Purchase or allotment and sale of land after the start of development activities will attract Goods and Services Tax (GST), the Madhya Pradesh Appellate Authority for Advance Ruling has said.

The authority has clarified that provision of amenities like drainage, electricity, water, roads and street lights will amount to development activities.

“What is interesting is that, recently, the GST Council has clarified that the sale of land after levelling, laying down of drainage lines etc. would be treated as sale of land, which is outside the GST net. Thus, once this

clarification gets notified, the reliance of this AAAR could be questioned,” said Harpreet Singh, Partner, KPMG.

The case pertains to the Bhopal Smart City Development Corporation Ltd (BSCDCL), which had sought an advance ruling from the MP authority on whether GST is applicable on the sale of a developed plot of land, for which a consideration is received before the issuance of completion certificate (if any)..

It had also asked if GST would be charged if the plot is sold after the provision of amenities such as drainage line, water line, electricity line, land-levelling, and common facilities, like road and street light by BSCDCL, and the remaining construction activities, including civil foundation, has to be carried out by the buyers.

The BSCDCL had also sought to know what the applicable rate of GST on the above supply would be, if it is supply of goods or services or supply or both.

What did the MP authority say?

“The activity of purchase or allotment of land and selling the said land after undertaking development activities of providing amenities such as drainage line, water line, electricity line, land levelling, and common facilities, viz., road and street light, etc., is liable to GST. 11.2 The activities of the respondent, M/s Bhopal Smart City Development Corporation Limited will fall under the clause (b) of paragraph 5 of Schedule -II of Madhya Pradesh Goods and Services Tax Act and Central Goods and Services Tax Act,” the order said.

“…activities of the respondent attracts CGST @ 9% and SGST @ 9% as per serial no 3 of Notification No. 11/2017 Central Tax (Rate) dated 28-06-2017, as amended. The value of supply of service and goods portion in such supply shall be equivalent to the total amount charged for such supply less the value of land or undivided share of land, as the case may be, and the value of land or undivided share of land, as the case may be, in such supply shall be deemed to be one third of the total amount charged for such supply,” the order said.

Authority refers to SC judgement

The Madhya Pradesh Appellate Authority for Advance Ruling observed the judgment passed by the Supreme Court in the matter of Name construction P. Ltd, wherein it had discussed the issue of the difference between a virgin land and developed land, and the element of service provided on account of this development.

The apex court, in the above judgement, had observed that "undisputed facts in the context of which the question arises have been summed up by the High Court in the following words."

"The sale price was not for the virgin land but included the development of sites and provision of infrastructure. The opposite party has undertaken the obligations to develop the plots and obtain permissions/approvals of the layouts. The opposite party itself pleaded in its counters that the plots were developed by spending huge amounts and subsequent to the amounts paid by the complainants also plots were developed.

“It pleaded that huge amounts were spent towards protection of the plots from grabbers and developed roads, open drains, sewerage lines, streetlights etc. It is, therefore, manifest that the transaction between the parties is not a sale simpliciter but coupled with obligations for development and provision of infrastructure. Inevitably, there is an element of service in the discharge of the said obligations," it said.

In 2020, the Gujarat Authorities for Advance Ruling had stated that the sale of a developed plot is a 'supply of service' and will attract GST. The state AAR has ruled that sale of developed plots would be covered under the clause ‘construction of a complex intended for sale to a buyer’ applicable to GST.