest in favour of the petitioner, petitioner is before this Court by way of the present petition.

3. The respondents have filed their statement of objections opposing the petition and supporting the impugned order and seeks dismissal of the petition.

4. I have heard V. Raghuraman, learned Senior Counsel for the petitioner and learned AGA as well as learned counsel for other respondents and perused the material on record.

5. In addition to reiterating the various contentions urged in the petition and referring to the material on record, learned Senior Counsel for the petitioner submitted that the impugned order passed by the 3^rd respondent rejecting the refund claim of the petitioner is illegal, arbitrary and without jurisdiction or authority of law apart from being contrary to the provisions of the CGST/KGST Act and the same deserves to be quashed and consequent directions are to be issued to the respondents to sanction/grant and pay refund in favour of the petitioner together with Learned Senior Counsel would elaborate his submissions as hereunder:

(i) In terms of Section 9(1) of the CGST Act, 2017, GST is attracted on supply of goods or services or both and viewed in this light, the sale of immovable property per se, even if not complete, is a sale nonetheless and not taxable under the GST regime which covers only goods and Section 7 of the CGST, 2017, provides for the scope of supply and a reading of  the  said  provision  would  make  it  clear  that  for charging GST, the primary requirement is that there should be a “supply” of either “service” or of “goods” or “both”. Further, Sub-Section (1A) of Section 7 provides for certain activities or transaction, to be classified as supply of goods or services as specified in Schedule II of the Act. It was submitted that merely because some activities or transactions are listed in Schedule II, the same would not make the said activity or transaction a “supply”, until it falls under Section 7(1) of the Act. It was also submitted that Section 7(1A) of the Act is inserted retrospectively only for the purpose of classification of the supply and nothing else.

(ii) Under Paragraph 5(b) of Schedule II, the activity of construction of 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, is classified as a The activity or the transaction covered under Paragraph 5(b) is the  activity  of  construction  of  complex,  building,  civil structure or a part thereof, including a complex or building intended for sale to a buyer. It was submitted that for the said Paragraph 5(b) and Section 7 of the Act to get attracted for a transaction, the basic requirement is that there should be a service provider and services receiver and the service provider should undertake construction activity for the service recipient. It was also submitted that there should be performance of a contract for construction of building by the service provider/supplier to the service receiver/recipient and when the same is absent in a case, then the said Paragraph 5(b) has no applicability.

(iii) It was submitted that that no construction can be said to have been undertaken if the agreement for construction is entered after the construction and no construction activity is undertaken by the builder/service provider/supplier after the execution of the agreement. In this regard, reliance is placed on the judgment of the Apex Court in the case of Larsen & Toubro , vs State of Karnataka – (2014)1 SCC 708 in order to point out that the activity of construction  undertaken  by  the  developer/builder  would  be works contract only from the stage the developer enters in to a contract with the flat purchaser and that it is only the value additions made to the goods transferred after the agreement is entered into with the purchaser can only be made chargeable to tax by the Government.

(iv) Learned Senior Counsel also invited my attention to the judgment of the Gujarat High Court in the case of Munjaal Manishbhai Bhat Union of India & others – 2022 (62) GSTL 262 (GUJ.) in order to contend that the factum of supply would be initiated only once the agreement is entered into between the supplier and recipient and there cannot be a supply in respect of construction undertaken prior to the agreement with the buyer.

(v) It was submitted that even otherwise “supply” under Section 7 of the CGST Act includes supply of goods or services made or agreed to be made for a consideration and thus the factum of supply would be initiated only once the agreement is entered into between the supplier and recipient and such agreement is for consideration which was in consonance with  the  observation  of  the Apex  Court  in  the aforesaid judgment and that there cannot be a sale in respect of construction undertaken prior to agreement with the buyer. It was submitted that the legislative intent is to impose tax on construction activity undertaken by a supplier at the behest of or pursuant to contract with the recipient and that there was no intention to impose tax on supply of land in any form or building as an immovable property and it is for this reason that it is provided in the Schedule III to the GST Acts that the sale/transfer of land or building as an immovable property per se will be neither supply of goods nor supply of services.

(vi) It was submitted that there was no construction agreement between the Petitioner and 4^th respondent- Liquidator and the entire transaction was pure sale of an immovable property on payment of applicable stamp duty and any transaction involving sale simpliciter on payment of applicable stamp duty is outside the ambit of GST Act itself as held by the Hon’ble Supreme Court in the case of Union of India VKC Footsteps India Pvt. Ltd – 2021 (52) GSTL 513 (SC) in which, while analyzing the jurisprudential vision and  the  economic  rationale  for  GST  legislation,  the  Apex Court held that taxes on alcohol for human consumption and stamp duty paid transactions are outside the ambit of GST and falls completely under the domain of the States under the Constitutional framework.

(vii) It was submitted that if the agreement with the buyer is entered after the construction and no element of construction is undertaken after the execution of the agreement, then there is no supply of goods or services between the parties, even if completion certificate is not received for the said building. It was submitted that even for “supply” under Section 7 of the GST Act, it includes supply of goods or services made or agreed to be made for a consideration and thus factum of supply would be initiated only once the agreement is entered into between the supplier and the recipient and such agreement should be for consideration.

(viii) Learned Senior Counsel submitted that the transaction contemplated under Paragraph 5(b) of Schedule II r/w Section 7 of the Act, would be applicable only to the extent of supply of construction service provided to a service recipient. In this context, it was submitted that Entry 5(b) of Schedule II is a service contract simpliciter and not a composite works contract as held by the Apex Court in the case of Commissioner of Central Excise, Kerala vs. Larsen & Toubro Ltd – 2015 (39) STR 913 (SC). It was submitted that when the constructed immovable property, whether fully constructed or partially constructed is sold as such, without providing any construction service subsequently, the said agreement /transaction would not attract Paragraph 5(b) of Schedule II and Section 7 of the Act, since there is no supply of goods or services or both in the said agreement / transaction and therefore, the question of whether the building has received completion certification or not would be irrelevant in such cases.

(ix) Learned Senior Counsel also invited my attention to the Notification 11/2017-Central Tax (Rate) dated 28.06.2017, which prescribes the rate of GST for construction services in order to contend that since Paragraph 5(b) of Schedule II and Section 7, contemplates only construction service provided by a builder/promoter to a service recipient is amenable/exigible to GST and pointed out that there is no finding in the impugned order that the Petitioner had received any kind of construction service from Respondent No.4 and as such, the impugned order deserves to be quashed.

(x) It was submitted that while sale of land is treated under the Act as neither supply of goods nor a supply of service, sale of a building, if it does not come within the ambit of Paragraph 5(b) of Schedule II, then the same would neither be treated as supply of goods nor a supply of service. In the present case, the transaction under dispute would not fall within the ambit of Paragraph 5(b) of Schedule II, as there was no construction service and therefore, in terms of Paragraph 5 of Schedule III, the purchase of Mall by the Petitioner from Respondent 4 is neither a supply of goods nor a supply of service. It was therefore submitted that the impugned order deserves to be quashed and the respondents be directed to grant and pay refund together with applicable interest in favour of the petitioner.

6. Per contra, learned counsel for the respondents- revenue would reiterate the various contentions urged in the statement of objections and support the impugned order and submit that there is no merit in the petition and that the same is liable to be dismissed.

7. I have given my anxious consideration to the rival contentions and perused the material on record.

8. A perusal of the material on record will indicate that M/s. Lotus Shopping Centres Private Limited was constructing a mall named Lotus Shopping Mall, Kukshekara, Mangaluru. During the pendency of the construction of the mall, there were insolvency proceedings initiated against the said On 18.06.2019, the NCLT appointed Respondent No.4 as the Liquidator of the said company and issued directions to him to liquidate the assets of the company in terms of the provisions contained in the Insolvency and Bankruptcy Code, 2016, pursuant to which, Respondent No.4 issued an invitation for expression of interest for acquisition of the asset i.e., Lotus Shopping Mall on a standalone basis. On the basis of this invitation, the petitioner submitted the expression of interest and participated in the e-auction on 16.05.2022. In the e-auction, the petitioner emerged to be a successful bidder. Subsequently, a letter of intent dated 24.05.2022 was issued by Respondent No.4 to the Petitioner and the Petitioner accepted the same. The Respondent No. 4- Liquidator intimated the payments to be done by the petitioner and also included the payment of GST, to which the petitioner resisted. However, Respondent No.4 insisted on payment of GST.

9. Thereafter, a communication / letter dated 17.08.2022 was sent by the petitioner reiterating its stand that no GST was payable on the transaction of sale of land and partly constructed commercial building as the same was neither supply of goods nor supply of service in terms of Schedule III of GST Act. Due to paucity of time to complete the sale transaction, the Petitioner agreed to remit the balance amount along with interest and the GST amount. In the said letter, the Petitioner interalia stated that they are paying the amount under protest and reserve their right to claim refund of the GST amount collected from the concerned statutory authority. Thereafter, the Petitioner transferred the balance amount along with  interest  and  GST  to  Respondent  4.  The Petitioner vide their e-mail dated 20.08.2022 informed Respondent No.4 regarding the payment and requested to transfer the deeds and related documents of the Mall to the Petitioner. On 23.08.2022 sale certificate in respect of the mall was executed on payment of applicable Stamp Duty of Rs.5.96 crores in favour of the Petitioner by Respondent No.4 whereby the immovable property and all easement right of way and water was sold and transferred absolutely in favour of Petitioner who filed the instant refund claim which was rejected by 3^rd respondent vide impugned order dated 15.02.2023, which is assailed in the present petition.

10. A perusal of the order will indicate that the primary/main ground for rejection impugned of the refund claim of the petitioner by the 3^rd respondent is by holding that Entry 5(b) of Schedule II of the CGST/KGST Act was applicable to the subject transaction which was amenable/exigible to levy of GST and that Entry 5 of Schedule III which grants/provides exemption from levy/payment of  GST  was  not  applicable  to  the  subject transaction of the petitioner whose refund claim was liable to be rejected.

11. In my considered opinion, the impugned order petitioner is illegal, arbitrary and without jurisdiction or authority of law apart from being contrary to the provisions of the CGST/KGST Act and the same deserves to be quashed and consequent directions are to be issued to the respondents to sanction/grant and pay refund in favour of the petitioner together with applicable interest for the following reasons:

(i) Before adverting to the present case, it would be relevant to state that while examining the issue regarding levy of GST on solatium received by the land loser towards acquisition of lands, this Court in the case of Asha R Vs. Assistant Commissioner and another – W.P.No.2552/2024 and connected matters – Dated 10.09.2024 held as under:

“Section 7 of the CGST Act, reads as under:

Scope of supply.

7. (1) For the purposes of this Act, the expression “supply” includes––

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

(b) import of services for a consideration whether or not in the course or furtherance of business;[and]

(c) the activities specified in Schedule I, made or agreed to be made without a consideration;[****]

(d) [*****].

[(1A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.]

Entry 5(e) of Schedule II – Activities [or transactions] to be treated as supply of goods or supply of services, reads as under;

The following shall be treated as supply of services, namely:-

(a) xxx

(b) xxx

(c) xxx

(d) xxx

(e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and

Entry 5(b) of the aforesaid Schedule II, reads as under:-

5. Supply of services.

The following shall be treated as supply of services, namely:—

(a) renting of immovable property;

(b) 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.

Explanation.—For the purposes of this clause—

(1) the expression “competent authority” means the Government or any authority authorised to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely:—

(i) an architect registered with the Council of Architecture constituted under the Architects Act, 1972;or

(ii) a chartered engineer registered with the Institution of Engineers (India); or

(iii) a licensed surveyor of the respective local body of the city or town or village or development or planning authority;

(2) the expression “construction” includes additions, alterations, replacements or remodelling of any existing civil structure;

Entry 5 of Schedule III (Activities or transactions which shall be treated neither as a supply of goods nor a supply of services) reads as under:

5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.

(vii) Section 7(1) of the CGST/KGST Act provides for the scope of supply; it includes all forms of supply of goods and services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.

(viii) Clause (d) of sub-section (1) of Section 7 states that the activities referred to in Schedule II shall be treated as “supply of goods” or “supply of services”. This clause was omitted vide CGST Amendment Act, 2018 w.e.f. 07.2017.

(ix) Simultaneously, Section 7(1A) was inserted vide CGST Amendment Act, 2018 w.e.f. 1.07.2017. It postulates that only when activities or transactions constitute a supply in accordance with Section 7(1), then they shall be treated as supply of goods or services as referred to in Schedule II. The effect of this would be that Schedule II will be merely a classification schedule and will not automatically lead to being considered a supply of goods or services or both.

(x) Entry No. 5(e) of Schedule II treats agreeing to the obligation to refrain from an act or to tolerate an act or a situation or to do an act as supply of service.

(xi) Section 7(2)(a) postulates that notwithstanding anything contained in Section 7(1), activities or transactions specified in Schedule III shall neither be treated as supply of goods nor supply of services.

(xii) Entry 5 of the III Schedule treats sale of land and subject to clause (b) of paragraph 5 of Schedule II, sale of building as neither supply of goods nor as supply of services.

(xiii) The nature of GST and its brief history was dealt with by this Court in the case of Tonbo Imaging India Pvt.Ltd vs. Union of India – (2023) 4 Centax 443, wherein it was held as under:

7. Before adverting to the rival contentions and the relevant statutory provisions, a brief overview of the GST scheme is required ; in this context, it is relevant to state that the entire scheme of indirect taxes in India has undergone transformation upon introduction of GST with effect from July 1, 2017. This tax is being levied with concurrent jurisdiction of the Centre and the States on the supply of goods or services. For this purpose, the Constitution of India has been amended vide Constitution (101st Amendment) Act, 2016 with effect from September 16, 2016. The Constitutional Amendment Bill specifically mentions that the objective of introducing GST is to avoid cascading effect of taxes.

8. The Central Government enacted the CGST Act to provide for levy and collection of tax on supply of goods or services or both where the supply is intra-State supply ; so also, the CGST Rules were also framed including the impugned rule 89(4)(C).

9. The Central Government enacted the IGST Act for the purpose of levy and collection of GST on the supply of goods or services or both where the supply is inter-State supply.

10. The State of Karnataka enacted the KGST Act to levy and collect tax on intra-State supply of goods or services or both within the state of Karnataka.

11. GST is a multi-stage tax, as each point in a supply chain is taxed (unless specifically exempted by law) till the goods and services reach the final consumer. This can be demonstrated by the following :

• • • • A manufacturer procures “input goods” and “input services” to manufacturer his goods and would make “outward supply” to a wholesale supplier. Here, the levy of GST would be on the manufacturer/seller. However, the incidence of GST would be on the wholesale supplier.
      • For the wholesale supplier, the goods procured from the manufacturer/seller becomes “input goods”. The wholesale supplier would make value additions thereon and make an “outward supply” of the same to the retailer. In doing so, GST is levied on the wholesale supplier, but the incidence of GST, which was earlier on the wholesale supplier, is further passed on to the retailer.
      • The goods procured from the wholesale supplier becomes “input goods” for the retail seller. The retail seller would make value additions thereon and make an “outward supply” of the same to the final consumer. In doing the same, GST is levied on the retail seller, but the incidence of GST, which was earlier on the retail seller, is further passed on to the final consumer.
      • The supply chain having been terminated, the final consumer will not be able to pass the incidence of tax any further and thus bears the final burden of tax.
      • GST is therefore a destination-based tax on consumption of goods and It is levied at all stages right from manufacture up to final consumption with “credit” of taxes paid at previous stages of supply chain available as set-off. In a nutshell, only value addition will be taxed, and burden of tax is to be borne by the final consumer.

• • • A manufacturer procures “input goods” and “input services” to manufacturer his goods and would make “outward supply” to a wholesale supplier. Here, the levy of GST would be on the manufacturer/seller. However, the incidence of GST would be on the wholesale supplier.
    • For the wholesale supplier, the goods procured from the manufacturer/seller becomes “input goods”. The wholesale supplier would make value additions thereon and make an “outward supply” of the same to the retailer. In doing so, GST is levied on the wholesale supplier, but the incidence of GST, which was earlier on the wholesale supplier, is further passed on to the retailer.
    • The goods procured from the wholesale supplier becomes “input goods” for the retail seller. The retail seller would make value additions thereon and make an “outward supply” of the same to the final consumer. In doing the same, GST is levied on the retail seller, but the incidence of GST, which was earlier on the retail seller, is further passed on to the final consumer.
    • The supply chain having been terminated, the final consumer will not be able to pass the incidence of tax any further and thus bears the final burden of tax.
    • GST is therefore a destination-based tax on consumption of goods and It is levied at all stages right from manufacture up to final consumption with “credit” of taxes paid at previous stages of supply chain available as set-off. In a nutshell, only value addition will be taxed, and burden of tax is to be borne by the final consumer.

• • A manufacturer procures “input goods” and “input services” to manufacturer his goods and would make “outward supply” to a wholesale supplier. Here, the levy of GST would be on the manufacturer/seller. However, the incidence of GST would be on the wholesale supplier.
  • For the wholesale supplier, the goods procured from the manufacturer/seller becomes “input goods”. The wholesale supplier would make value additions thereon and make an “outward supply” of the same to the retailer. In doing so, GST is levied on the wholesale supplier, but the incidence of GST, which was earlier on the wholesale supplier, is further passed on to the retailer.
  • The goods procured from the wholesale supplier becomes “input goods” for the retail seller. The retail seller would make value additions thereon and make an “outward supply” of the same to the final consumer. In doing the same, GST is levied on the retail seller, but the incidence of GST, which was earlier on the retail seller, is further passed on to the final consumer.
  • The supply chain having been terminated, the final consumer will not be able to pass the incidence of tax any further and thus bears the final burden of tax.
  • GST is therefore a destination-based tax on consumption of goods and It is levied at all stages right from manufacture up to final consumption with “credit” of taxes paid at previous stages of supply chain available as set-off. In a nutshell, only value addition will be taxed, and burden of tax is to be borne by the final consumer.

• A manufacturer procures “input goods” and “input services” to manufacturer his goods and would make “outward supply” to a wholesale supplier. Here, the levy of GST would be on the manufacturer/seller. However, the incidence of GST would be on the wholesale supplier.
• For the wholesale supplier, the goods procured from the manufacturer/seller becomes “input goods”. The wholesale supplier would make value additions thereon and make an “outward supply” of the same to the retailer. In doing so, GST is levied on the wholesale supplier, but the incidence of GST, which was earlier on the wholesale supplier, is further passed on to the retailer.
• The goods procured from the wholesale supplier becomes “input goods” for the retail seller. The retail seller would make value additions thereon and make an “outward supply” of the same to the final consumer. In doing the same, GST is levied on the retail seller, but the incidence of GST, which was earlier on the retail seller, is further passed on to the final consumer.
• The supply chain having been terminated, the final consumer will not be able to pass the incidence of tax any further and thus bears the final burden of tax.
• GST is therefore a destination-based tax on consumption of goods and It is levied at all stages right from manufacture up to final consumption with “credit” of taxes paid at previous stages of supply chain available as set-off. In a nutshell, only value addition will be taxed, and burden of tax is to be borne by the final consumer.

12. In the case of All India Federation of Tax Practitioners v. Union of India [2007] 9 VST 126 (SC) ; (2007) 7 SCC 527, the apex court held as under (page 153 in 9 VST) :

“6. At this stage, we may refer to the concept of ‘Value Added Tax’ (VAT), which is a general tax that applies, in principle, to all commercial activities involving production of goods and provision of services. VAT is a consumption tax as it is borne by the consumer.

7. In the light of what is stated above, it is clear that service tax is a VAT which in turn is destination based consumption tax in the sense that it is on commercial activities and is not a charge on the business but on the consumer and it would, logically, be leviable only on services provided within the country. The service tax is a value added tax.”

13.In the case of Union of India v. VKC Footsteps India Ltd. [2021] 93GSTR 160 (SC) ; (2022) 2 SCC 603, the apex court held as under (para 23, page 202 in 93 GSTR) :

“44. The idea which permeates GST legislation globally is to impose a multi-stage tax under which each point in a supply chain is potentially taxed. Suppliers are entitled to avail credit of tax paid at an anterior stage. As a result, GST fulfils the description of a tax which is based on value addition. Value addition is intended to achieve fiscal neutrality and to obviate a cascading effect of taxation which traditional tax regimes were liable to perpetuate. In a sense therefore, the purpose of a tax on value addition is not dependent on the distribution or manufacturing model. The tax which is paid at an anteriorstage of the supply chain is adjusted. The fundamental object is to achieve both neutrality and equivalence by the grant of seamless credit of the duties paid at an anterior stage of the supply chain.”

Section 16 of the IGST Act, 2017 reads as under :

“Zero rated supply.—(1) ‘zero rated supply’ means any of the following supplies of goods or services or both, namely:

(a) export of goods or services or both ; or

(b) supply of goods or services or both to a special economic zone developer or a special economic zone unit.

(2) Subject to the provisions of sub-section (5) of section 17 of the Central Goods and Services tax Act, credit of input tax may be availed for making zero rated supplies, notwithstanding that such supply may be an exempt supply.

(3) A registered person making zero rated supply shall be eligible to claim refund under either of the following options, namely :

(a) he may supply goods or services or both under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and claim refund of unutilised input-tax credit ; or

(b) he may supply goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied, in accordance with the provisions of section 54 of the Central Goods and Services tax Act or the rules made there under.”

Section 54(3) of the CGST Act, 2017 reads as under :

54. Refund of tax.—(1) Any person claiming refund of any tax. ..

(2). ..

(3) Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilised input- tax credit at the end of any tax period:

Provided that no refund of unutilised input-tax credit shall be allowed in cases other than—

(i) zero rated supplies made without payment of tax ;

(ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council :

Provided further that no refund of unutilised input-tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty :

Provided also that no refund of input tax credit shall be allowed, if the supplier of goods or services or both avails of drawback in respect of Central tax or claims refund of the integrated tax paid on such supplies.

(4). ..

Rule 89(4) of the CGST Rules, 2017 reads as under :

“89. Application for refund of tax, interest, penalty, fees or any other amount.—(1) – (3). ..

(4) In the case of zero-rated supply of goods or services or both without payment of tax under bond or letter of undertaking in accordance with the provisions of sub- section (3) of section 16 of the Integrated Goods and Services tax Act, 2017 (13 of 2017), refund of input tax credit shall be granted as per the following formula-Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) x Net ITC ÷· Adjusted Total Turnover Where,—

(A) ‘Refund amount’ means the maximum refund that is admissible ;

(B)’Net ITC’ means input tax credit availed on inputs and input services during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both ;

(C) ‘Turnover of zero-rated supply of goods’ means the value of zero-rated supply of goods made during the relevant period without payment of tax under bond or letter of undertaking or the value which is 1.5 times the value of like goods domestically supplied by the same or, similarly placed supplier, as declared by the supplier, whichever is less, other than the turnover of supplies in respect of which refund is claimed under sub-rules (4A) or (4B) or both

(D) ‘Turnover of zero-rated supply of services’ means the value of zero-rated supply of services made without payment of tax under bond or letter of undertaking, calculated in the following manner, namely :

Zero-rated supply of services is the aggregate of the payments received during the relevant period for zero-rated supply of services and zero-rated supply of services where supply has been completed for which payment had been received in advance in any period prior to the relevant period reduced by advances received for zero-rated supply of services for which the supply of services has not been completed during the relevant period ;”

(xiv) It would be relevant to note that the levy of GST is on goods or services or both and the same is defined in the CGST/KGST Act under Section 2(52) and Section 2(102) as under:

2.Definitions.- In this Act, unless the context otherwise requires,

(52) “goods’’ means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply; It is quite clear from the above that since goods is defined as movable property, it obviously does not include immovable property. It is also seen that though the definition of services is wide enough to cover anything other than goods, money and securities, it will have to be read in its context and cannot be given such a wide meaning as to include immovable property.

(102) “services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged;

(xv) In VKC Footsteps case supra, the Apex Court held that stamp duties and taxes on alcohol for human consumption provide a significant part of revenues of the states and that hence, the Parliament has consciously excluded them from the scope of GST so as to protect the revenues of States i.e., collecting stamp duties on land acquisition or sale or transfer as under:

“The jurisprudential basis furnishes a depiction of an ideal State of existence of GST legislation within the purview of a modern economy, as a destination-based tax. But there can be no gain saying the fact that fiscal legislation around the world, India being no exception, makes complex balances founded upon socio-economic complexities and diversities which permeate each society. The form which a GST legislation in a unitary State may take will vary considerably from its avatar in a nation such as India where a dual system of GST law operates within the context of a federal structure. The ideal of a GST framework which Article 279A(6) embodies has to be progressively realized. The doctrines which have been emphasized by Counsel during the course of the arguments furnish the underlying rationale for the enactment of the law but cannot furnish either a valid basis for judicial review of the legislation or make out a ground for invalidating a validly enacted law unless it infringes constitutional parameters. While adopting the constitutional framework of a GST regime, Parliament in the exercise of its constituent power has had to make and draw balances to accommodate the interests of the States. Taxes on alcohol for human consumption and stamp duties provide a significant part of the revenues of the States. Complex balances have had to be drawn so as to accommodate the concerns of the States before bringing them within the umbrella of GST. These aspects must be borne in mind while assessing the jurisprudential vision and the economic rationale for GST legislation. But abstract doctrine cannot be a ground for the Court to undertake the task of redrawing the text or context of a statutory provision. This is clearly an area of law where judicial interpretation cannot be ahead of policy making. Fiscal policy ought not be dictated through the judgments of the High Courts or this Court. For it is not the function of the Court in the fiscal arena to compel Parliament to go further and to do more by, for instance, expanding the coverage of the legislation (to liquor, stamp duty and petroleum) or to bring in uniformity of rates. This  would  constitute  an  impermissible  judicial encroachment on legislative power. Likewise, when the first proviso to Section 54(3) has provided for a restriction on the entitlement to refund it would be impermissible for the Court to redraw the boundaries or to expand the provision for refund beyond what the legislature has provided. If the legislature has intended that the equivalence between goods and services should be progressively realized and that for the purpose of determining whether refund should be provided, a restriction of the kind which has been imposed in clause (ii) of the proviso should be enacted, it lies within the realm of policy.”

(xvi) As held by the Apex Court in the aforesaid judgment, though stamp duty transactions are on the instrument, given the fact that it is a major source of revenue, the GST Council deliberated on subsuming the same under GST so that real estate transactions of sale, acquisition, etc., could also be taxed under the GST regime; however, since the same could not be agreed upon, the GST regime was introduced without subsuming the said transactions and the same was left to the domain of the States.

(xvii) The Agenda Item 2A to the GST council minutes before the legislation was introduced would be of some relevance to our discussion;

Agenda Item 2A – GST TREATMENT OF LAND & BUILDING (REAL ESTATE)

1.1 Presently, under service tax law, the following services relating to real estate (land and building) are subjected to service tax: –

(1) Any lease, tenancy, easement, license to occupy land;

(2) Any lease or letting out of the building including a commercial, industrial, or residential complex for business or commerce.

Both are covered under renting of immovable property, which has been declared a service under the Finance Act, 1994.

1.2 Further, 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, is chargeable to service tax.

It is proposed to treat the aforesaid activities under GST as supply of service (Model GST Law).

2.1 Under the Service Tax law, an activity which constitutes merely transfer of title in goods or immovable property is excluded from the definition of service [section 65B (44) of Finance Act].

2.2 Under the GST regime, it is proposed to subject supply of goods or services to GST. Goods have been defined under the Constitution to include “all materials, commodities and articles”. Likewise, services have been defined under the Constitution “as anything other than goods”. Goods and services tax have been defined in the Constitution to mean “any tax on supply of goods, or services or both except taxes on the supply of the alcoholic liquor for human consumption”. Supply has been defined in the model GST law in the broadest possible sense and includes sale.

2.3 What is presently being taxed under service tax law is provision of service in relation to land and buildings. Under the proposed GST, the taxable event is supply of goods or services [Articles 246A & 286 of the Constitution]. However, immovable property has not been included in the definition of goods in the model GST law. As mentioned in paras 1.1 and 1.2, only supply of services in relation to land and building has been proposed to be subjected to GST.

2.4 Thus, supply of immovable property (land and buildings) has been kept outside the purview of GST. It is felt, that this would distort the GST particularly when there is no constitutional or legal impediment to levy GST on supply of land and building to GST due to the following reasons: –

(i) Stamp duty, which is levied under Article 268, is with reference to documents and is collected by the Centre on documents listed in Entry 91 of the Union List while by the States on documents listed in Entry 63 of the State List. Therefore, the argument that because legal conveyance of title of land and buildings attracts stamp duty, they cannot be subjected to GST is facile because stamp duty is levied on documents while GST would be levied on the supply of land and buildings, whether as goods or services (“aspect theory” upheld by the Supreme Court in a host of judgements). Renting/leasing are subjected to service tax presently. Documents pertaining to such renting/leasing are subjected to stamp duty.

(ii) Entry 49 of the State List reads thus: – 

“Taxes on lands and buildings”

It is felt that this entry is not an impediment to levy of GST on supply of lands and buildings because of the “aspect theory” upheld by the Supreme Court: while the stock of lands and buildings is subjected to tax by the States on the aspect of possessing land and buildings, the supply aspect can be subjected to GST.

(iii) Most international jurisdictions subject supply of land and building to GST/VAT (Australia, Canada, New Zealand, Malaysia, Singapore, South Africa, EU & UK).

(iv) Presently, because both VAT and service tax are leviable on under construction property and not on flats sold after completion of construction, buying an under construction flat is more taxing for a buyer.

(v) Further, though service tax and VAT are charged generally @ 4.5% and 1% of the value of the flat (which includes the value of the undivided share of land) respectively, there are embedded taxes in the flat. The total tax incidence in respect of flats in non metros is more than that in metros. In fact, where the value of land is less, the incidence of service tax and VAT is more (embedded taxes). GST on supply of land and building will equalize the tax incidence in respect of houses in metros and non-metros.

(vi) Without levying GST on supply of land and building, it would be very difficult to complete the input tax credit chain (ITC) and allow ITC in respect of construction services and construction material used in creation of immovable property which is further used for carrying out taxable activities. This is highly distortionary. While at the behest of business and industry, the ITC chain would get liberalized, the tax administration would forever be saddled with non-completion of ITC chain thereby resulting in disincentives to obtain taxable invoices for availing input tax credit. Non inclusion of land and building in GST results in cascading of taxes.

(vii) Gains from GST arising out of a comprehensive tax base, would be negated owing to a large hole in the tax base [As per MOSPI data, construction sector constitutes almost 9% of the total gross value added (GVA) in the country]. This is for the reason that levy of GST on supply of land and buildings would be an impediment to the generation, flow and parking of black money.

(viii) Land and building are not on the same footing as alcoholic liquor for human consumption as the latter is constitutionally outside the definition of goods and services tax (para 2.2 above).

3. In view of the discussion in the forgoing paras, it is imperative that supply of land and building is subjected to GST. However, certain categories of such supplies may be exempted in public interest. These are listed below: –

(I) Supply of vacant land for the purposes of agriculture.

(II) Supply of land for construction of, –

(a) a civil structure or any other original works pertaining to a scheme under Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awas Yojana;

(b) a civil structure or any other original works pertaining to the ‘In –situ rehabilitation of existing slum dwellers using land as a resource through private participation’ under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana, only for existing slum dwellers;

(c) a civil structure or any other original works pertaining to the  Beneficiary-led  individual  house  construction/enhancement under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana;

(d) a structure meant for funeral, burial or cremation of deceased;

(e) a single residential unit, on land admeasuring not more than 100 square metres;

(f) low-cost houses up to carpet area of 60 square meters per house in a housing project approved by competent authority empowered under the ‘Scheme of Affordable Housing in Partnership’ framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India;

(g) low cost houses up to a carpet area of 60 square meters per house in a housing project approved by the competent authority under:

1) the “Affordable Housing in Partnership” component of the Housing for all (Urban) Mission/ Pradhan Mantri Awas Yojana;

2) any housing scheme of a State Goverment.

(h) Post-harvest storage infrastructure for agriculture produce including cold storage for such purposes.

(III) Sale of:

(a) houses constructed under Rajiv Awas Yojana;

(b) houses constructed under ‘In –situ rehabilitation of existing slum dwellers using land as a resource through private participation’ under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana, only for existing slum dwellers.

(c) low-cost houses up to carpet area of 60 square meters per house in a housing project approved by competent authority empowered under the ‘Scheme of Affordable Housing in Partnership’ framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India;

(d)low cost houses up to a carpet area of 60 square meters per house in a housing project approved by the competent authority under:

i. the “Affordable Housing in Partnership” component of the Housing for all (Urban) Mission/ Pradhan Mantri Awas Yojana;

ii. any housing scheme of a State Government.

(IV) Sale of residential premises other than new residential premises.

Note: – 1) A residential premise is new when any of the following apply:

1. it has not previously been sold as residential premises

2. a new building replaces a demolished building on the same land.

4.1 We may prescribe a different rate of GST for supply of land vis-à-vis supply of buildings, with full ITC of both.

4.2 Further, the amount of stamp duty paid on land or buildings, may be allowed to be excluded from the value of land or buildings, for levy of GST on their respective supply.

4.3 Alternatively, the amount of GST payable may be reduced by the amount of stamp duty paid on the land or buildings, subject to the condition that no refund of ITC would be availed under the duty inversion clause of GST law.

(xviii) As rightly contended by the learned Senior counsel for the petitioners, this Agenda Item to tax immovable property transactions was not agreed upon and at the GST council meeting held on 22^nd and 23^rd of December 2016, which is broadly set out hereunder: Agenda Item 2A – CST Treatment of Land and Building (Real Estate)

 10. The Secretary to the Council introduced this agenda and explained that in Section2(49), the definition of ‘goods’ included only movable property. He pointed out that under the Constitution, States had power to charge stamp duty on transactions in land and building and that the rate of this duty ranged between 5% and 6%. He emphasized that under this agenda item, no change in the scheme of stamp duty was proposed as entry 63 of the State List of Schedule 7 of the Constitution empowering States to charge stamp duty remained intact. He pointed out that today, there existed a dichotomy in rates of Service Tax on property depending upon the fact whether it was bought as an under construction property (which attracted Service Tax) or as a ready-built property after obtaining completion certificate (which did not attract Service Tax). He explained that this created a cost arbitrage of about 6% in favour of buying ready-built property. He stated that, in addition, there were embedded taxes as no ITC was available on inputs like steel, cement, floor tiles, sanitary fittings, used in the construction of the property. Shri Arvind Subramanian, Chief Economic Advisor to the Government of India stated that the cost arbitrage between ready-built and under-construction property could range between 6% to18% due to embedded taxes. In view of this, the Secretary to the Council proposed that GST could be imposed on supply of land and building and the rate could be 12% or 18% with a provision to block refund if there was an incidence of duty inversion between input tax and the output tax on the final supply. He stated that such a measure would take care of the present anomaly of taxation between constructed and under-construction property.

Starting the discussion on this agenda item, the Hon’ble Minister from Uttar Pradesh raised the question as to what percentage of sale of property was fully-constructed vis-à-vis those under construction. The Secretary to the Council stated that such data was not readily available. The Hon’ble Minister from Uttar Pradesh observed that most property sales would be of under-construction property as it would be difficult for developers to fully fund by themselves the development of a property. The Hon’ble Minister from Uttarakhand stated that the hill States should have special exemption. The Hon’ble Chairperson observed that this would be decided once the main issue was settled. The Hon’ble Minister from Punjab observed that if a developer constructed the property on his own, then the completed project’s cost would be higher as the developer would also recover the cost of capital investment. The Hon’ble Deputy Chief Minister of Gujarat did not support the proposal under this agenda item. He observed that in almost 90% cases, an under-construction flat was booked by customers and money was paid by them for construction. He stated that stamp duty was on value addition and the proposal made now would lead to double taxation. The Secretary to the Council stated that another important consideration for introducing this agenda item was that if sale of property was considered as a supply and tax was charged at the rate of 18%, it would complete the ITC chain and there would be greater incentive to buy tax paid inputs like cement, steel, sanitary fittings, tiles, etc. The Hon’ble Deputy Chief Minister of Gujarat stated that levying GST on Land and Building would put additional duty burden on the small house-owners. The Hon’ble Minister from Telangana observed that after demonetization, the real estate business had suffered and introduction of GST on it would further worsen the situation. The Hon’ble Minister from Bihar suggested to form a small committee to further examine this proposal.

The Commissioner (GST) CBEC stated that if tax was imposed on re-sale of property, say, a hotel, this would help in claiming ITC and lowering the cost of business for the buyer of the hotel. He also stated that charging GST on re-sale of property would also capture the value addition over a period of time. The Hon’ble Deputy Chief Minister of Gujarat pointed out that there was stamp duty on re-sale. The Hon’ble Minister from West Bengal stated that he supported the views expressed by the Hon’ble Deputy Chief Minister of Gujarat and the Hon’ble Ministers from Uttar Pradesh and Telangana. He observed that all fittings and raw materials used in buildings would largely be tax- paid and this was presently an additional tax gain for the State as no ITC was available on them. He expressed that the proportion of evaded inputs like steel, cement, etc. might not be very high. He further stated that there were much larger transactions in smaller and medium houses and these should not be taxed in addition to the levy of stamp duty. He cautioned that this would also be a bad political message. The Chief Economic Advisor observed that low-cost housing could remain exempt from GST. He further observed that the final, effective rate of tax on the consumer would not change but there would be greater flow of ITC and a self-policing mechanism would come into play. The Hon’ble Minister from Punjab stated that for residential property, ITC could not be availed. The Hon’ble Minister from Kerala stated that he did not support the proposal under this agenda item. He observed that the Transfer of Property Act gave power to States to levy stamp duty on the transfer of property after completing the paper work. He informed that in Kerala, rebate of stamp duty was given against payment of VAT. He further stated that cement, etc. were not obtained from the grey market as this could risk collapse of the building. He emphasised that stamp duty was a source of revenue for the State government and that it should be left with the States. The Hon’ble Minister from Tamil Nadu stated that the proposal under this agenda item appeared to be unconstitutional as stamp duty was constitutionally retained. He also added that the definition of goods in the Constitution did not include land and building. The Hon’ble Chairperson summed up the two broad view points namely that incidence of tax was likely to go up and the other that the tax amount would remain the same due to availability of ITC on inputs used as construction material.

The Hon’ble Minister from Punjab observed that if GST was imposed on land and building, the cost for the customer would go up. The Chief Economic Advisor stated that if GST was extended to land and building, it would be a transformational GST and would also have a strong anti- corruption, anti-black money signalling. He reminded the House that internationally, GST was charged on supply of property. The Hon’ble Chairperson observed that this idea was transformational but instead of introducing it at this stage, this suggestion could be revisited after a year or so of the GST implementation.

The Hon’ble Deputy Chief Minister of Delhi suggested that instead of closing the issue at this stage, it could be further examined by a group of officers or Ministers constituted for this purpose. However, taking into view the general sense of the House, the Council agreed that this issue could be revisited after a year or so of the implementation of GST.

11. In view of the discussion above for agenda item 2A, the Council decided not to introduce GST on land and building at this stage and agreed that this issue could be revisited after a year or so of the implementation of GST.

(xix) Having regard to the judgment of the Apex Court in VKC Footsteps case supra and the discussion of the GST Council, it can be concluded that transactions such as, acquisition and transfer of immovable property were not sought to be subsumed under the GST regime.

(xx) At this stage, it would be relevant to understand that immovable property in its traditional sense always meant the tangible property but as there were developments and changes in the practices of society, it came to be recognized as a bundle of rights in immovable property. As rightly contended by the learned Senior counsel, rights in immovable property is different from the usage to which it could be put and the latter may or may not amount to services depending on the statute but the former would certainly not be a service in the light of the discussions held above.

(xxi) It is relevant to note that a perusal of the definition of ‘immovable property’ in various statutory enactments including General Clauses Act, Transfer of Property Act, Registration Act etc., would clearly show that not only the physical property but also the rights and benefits arising out of such property are recognised as immovable property.

(xxii) The Apex Court in the case of Jilubhai Nanbhai Khachar and others v. State of Gujarat and another – 1995 Supp (10) SCC 596, analysed the definition of ‘land’ given in Black’s Law dictionary and Law Lexicon as under:

“11. In Black’s Law Dictionary (Sixth Edition) at page 877, land is defined to mean-“in the most general sense, comprehends any ground, soil or earth whatsoever, including……rocks. “Land” may include any estate or interest in lands, either legal or equitable, as well as easements and incorporeal hereditaments. Technically, land signifies everything comprehending all things of a permanent nature, and even of an unsubstantial provided they be permanent. Ordinarily, the term is used as descriptive of the subject of ownership and not the ownership. Land is the material of the earth, whatever may be the ingredients of which it is composed, weather, soil, rock, or other substance, and includes free or occupied space for an indefinite distance upwards as well as downwards, subject to limitations upon the use of airspace imposed, and rights in the use of airspace granted by law.

12. According to the Law Lexicon (Reprint edn. 1987) by Ramanatha Iyer p. 701, the word ‘land” in the ordinary legal sense comprehends everything of a fixed or permanent nature and, therefore, growing trees, land includes the benefit arise out of the land and things attached to the earth or permanently means everything attached to the earth and also the share in or charges on, the revenue or rent of villages or other defined portions of territory. Land includes the bed of the sea below high water mark. Land shall extend to messuages, and all other hereditaments, whether corporal or incorporeal and whether freehold or of any other tenure and to money to be paid out in the purchase of land. Land in its widest signification would therefore include not only the surface of the ground, cultivable, uncultivable or waste lands but also everything on or under it. In Jagannath Singh v. State of U.P., AIR (1960) SC 1563 p. 1568, this Court held that the word “land” is wide enough to include all lands whether agricultural or non-agricultural land. In State of U.P. v. Sarju Devi, [1978] 1 SCF 18, this court held that the definition of the land in Section 3 (14) shows that it is not necessary for the land to fall within its purview that it must be actually under cultivation or occupied for purposes connected with agriculture. The requirement is amply satisfied even if the land is either held or occupied for the purposes connected with agriculture. The word “held” only means possession of legal title and does not require actual connected occupation. In State of Gujarat v. Kamla Ben Jivan Bhai, [1979] Supp. 2 SCC 440, this Court held that actual cultivation is not necessary to constitute an estate and the right to collect grass is a right annexed to land which was held to be an estate and abolition of the right to pay annual amount was an agrarian reform. In Sri Ram Ram Narain Medhi v. State of Bombay, [1959] Supp. 1 SCR 489, this Court held that the Code is a law relating to land tenures. The right in relation to an estate used in Article 31A has been noted in a very com-prehensive sense. In Digvijay Singh Hamirsinhji v. Manji Savda, [1969] 1 SCR 405, this Court interpreting Section 18 of Saurashtra Land Re-forms Act, 1951 held that the Girasdar to whom the ruler made the grant was bound by the provisions of that Act and that he was not entitled to have his tenant evicted except in accordance with the provisions of the Act.”

(xxiii) As rightly contended by learned Senior Counsel for the petitioners, compulsory acquisition of land would fall under Entry 5 of Schedule III r/w Section 7(2) of the CGST/KGST Act and that this Entry is only by way of ‘ex abundanti cautela’ to show the Legislative intent not to tax sale of land and completed building, i.e., excess of caution does no harm; in the case of Gokaraju Rangaraju vs. State of Andhra Pradesh -1981 (3) SCC 132, the Apex Court held as under:

18. We do not agree with the submission of the learned Counsel that the de facto doctrine is subject to the limitation that the defect in the title of the judge to the office should not be one traceable to the violation of a constitutional provision. The contravention of a constitutional provision may invalidate an appointment but we are not concerned with that. We are concerned with the effect of the invalidation upon the acts done by the judge whose appointment has been invalidated. The de facto doctrine saves such acts. The de facto doctrine is not a stranger to the Constitution or to the Parliament and the legislatures of the States. Article 71(2) of the Constitution provides that acts done by the President or Vice-President of India in the exercise and performance of the powers and duties of his office shall not be invalidated by reason of the election of a person as President or Vice-President being declared void. So also Section 107(2) of the Representation of the People Act, 1951 (43 of 1951) provides that acts and proceedings in which a person has participated as a member of Parliament or a member of the legislature of a State shall not be invalidated by reason of the election of such person being declared to be void. There are innumerable other Parliamentary and State legislative enactments which  are  replete  with  such provisions. The twentieth amendment of the Constitution is an instance where the de facto doctrine was applied by the constituent body to remove any suspicion or taint of illegality or invalidity that may be argued to have attached itself to judgments, decrees, sentences or orders passed or made by certain District Judges appointed before 1966, otherwise than in accordance with the provision of Article 233 and Article 235 of the Constitution. The twentieth amendment was the consequence of the decision of the Supreme Court in Chandra Mohan v. State of U.P. [AIR 1966 SC 1987 : (1967) 1 SCR 77 : (1967) 1 LLJ 412] that appointments of District Judges made otherwise than in accordance with the provisions of Articles 233 and 235 were invalid. As such appointments had been made in many States, in order to pre-empt mushroom litigation springing up all over the country, it was apparently thought desirable that the precise position should be stated by the constituent body by amending the Constitution. Shri Phadke, learned Counsel for the appellants, argued that the constituent body could not be imputed with the intention of making superfluous amendments to the Constitution. Shri Phadke invited us to say that it was a necessary inference from the twentieth amendment of the Constitution that, but for the amendment, the judgments, decrees etc. of the District Judges appointed otherwise than in accordance with the provisions of Article 233 would be void. We do not think that the inference suggested by Shri Phadke is a necessary inference. It is true that as a general rule the Parliament may be presumed not to make superfluous legislation. The presumption is not a strong presumption and statutes are full of provisions introduced because abundans cautela non nocet (there is no harm in being  cautious).  When  judicial  pronouncements  have already declared the law on the subject, the statutory reiteration of the law with reference to particular case does not lead to the necessary inference that the law declared by the judicial pronouncements was not thought to apply to the particular cases but may also lead to the inference that the statute-making body was mindful of the real state of the law but was acting under the influence of excessive caution and so to silence the voices of doubting Thomases by declaring the law declared by judicial pronouncements to be applicable also to the particular cases. In Chandra Mohan case [AIR 1966 SC 1987 : (1967) 1 SCR 77 : (1967) 1 LLJ 412] this Court had held that appointments of District Judges made otherwise than in accordance with Article 233 of the Constitution were invalid. Such appointments had been made in Uttar Pradesh and a few other States. Doubts had been cast upon the validity of the judgments, decrees etc. pronounced by those District Judges and large litigation had cropped up. It was to clear those doubts and not to alter the law that the twentieth amendment of the Constitution was made. This is clear from the Statement of Objects and Reasons appended to the Bill which was passed as Constitution (20th Amendment) Act, 1966. The statement said:

“Appointments of District Judges in Uttar Pradesh and a few other States have been rendered invalid and illegal by a recent judgment of the Supreme Court on the ground that such appointments were not made in accordance with the provisions of Article 233 of the Constitution  As a result of these judgments, a serious situation has arisen because doubt has been thrown on the validity of the judgments, decrees, orders and sentences passed or made by these District Judges and a number of writ petitions and other cases have already been filed challenging their validity. The functioning of the District Courts in Uttar Pradesh has practically come to a standstill. It is, therefore, urgently necessary to validate the judgments, decrees, orders, and sentences passed or made heretofore by all such District Judges in those States ”

(xxiv)  the case of Chotanagpur Banking Association Ltd vs. Govt. of India – 1957 SCC Online Patna 81, the Patna High Court held as under:

46. The use of the word “absolutely” in Sections 16 and 17 of the Land Acquisition Act, and the absence of this word in R. 75A(3) will not make any difference, in that, the word “absolutely” only makes the intention of the Legislature more emphatic, and nothing more. It has been used only as abundans cautela as an abundant caution, in that Abundans Cautela Non Nocet, that is, excess of caution does no harm. The words “the property shall vest in Government free from any mortgage, pledge, lien, or other similar encumbrance” alone are clear manifestations of the intention of the Legislature that the vesting of the property is not for any limited purpose or limited duration.

(xxv) It is therefore clear that even if Entry 5 of Schedule III were not there, sale of land and building cannot be brought under GST as they are covered under the State List II and there is no intention to tax sale/ acquisition immovable property per se under the GST legislations. It is also significant to note that this position is clarified by the aforesaid Circular No. 177/09/2022-TRU dated 03.08.2022 which clearly states that Sale of land either as it is or after some development is covered by Entry No.5 of Schedule III of the CGST/KGST Act and accordingly, does not attract GST; in other words, even if the said entries were not present in the said schedule, there was still no intention to tax stamp duty transactions of the nature which could be subsumed under the GST and consequently, not only sale of land or building, even compulsory acquisitions of such land cannot be the subject matter of a GST levy.

(xxvi) Learned Senior Counsel is also right in contending that after the retrospective amendment in Section 7 to exclude 7(1)(d) and include Section 7(1A), Schedule II is merely a classification schedule; Entry 5(e) of Schedule treats “agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act” as a supply of service and would only be a classification entry and the need to prove that an activity or transaction is a supply stems from Section 7(1).”

(ii) Since the facts in the instant petition involve sale of an incomplete building, it would be apposite to examine the history of indirect taxation on building contracts. It is relevant to state that Sales tax laws enacted in pursuance of the Government of India Act, 1935 as also the laws relating to sales tax passed after the coming into force of the Constitution proceeded on the footing that the expression “sale of goods”, having regard to the rule as to broad interpretation of entries in the legislative lists, would be given a wider connotation. However, in the case of State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd., AIR 1958 SC 560: 1959 SCR 379, the Apex Court held that the expression “sale of goods” as used in the entries in the Seventh Schedule to the Constitution has the same meaning as in the Sale of Goods Act, 1930; this decision related to works contracts.

(iii) By a series of subsequent decisions, the Supreme Court has, on the basis of the decision in Gannon Dunkerley’s case, held various other transactions which resemble, in substance, transactions by way of sales, to be not liable to sales tax. As a result of these decisions, a transaction, in order to be subject to the levy of sales tax under entry 92A of the Union List or Entry 54 of the State List, should have the following ingredients, namely, parties competent to contract, mutual assent and transfer of property in goods from one of the parties to the contract to the other party thereto for a price. Therefore, it was held that sale of immovable property, even if it had cement, steel and other goods incorporated therein, would not suffer tax.

(iv) The 46^th amendment to the Constitution was made e.f. 03.02.1983 with an intention to put to rest all these controversies by inserting a comprehensive definition of the expression “tax on sale or purchase of goods” vide clause (29A) of Article 366 of Constitution. The relevant portion of the said clause (29A) reads as follows:

‘a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;’

(v) After this insertion, the entry was challenged in Builders Association of India vs. Union of India & others – AIR 1989 SC 1371, wherein this challenge was repelled and the Supreme Court held thus:

“………… Sub-clause (b) of clause (29-A) states that ‘tax on the sale or purchase of goods’ includes among other things a tax on the transfer of property in the goods (whether as goods or in some other form) involved in the execution of a works contract. It does not say that a tax on the sale or purchase of goods included a tax on the amount paid for the execution of a works contract. It refers to a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract. The emphasis is on the transfer of property in goods (whether as goods or in some other form). The latter part of clause (29-A) of article 366 of the Constitution makes the position very clear. While referring to the transfer, delivery or supply of any goods that takes place as per sub- clauses (a) to (f) of clause (29-A), the latter part of clause (29-A) says that ‘such transfer, delivery or supply of any goods’ shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made. Hence, a transfer of property in goods under sub-clause (b) of clause (29-A) is deemed to be a sale of the goods involved in the execution of works contract by the person making the transfer and a purchase of those goods by the person to whom such transfer is made. The object of the new definition introduced in clause (29-A) of article 366 of the Constitution is, therefore, to enlarge the scope of ‘tax on sale or purchase of goods’ wherever it occurs in the Constitution so that it may include within its scope the transfer, delivery or supply of goods that may take place under any of the transactions referred to in sub-clauses (a) to (f) thereof wherever such transfer, delivery or supply becomes subject to levy of sales tax. So construed the expression ‘tax on the sale or purchase of goods’ in entry 54 of the State List, therefore, includes a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract also.”

(vi) This was followed by Gannon Dunkerley & Co. v State of Rajasthan (1993) 88 STC 204 (SC). In this judgment, the Apex Court held that if the legal fiction introduced by Article 366(29A)(b) were to be carried to its logical end, it would follow that even in a single and indivisible works contract there would be a deemed sale of the goods which are involved in the execution of a works contract. Such a deemed sale would have all the incidents of a sale of goods involved in the execution of a works contract where the contract is divisible into one for sale of goods and the other for supply of labour and services. It was held that it could be concluded that “the tax on transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract falling within the ambit of Article 366(29A)(b) is leviable on the goods involved in the execution of a works contract and the value of the goods which are involved in the execution of works contract would constitute the measure for imposition of the tax”.

(vii) The fallout of these decisions was that the States were competent to tax the goods component in the works contract or construction contracts but could not tax the labour component as was clarified by the 2^nd Ganon Dunkerley case supra.

(viii) The Service tax regime was introduced on 10.09.2004, tax on commercial construction contracts was introduced and on 16.06.2005, residential construction contracts were also covered. On 01.06.2007, works contract services were sought to be taxed. In the light of these entries, a dispute arose as to whether works contracts services could be covered prior to 1.6.2007 and the Apex Court negatived this contention. In coming to this conclusion, the Apex Court in Commissioner of Central Excise & Customs, Kerala vs. Larsen & Toubro Ltd., – (2016) 1 SCC 170 made certain pertinent observations on the difference between construction services and works contract services as under:

“17. We find that the assessees are correct in their submission that a works contract is a separate species of contract distinct from contracts for services simpliciter recognized by the world of commerce and law as such, and has to be taxed separately as such. In Gannon Dunkerley, 1959 SCR 379, this Court recognized works contracts as a separate species of contract as follows:–

“To avoid misconception, it must be stated that the above conclusion has reference to works contracts, which are entire and indivisible, as the contracts of the respondents have been held by the learned Judges of the Court below to be. The several forms which such kinds of contracts can assume are set out in Hudson on Building Contracts, at p.165. It is possible that the parties might enter into distinct and separate contracts, one for the transfer of materials for money consideration, and the other for payment of remuneration for services and for work done. In such a case, there are really two agreements, though there is a single instrument embodying them, and the power of the State to separate the agreement to sell, from the agreement to do work and render service and to impose a tax thereon cannot be questioned, and will stand untouched by the present judgment.” (at page 427)

18. Similarly, in Kone Elevator India (P) v. State of T.N., (2014) 7 SCC 1, this Court held:-

“Coming to the stand and stance of the State of Haryana, as put forth by Mr Mishra, the same suffers from two basic fallacies, first, the supply and installation of lift treating it as a contract for sale on the basis of the overwhelming component test, because there is a stipulation in the contract that the customer is obliged to undertake the work of civil construction and the bulk of the material used in construction belongs to the manufacturer, is not correct, as the subsequent discussion would show; and second, the Notification dated 17-5-2010 issued by the Government of Haryana, Excise and Taxation Department, whereby certain rules of the Haryana Value Added Tax Rules, 2003 have been amended and a table has been annexed providing for “Percentages for Works Contract and Job Works” under the heading “Labour, service and other like charges as percentage of total value of the contract” specifying 15% for fabrication and installation of elevators (lifts) and escalators, is self- contradictory, for once it is treated as a composite contract invoking labour and service, as a natural corollary, it would be works contract and not a contract for sale. To elaborate, the submission that the element of labour and service can be deducted from the total contract value without treating the composite contract as a works contract is absolutely fallacious. In fact, it is an innovative subterfuge. We are inclined to think so as it would be frustrating the constitutional provision and, accordingly, we unhesitatingly repel the same.” (at para 60)

19. In Larsen & Toubro Ltd. v. State of Karnataka, (2014) 1 SCC 708, this Court stated:-

“In our opinion, the term “works contract” in Article 366(29- A)(b) is amply wide and cannot be confined to a particular understanding of the term or to a particular form. The term encompasses a wide range and many varieties of contract. Parliament had such wide meaning of “works contract” in its view at the time of the Forty-sixth Amendment. The object of insertion of clause (29-A) in Article 366 was to enlarge the scope of the expression “tax on sale or purchase of goods” and overcome Gannon Dunkerley (1) [State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd., AIR 1958 SC 560 : 1959 SCR 379] . Seen thus, even if in a contract, besides the obligations of supply of goods and materials and performance of labour and services, some additional obligations are imposed, such contract does not cease to be works contract. The additional obligations in the contract would not alter the nature of contract so long as the contract provides for a contract for works and satisfies the primary description of works contract. Once the characteristics or elements of works contract are satisfied  in  a  contract  then  irrespective  of  additional obligations, such contract would be covered by the term “works contract”. Nothing in Article 366(29-A)(b) limits the term “works contract” to contract for labour and service only. The learned Advocate General for Maharashtra was right in his submission that the term “works contract” cannot be confined to a contract to provide labour and services but is a contract for undertaking or bringing into existence some “works”. We are also in agreement with the submission of Mr K.N. Bhat that the term “works contract” in Article 366(29- A)(b) takes within its fold all genre of works contract and is not restricted to one specie of contract to provide for labour and services alone. Parliament had all genre of works contract in view when clause (29-A) was inserted in Article 366.” (at para 72)

20. We also find that the assessees argument that there is no charge to tax of works contracts in the Finance Act, 1994 is correct in view of what has been stated above.

24. A close look at the Finance Act, 1994 would show that the five taxable services referred to in the charging Section 65(105) would refer only to service contracts simpliciter and not to composite works contracts. This is clear from the very language of Section 65(105) which defines “taxable service” as “any service provided”. All the services referred to in the said sub-clauses are service contracts simpliciter without any other element in them, such as for example, a service contract which is a commissioning and installation, or erection, commissioning and installation contract. Further, under Section 67, as has been pointed out above, the value of a taxable service is the gross amount charged by the service provider for such service rendered by him. This would unmistakably show that what is referred to in the charging provision is the taxation of service contracts simpliciter and not composite works contracts, such as are contained on the facts of the present cases. It will also be noticed that no attempt to remove the non-service elements from the composite works contracts has been made by any of the aforesaid Sections by deducting from the gross value of the works contract the value of property in goods transferred in the execution of a works contract.”

(ix) The fallout of this decision was that there was absolutely clarity that where contracts involved transfer of goods in the course of executing a building contract, it would be works contract and contracts for services simpliciter would be covered by construction services. This dichotomy continued even when the negative list regime was introduced in 2012 vide amendments in Finance Act, 1994 wherein declared services were defined almost identically in material particulars as is now found in Schedule II to the GST legislation. Relevant portions of Section 66E of the Finance Act, 1994 is as under:

66E. The following shall constitute declared services, namely:––

(b) 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 is received after issuance of completion- certificate by the competent authority.

Explanation.- For the purposes of this clause,-

(I) the expression “competent authority” means the Government or any authority authorized to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely:––

(A) architect registered with the Council of Architecture constituted under the Architects Act, 1972; (20 of 1972.) or

(B) chartered engineer registered with the Institution of Engineers (India); or

(C) licensed surveyor of the respective local body of the city or town or village or development or planning authority;

(II) the expression “construction” includes additions, alterations, replacements or remodelling of any existing civil structure;

(h) service portion in the execution of a works contract;

(x) This was, then, followed in the GST regime in which Entry 5(b) and 6(a) to the CGST/KGST Act are as under:

5(b) 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.

Explanation.-For the purposes of this clause-

(1) the expression “competent authority” means the Government or any authority authorised to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely:-

(i) an architect registered with the Council of Architecture constituted under the Architects Act, 1972; (20 of 1972.) or

(ii) a chartered engineer registered with the Institution of Engineers (India); or

(iii) a licensed surveyor of the respective local body of the city or town or village or development or planning authority;

(2) the expression “construction” includes additions, alterations, replacements or remodelling of any existing civil structure;

6. (a) works contract as defined in clause (119) of Section 2;

Section 2(119)

“works contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting  out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract

Entry 6(a) to Schedule II

6. Composite supply

The following composite supplies shall be treated as supply of services namely:

(a) Works contract  as  defined  in  clause  (119)  of section 2;

 (xi) It will be seen from the above that the service tax entry for construction services is pari materia with the GST entry. Even the works contract entry shows that in the service tax regime, only the service portion would be taxed. In the GST regime, the entire contract is considered as a service contract and the goods and services element are not taxed separately or not taxed under the composite supply principle under Section 8. The attempt by the Legislature is to tax the works contract under the head services.

(xii) It is in this background that we should understand Entry 5 of Schedule III which reads as under:

5.Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.

(xiii) When we consider this entry, it would be seen that Schedule III comes into the Act as a result of Section 7(2) of the CGST Act, 2017, which starts with a non obstante clause and excludes activities or transactions specified in Schedule III as neither supply of goods or services. On a careful consideration of the above entry, what is excluded is sale of land in all cases and sale of building except where the building is covered under clause (b) of paragraph 5 of Schedule II. As far as building is concerned, if the said building is covered under clause (b) of Schedule II, it does not come within this entry. It follows therefrom that if two parties entered into a contract for construction of a building where even a portion of the consideration is received before completion of the building, the same gets covered under clause 5 (b) of Schedule II. The Apex Court’s judgment in the Larson & Toubro’s case supra, clarifies that a construction contract must be for providing construction services. Applying this to the GST regime, the contract should provide for construction services to be rendered to the petitioner by the respondents. There should be a consensus ad idem between the parties that one would provide construction services to the other party. Further, payments should have been made and received before the completion certificate. If these conditions are absent, it would fall under Schedule III as a sale of building simpliciter. In the instant case, therefore, what needs to be seen is whether there is a contract for rendering construction services or is it a contract for sale of building, albeit incomplete, but as a building per se. The former would be amenable to the GST regime while the latter would be amenable to the stamp duty regime, a distinction clearly borne out by the GST Council Minutes and the decision of the Apex Court in VKC Footsteps case supra.

(xiv) The aforesaid discussion makes it clear that both entry 5(b) and entry 6(a) of Schedule II would tax the services and goods components under the respective headings as the levy of GST is on supply of goods and services; therefore, there should be a contract for the purposes of construction in order to attract the levy of GST under either of the above entries; further, if the contract should fall under entry 5(b), payments towards the consideration should have been made before completion; however, if the contract is one for sale of land or sale of building without there being any construction services involved or works contract services being involved, the question of attracting GST will not apply and consequently, Entry 5 of Schedule III will have to be read, construed and understood so as to ensure that the tax legislation does not fall foul of the Constitution as the stamp duties on sale of immovable property as such will enure to the benefit of the States.

(xv) A perusal of the instant/subject sale deed/transaction will indicate that it is a sale of a substantially completed building but still to be completed; the sale deed clearly shows that the said building would be sold on ‘as is where is basis’ by the liquidator; the liquidator does not have any further service obligations cast on him nor is there any consensus ad idem for the liquidator rendering construction or works contract services to the petitioner; as far as the liquidator is concerned, the sale of building, even if incomplete, is a sale on ‘as is where is basis’ with no further commitment or obligation to carry out any services and consequently, the aforesaid clauses of construction services under entry 5(b) or entry 6(a) of Schedule II to the GST legislation does not arise at all; that is also the reason why the sale deed carries substantial stamp duty. It follows there from that if the agreement or sale deed does not have a goods or service element at all, the question of the respondent authorities stating that service element of completion of a building should get taxed in the hands of the liquidator and be borne by the petitioner flies in the face of the facts itself and is completely contrary to the scope of the tax entries. Insisting on taxation of a building on the grounds that completion certificate is yet to be received will not reflect the true nature of the transaction being undertaken. The respondent authorities were clearly wrong in fastening the liability on the liquidator and the incidence on the petitioner as the said services were never rendered through the agreement nor it was in contemplation. In fact, when the petitioner takes over the building and gets the same completed, that is the point when GST may get attracted towards the completion of the building and in the hands of those who render such services or supply such goods. The charge, therefore, was made on non- existent services which was the fundamental error made in the said order assuming jurisdiction to tax a sale of immovable property on ‘as is where is basis’, even if not completed. It is therefore clear that the reliance placed on the wordings of Entry 5(b) and that the completion certificate was not received would apply only to agreements/transactions which are meant to provide construction or works contract services, but the same will neither apply nor get attracted to the subject sale transaction when the partially completed building is sold, as such, without any service element or goods element being contemplated in the said agreement or sale deed.

(xvi) As stated supra, the Apex Court in the case of Larsen & Toubro Ltd. v. State of Karnataka – (2014) 1 SCC 708 held that the activity of construction undertaken by the developer/builder would be works contract only from the stage the developer enters in to a contract with the flat purchaser and that it is only the value additions made to the goods transferred after  the  agreement  is  entered  into  with  the purchaser can only be made chargeable  to tax by the Government by holding as under:

“115. It may, however, be clarified that activity of construction undertaken by the developer would be works contract only from the stage the developer enters into a contract with the flat purchaser. The value addition made to the goods transferred after the agreement is entered into with the flat purchaser can only be made chargeable to tax by the State Government.

(xvii) It is clear from the above, that in the present facts, the liquidator has sold the property on ‘as is where is’ condition and paid the stamp duty to the value of approximately 5.96 crores as sale of immovable property. The subsequent completion of such property may or may not attract GST depending on whether the petitioner would hire a contractor or build himself; however, on the date of sale of the building, there is no further contract to render construction services by the liquidator or Lotus Ink to the petitioner and consequently, that the sale of a partially complete building on as is where is basis by the liquidator or any other party through the agreement is sale of immovable property covered by Entry 5 of Schedule III to the CGST Act and not covered by Entry 5(b) of Schedule II and the subject sale transaction would be therefore outside the scope of supply under Section 7(2) of the said Act.

(xviii) As rightly contended by the learned Senior counsel for the petitioner, GST would be applicable for supply of services; Schedule II would indicate that any contract which stipulates for any construction or has the intention to construct either the whole or a part of the building or the structure, GST will be applicable; the sale of building simpliciter will not be subject to levy of GST under Schedule III; the sale of building should have the intent to construct a part or the whole of building which is part of supply of services which is subject to levy of GST.

(xix) As stated supra, under Paragraph 5(b) of Schedule II, the activity of construction of 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, is classified as a service. The activity or the transaction covered under Paragraph 5(b) is the activity of construction of complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer. Therefore, for the said Paragraph and Section 7 of the Act to get attracted for a transaction, the basic requirement is that there should be a service provider and services receiver and the service provider should undertake construction activity for the service recipient. In other words, there should be performance of a contract for construction of building by the service provider/supplier to the service receiver/recipient. When the same is absent in a case, then the said Paragraph has no applicability. It is therefore clear that no construction services can be said to have been undertaken if the agreement for sale is entered into for the first time after the building emerges and no construction activity is undertaken by the builder/service provider/supplier after the execution of the agreement.

(xx) As stated earlier, in Larsen & Toubro’s case supra, the Apex Court held that the activity of construction undertaken by the developer/builder would be works contract only from the stage the developer enters in to a contract with the flat purchaser and that the value additions made to the goods transferred after the agreement is entered into with the purchaser can only be made chargeable to tax by the Government; it was clarified that activity of construction undertaken by the developer would be works contract only from the stage the developer enters into a contract with the flat purchaser. The value addition made to the goods transferred after the agreement is entered into with the flat purchaser can only be made chargeable to tax by the State Government.

(xxi) The said judgment was followed by the Gujarat High Court in the case of Munjaal Manishbhai Bhat Union of Indis – 2022 (62) GSTL 262 (Guj) has held that the factum of supply would be initiated only once the agreement is entered into between the supplier and recipient and there cannot be a supply in respect of construction undertaken prior to the agreement with the buyer as hereunder:

“85.  Hence, it is not as if the very base of the levy was sought to be changed under the CGST Act. While  earlier  VAT  and  service  tax  were  imposed  on tripartite agreements, such taxes were sought to be consolidated under the CGST Act with a specific exclusion of land element. In other words the construction which was carried out by the developer in accordance with the agreement with the prospective buyer, which was earlier taxable under the Vat/service tax law is now sought to be taxed under the CGST Act and therefore deduction is given for sale of land.

“86.  Even otherwise “supply” under Section 7 of the CGST Act includes supply of goods or services made or agreed to be made for a consideration. Thus the factum of supply would be initiated only once the agreement is entered into between the supplier and recipient and such agreement is for consideration. This is in consonance with the observation of the Supreme Court in the case of the 1st Larsen and Toubro Ltd. (supra) that there cannot be a sale in respect of construction undertaken prior to agreement with the buyer.

87. Thus the legislative intent is to impose tax on construction activity undertaken by a supplier at the behest of or pursuant to contract with the recipient. There is no intention to impose tax on supply of land in any form and it is for this reason that it is provided in the Schedule III to the GST Acts that the supply of land will be neither supply of goods nor supply of services.”

 (xxii) As rightly contended by the learned Senior counsel for the petitioner, if the agreement with the buyer is entered after the construction and no element of construction is undertaken after the execution of the agreement, then there is no supply of goods or services between the parties, even if completion certificate is not received for the said building; even for “supply” under Section 7 of the GST Act, supply of goods or services should be made or agreed to be made for a consideration; the factum of supply would be initiated only once the agreement is entered into between the supplier and the recipient and such agreement should be for consideration; it is therefore evident that the transaction contemplated under Paragraph 5(b) of Schedule II read with Section 7 of the Act, would be applicable only to the extent of supply of construction service provided to a service recipient; significantly, Entry 5(b) of Schedule II is a service contract simpliciter and not a composite works contrct.

12. The aforesaid discussion makes it clear that when the constructed immovable property whether fully constructed or partially constructed is sold, as such, without providing any construction service subsequently, the same would not attract Paragraph 5(b) of Schedule II and Section 7 of the Act, since there is no supply of goods or services or both in the said transaction and consequently, the question of whether the building has received completion certification or not would be irrelevant in such cases. The fact that Paragraph 5(b) of Schedule II and Section 7, contemplates only construction service provided by a builder/promoter to a service recipient is further evident from the description of service entries provided under “construction services” in the Notification No.11/2017-Central Tax (Rate) dated 28.06.2017 prescribed the rate of GST.  Sale of land is treated under the Act as neither supply of goods nor a supply of service. As far as sale of building is concerned, if the same is not coming within the ambit of Paragraph 5(b) of Schedule II, then the same would be treated neither as supply of goods nor a supply of service. In the present case, as stated supra, the subject transaction would not fall within the ambit of Paragraph 5(b) of Schedule II, as there was no construction service being contemplated between the parties and consequently, in terms of Paragraph 5 of Schedule III, the subject sale transaction between the Petitioner and Respondent No.4 is neither a supply of goods nor a supply of service as wrongly held in the impugned order which deserves to be quashed.

13. In my considered opinion, the respondents completely fell in error in coming to the erroneous conclusion that the subject sale transaction is covered by Entry 5(b) of Schedule II which was clearly inapplicable without appreciating that by virtue of Entry 5 of Schedule III or even otherwise, the subject sale transaction was neither exigible nor amenable to levy of GST and consequently, the impugned order rejecting the refund claim of the petitioner deserves to be quashed and the refund claim of the petitioner deserves to be allowed.

14. In the result, I pass the following

ORDER

 (i)Petition is hereby allowed.

(ii) The impugned rejection order at Annexure-A dated 15.02.2023 passed by the 3^rd respondent is hereby quashed.

(iii) The refund application/claim of the petitioner is hereby allowed.

(iv) The respondents are directed to refund a sum of 14,32,64,614/- together with applicable interest in terms of Section 56 of the CGST/KGST Act back to the petitioner within a period of six weeks from the date of receipt of a copy of this order.