The ruling is contrary to the Gujarat AAR verdict

Selling plots with electric poles, drainage lines and approach roads will be simply selling of land and thus not attract Goods & Services Tax (GST), Goa Authority for Advance Ruling has said. This is contrary to a ruling by Gujarat AAR.

“Land is excluded in entirety and in all circumstances whereas building is includable within the scope of supply only upon meeting certain specific criteria,” AAR said in a ruling delivered last year but now made public.

Earlier, Gujarat AAR (in the matter of Dipesh Anil Kumar Naik, 2020) held that that the sale of a developed plot ( i.e., sale of land/plot after developing common facilities like water line, telephone line, electricity line, garden, common areas, water harvesting system, drainage system, water pipelines, laying of underground cables, demarcation of individual plots and other facilities as mandated by the development authority) is not equivalent to the sale of land but tantamount to the rendering of service and would be subject to levy of GST.

In the present matter before Goa AAR, the applicant Shantilal Real Estate Services owns the parcel of land. It proposes subdividing the larger parcel of land into smaller plots for sale to buyers. The land will be subdivided into plots and new roads and drains, electricity poles will be realigned and added as necessary, but no buildings or structures will be constructed. The applicant sought advance ruling on whether the sale of the plot is a supply and liable to GST

After going through all the facts and arguments, AAR said that roads, poles or drainages constructed by the seller of land are at no time transferred to the purchaser of the subdivided developed plot. These amenities will be available for use to every plot holder without any title . Further, these amenities, in turn, will be gifted to the local authority as mentioned by the applicant and thereafter, the local authority will be the owner of such road and/ or electricity poles. 

“The principal transaction is the sale of land and these amenities are a natural part of the sale of the plot of land and these do not, in anyway, change the nature of the land or of the transaction or activity being that of sale of land,” AAR said while making it clear that no GST will be applicable on such piece of land.

According to Harpreet Singh, Partner, Indirect taxes at KPMG in India, one needs to remember that sale of the plot is treated as a sale of land for purposes of stamp duty and registration and as the sale of land is outside the purview of GST, there should not be any GST implications on sale of plots “Also, applying the concept of composite supply, construction of utilities, drains, electricity poles etc. before the sale of the developed plot is ‘sale of land’ as principal supply is of land. The key intention of buyer is to purchase land and not merely its infrastructure.” adds Singh.

Composite supply means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply. The rate of principle will be a rate of GST for entire supply.