{"id":4427,"date":"2018-11-24T16:13:34","date_gmt":"2018-11-24T10:43:34","guid":{"rendered":"https:\/\/taxclick.org\/?p=4427"},"modified":"2018-11-24T16:21:28","modified_gmt":"2018-11-24T10:51:28","slug":"joint-development-land-owner-builderdeveloper","status":"publish","type":"post","link":"https:\/\/taxclick.org\/type\/gst\/joint-development-land-owner-builderdeveloper\/","title":{"rendered":"Joint Development by Land Owner and Builder\/Developer"},"content":{"rendered":"

In some cases, the land owner and builder\/developer may have a joint venture for the construction project. In some cases, they may form a separate legal entity or they may operate as UJV (Unincorporated Joint Venture). In such cases, GST will be payable.<\/span><\/p>\n

Para 2.7 of CBI&C Circular No. 151\/2\/2012-ST dated 10-2-2012 states as follows –<\/span><\/p>\n

Joint Development Agreement Model: Under this model, land owner and builder\/developer join hands and may either create a new entity or otherwise operate as an unincorporated association, on partnership\/joint\/collaboration basis, with mutuality of interest and to share common risk\/profit together. The new entity undertakes construction on behalf of landowner and builder\/developer.<\/span><\/p>\n

Clarification: Circular 148\/17\/2011-ST dated 13-12-2011, particularly paragraphs 7, 8, 9 apply mutatis mutandis<\/em> in this regard.<\/span><\/p>\n

TIME OF SUPPLY IN CASE OF LAND DEVELOPMENT RIGHTS<\/strong><\/span><\/p>\n

Usually, land owner provides land for which he is given some flats\/industrial galas etc. Thus, when the builder\/developer gets land from the land owner, this can be said to be ‘advance received’ and SGST may become payable immediately.<\/span><\/p>\n

However, CBI&C, vide<\/em> its Circular No. 151\/2\/2012-ST dated 10-2-2012 had clarified that service tax will be payable by the builder\/developer on the ‘construction service’ involved in the flats to be given to the land owner, at the time when the possession or right in the property of the said flats are transferred to the land owner by entering into a conveyance deed or similar instrument (e.g. allotment letter) – this view has been confirmed in CBE&C Instruction F No. 354\/311\/2015-TRU, dated 20-1-2016.<\/span><\/p>\n

This principle has also been confirmed in case of transfer of TDR by land owner to builder\/developer in Notification Nos. 4\/2018-CT (Rate) and 4\/2018-IT (Rate) both dated 25-1-2018.<\/span><\/p>\n

Thus now it is well settled that GST on such flats given to land owner will be payable only when these flats are handed over to land owner.<\/span><\/p>\n

Rate Of GST on Construction Of Complex<\/strong><\/span><\/p>\n

The general rate of GST on construction and works contract service is 18% (9% CGST plus 9% SGST) or 18% IGST.<\/span><\/p>\n

However, in case of construction of complex, the builder charges a amount which is inclusive of land or undivided share of land. In that case, the land value will be taken as one third (33.33%) of total amount (i.e. value including land value) and GST is payable on balance amount.<\/span><\/p>\n

Thus, effectively GST rate is 12% (6% CGST plus 6% SGST) or 12% IGST.<\/span><\/p>\n

(As per Notification No. 11\/2017-CT (Rate) and No. 8\/2017-IT (Rate), For 8<\/strong> types of Affordable housings <\/strong>where the tax rate is 12% IGST [or 6% CGST plus 6% SGST\/UTGST], Effective Rate of 8%<\/strong> after deducting 1\/3rd<\/sup> Value for the Land Portion involved)<\/span><\/p>\n

The statutory wording is as follows –<\/span><\/p>\n

In case of supply of service specified in column (3), in item (i<\/em>); sub-item (b<\/em>), sub-item (c<\/em>), sub-item (d<\/em>), sub-item (da<\/em>) and sub-item (db<\/em>) of item (iv<\/em>); sub-item (b<\/em>), sub-item (c<\/em>), sub-item (d<\/em>) and sub-item (da<\/em>) of item (v<\/em>); and sub-item (c<\/em>) of item (vi<\/em>), against serial number 3 of the Table above, involving transfer of land or undivided share of land, as the case may be, the value of such supply shall be equivalent to the total amount charged for such supply less the value of transfer of land or undivided share of land, as the case may be, and the value of such transfer 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 – para 2 of Notification No. 11\/2017-CT (Rate) and No. 8\/2017-IT (Rate) both dated 28-6-2017 as amended w.e.f. 25-1-2018.<\/span><\/p>\n

The para 2 was reading as follows upto 25-1-2018 – In case of supply of services specified in Sr No. 3(i) of the Table (construction of complex), involving transfer of property in land or undivided share of land, as the case may be, the value of supply of services 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 – para 2 of Notification No. 11\/2017-CT (Rate) and No. 8\/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.<\/span><\/p>\n

Principally, there seems to be no change in earlier para and new para, except that new para covers all low cost housing schemes.<\/span><\/p>\n

Total Amount<\/strong>:<\/span><\/p>\n

‘Total amount’ means the sum total of,-<\/span><\/p>\n

(a<\/em>) consideration charged for aforesaid service (construction of complex) and<\/span><\/p>\n

(b<\/em>) amount charged for transfer of land or undivided share of land, as the case may be, including by way of lease or sub-lease<\/em><\/span><\/p>\n