Friday 22 December 2017
GST on Transfer of property under Tripartite Agreement (Part-II)
STAGE III: SALE/TRANSFER OF
FLATS BY THE LANDOWNER
Taxability of transfer/sale of
flats by the landowner
In
normal parlance, in tri-partite agreements, the under-construction flats are
transferred by the builder to the land owner. The tax on these flats is paid as
and when the pre-defined level of construction is reached. Thus, the builder
pays the tax on these flats just like he pays the tax on the flats sold to
independent buyers. However, if the land owner further sells these under
construction flats, he shall also be liable to pay the tax as it will be treated
as an independent transaction.
As
per Clause 5(b) to Schedule II to CGST Act, 2017 read
with Section 7 of the CGST Act, 2017, reads as follows:-
"(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."
Accordingly,
the construction of complex, building or civil structure or a part thereof for
sale to buyer except where the entire consideration has been received after
issuance of completion certificate or after its first occupation whichever is
earlier. Therefore, the above language is clear and it does not distinguish
between the actual service provider and one who actually sales. The only thing
to be taken care of is that the entire consideration should not be received
after completion certificate or after its first occupation, whichever is
earlier. Therefore, in such cases, the land owner is also required to take the
registration under GST and pay the tax accordingly.
In
other case, where entire consideration has been received after completion
certificate or the occupancy certificate, whichever is earlier, and then in
that case GST shall not be applicable in accordance with Clause 5 of the
Schedule-III of the CGST Act, 2017.
STAGE IV: SALE/TRANSFER OF
FLATS BY THE BUILDER/DEVELOPER
Taxability of transfer/sale of
flats by the Builder/Developer
In
case of builder/developer, same ratio shall apply as discussed in case of the
sale of flats by the landowner. Accordingly, if builder sales under
construction flats then it will be considered as supply of construction
services in accordance with Clause 5(b) of the Schedule-II of
the CGST Act, 2017, accordingly, GST will be applicable.
Alternatively,
where entire consideration has been received after obtaining completion
certificate or the first occupancy certificate, whichever is earlier, and then
in that case GST shall not be applicable in accordance with Clause 5 of
the Schedule-III of the CGST Act, 2017.
STAGE V: TIME OF SUPPLY
Relevant provisions for time
of supply of services and goods under GST
As
per section 13 of the CGST Act, 2017,- Time of supply of
service,
The
liability to pay tax on services shall arise at the time of supply, as
determined in accordance with the provisions of this section.
The
time of supply of services shall be the earliest of the following dates,
namely:-
the
date of issue of invoice by the supplier, if the invoice is issued within the
period prescribed under sub-section (2) of section 31 or the date of receipt of
payment, whichever is earlier; or
the
date of provision of service, if the invoice is not issued within the period
prescribed under sub-section (2) of section 31 or the date of receipt of
payment, whichever is earlier; or
the
date on which the recipient shows the receipt of services in his books of
account, in a case where the provisions of clause (a) or clause (b) do not
apply:
As
per section 12 of the CGST Act, 2017,- Time of supply of goods,
(1)
The liability to pay tax on goods shall arise at the time of supply, as
determined in accordance with the provisions of this section.
(2)
The time of supply of goods shall be the earlier of the following dates,
namely:-
the
date of issue of invoice by the supplier or the last date on which he is
required, under sub-section (1) of section 31, to issue the invoice
with respect to the supply; or
the
date on which the supplier receives the payment with respect to the supply.
STAGE VI: VALUATION
Relevant provisions for
Valuation under GST
As
per section 15 of the Act, 2017, (1) The value of a
supply of goods or services or both shall be the transaction value, which
is the price actually paid or payable for the said supply of goods or services
or both where the supplier and the recipient of the supply are not related
and the price is the sole consideration for the supply.
(2)
The value of supply shall include–––
(3)The
value of the supply shall not include any discount which is given––
Where
the value of the supply of goods or services or both cannot be determined under
sub-section (1), the same shall be determined in such manner as may be
prescribed.
Accordingly,
as per Rule 27 of the CGST Act, 2017, Value of supply of
goods or services where the consideration is not wholly in money where the
supply of goods or services is for a consideration not wholly in money, the
value of the supply shall,-
(a)
be the open market value of such supply;
(b)
if the open market value is not available under clause (a), be the sum total of
consideration in money and any such further amount in money as is equivalent to
the consideration not in money, if such amount is known at the time of supply;
(c)
if the value of supply is not determinable under clause (a) or clause (b), be
the value of supply of goods or services or both of like kind and quality;
(d)
if the value is not determinable under clause (a) or clause (b) or clause (c),
be the sum total of consideration in money and such further amount in money
that is equivalent to consideration not in money as determined by the
application of rule 30 or rule 31 in that order.
STAGE VII: INPUT TAX CREDIT
Relevant provisions for Input
Tax Credit under GST
As
per section 16 of the CGST Act, 2017,
(1)
Every registered person shall, subject to such conditions and restrictions as
may be prescribed and in the manner specified in section 49, be entitled
to take credit of input tax charged on any supply of goods or services or both
to him which are used or intended to be used in the course or furtherance of
his business and the said amount shall be credited to the electronic credit
ledger of such person.
(2)
Notwithstanding anything contained in this section, no registered person shall
be entitled to the credit of any input tax in respect of any supply of goods or
services or both to him unless,––
(a)
he is in possession of a tax invoice or debit note issued by a supplier
registered under this Act, or such other tax paying documents as may be
prescribed;
(b)
he has received the goods or services or both.
(c)
subject to the provisions of section 41, the tax charged in respect of such
supply has been actually paid to the Government, either in cash or through
utilization of input tax credit admissible in respect of the said supply; and
(d)
he has furnished the return under section 39:
As
per section 17 of the CGST Act, 2017,
(1)
Where the goods or services or both are used by the registered person partly
for
the purpose of any business and partly for other purposes, the amount of credit
shall be restricted to so much of the input tax as is attributable to the
purposes of his business.
(2)
Where the goods or services or both are used by the registered person partly
for effecting taxable supplies including zero-rated supplies under this Act or
under the Integrated Goods and Services Tax Act and partly for effecting exempt
supplies under the said Acts, the amount of credit shall be restricted to
so much of the input tax as is attributable to the said taxable supplies
including zero-rated supplies.
(3)
The value of exempt supply under sub-section (2) shall be such as may
be prescribed, and shall include supplies on which the recipient is
liable to pay tax on reverse charge basis, transactions in securities, sale
of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of
building.
(5)
Notwithstanding anything contained in sub-section (1) of section 16 and sub-section
(1) of section 18, input tax credit shall not be available in respect of
the following, namely:-
c.
works contract services when supplied for construction of an immovable property
(other than plant and machinery) except where it is an input service for
further supply of works contract service,
d.
goods or services or both received by a taxable person for construction of an
immovable property (other than plant or machinery) on his own account including
when such goods or services or both are used in the course or furtherance of
business;
Taxability, Time of Supply,
Valuation, Rate of Tax and eligibility of Input Tax Credit
Transfer
of development rights (TDRs)/License to occupy land [from landowner’s
view]:
Result
in transfer of interest in land (TDRs result in Sale of land):
Taxability:
Not taxable under GST as per Clause 5 of the Schedule-III of
the CGST Act, 2017read with Section 7 of the CGST Act, 2017.
Input
Tax Credit: Common credits need to be reversed as per section 17(2) &
(3) of the CGST Act, 2017.
Result
in non-transfer of interest in land (License to occupy land):
Taxability:
Taxable under GST as per Clause 2(a) of the Schedule-II of the CGST
Act, 2017read with Section 7 of the CGST Act, 2017.
Time
of supply: Receipt of license amounts to advance receipt of consideration in
kind. Hence, date when license are received will be time of supply.
Valuation:
Value is to be determined as per Rule 27 of the CGST Rules, 2017.
Input
Tax Credit: Input tax credit is available as per section 16 read
with section 17 of the CGST Act, 2017.
Rate
of Tax- 18%
Transfer
of flats by the builder/developer to the landowner [from
builder’s/developer’ view]
Taxability:
GST is payable as it is supply of services as per clause 5(b) of the
Schedule-II of the CGST Act, 2017 read with Section 7 of
the CGST Act, 2017.
Time
of supply for Continuous supply of service:
Clauses
(a) and (b) of sub section (2) of section 13 are not applicable in this
case, as neither any invoice is raised by the builder on landowner, nor any
payment received. As per clause (c) ibid, the time at which the landowner shows
the receipt of service in his books of accounts would be the time of supply.
If
the landowner is retaining such flats for his own use, he would recognise the
same as his capital assets and if the landowner is going to again sell such
flats, he would recognise the same as his stock in trade. So, the builder would
be liable to pay GST at the time, when the landowner recognizes the receipt of
flats from the builder.
Practically,
after entering into TDRs/Joint Development Agreements, various approvals are
sought by the builder and after obtaining the requisite approvals, the flats
meant for landowner and builder are identified and a Supplementary Agreement is
entered into for this purpose. It can be said that upon entering into such
Supplementary Agreement the landowner recognises the receipt of services in his
books of accounts. Or sometimes, the landowner may recognises the receipt of
services (flats) only at the time of handing over of flats to him. But from
builder’s point of view it would be very difficult to conclude when the
landowner recognises receipt of service. In this connection, a person may refer
to the CBEC Instruction F.No.354/311/2015 Dt. 20.01.2016, wherein in the
context of point of taxation under service tax it has been clarified as,
“Service
tax is liable to be paid 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)”.
Accordingly,
it can be concluded that the builder is liable to pay GST in respect of the
services supplied to landowner, at the time of when the flats are identified
for the landowner and communicated.
Valuation:
Value is to be determined as per Rule 27 of the CGST Rules, 2017.
Input
Tax Credit: Input tax credit is not available as it is restricted by section
17(5) (c) & (d) of the CGST Act, 2017.
Rate
of Tax- 18%
Transfer
of flats by the landowner to the customers
Entire
consideration received after obtaining completion certificate or first
occupancy certificate, whichever is earlier (Sale of flats):
Taxability:
Not taxable under GST as per Clause 5 of the Schedule-III of
the CGST Act, 2017read with Section 7 of the CGST Act, 2017.
Input
Tax Credit: Common credits need to be reversed as per section 17(2) &
(3) of the CGST Act, 2017.
Entire
consideration received after obtaining completion certificate or first
occupancy certificate, whichever is earlier (Construction services):
Taxability:
GST is payable as it is supply of services as per clause 5(b) of the
Schedule-II of the CGST Act, 2017 read with Section 7 of
the CGST Act, 2017.
Time
of supply for Continuous supply of service: On stage of completion of supply
and date on which advance received.
Valuation:
Value is to be determined as per section 15 of the CGST Act,
2017 read with Rule 27 of the CGST Rules, 2017, if
required.
Input
Tax Credit: Input tax credit is not available as it is restricted by section
17(5) (c) & (d) of the CGST Act, 2017.
Rate
of Tax- 18% subject to paragraph 2 of the Notification No.
8/2017-Integrated Tax (Rate) dated 28.06.2017 (i.e., value of land is to
be received where consideration includes the same)
Transfer
of flats by the builder/developers
Entire
consideration received after obtaining completion certificate or first
occupancy certificate, whichever is earlier (Sale of flats):
Taxability:
Not taxable under GST as per Clause 5 of the Schedule-III of
the CGST Act, 2017read with Section 7 of the CGST Act, 2017.
Input
Tax Credit: Common credits need to be reversed as per section 17(2) &
(3) of the CGST Act, 2017.
Entire
consideration received after obtaining completion certificate or first
occupancy certificate, whichever is earlier (Construction services):
Taxability:
GST is payable as it is supply of services as per clause 5(b) of the
Schedule-II of the CGST Act, 2017 read with Section 7 of
the CGST Act, 2017.
Time
of supply for Continuous supply of service: On stage of completion of supply
and date on which advance received.
Valuation:
Value is to be determined as per section 15 of the CGST Act,
2017 read with Rule 27 of the CGST Rules, 2017, if
required.
Input
Tax Credit: Input tax credit is not available as it is restricted by section
17(5) (c) & (d) of the CGST Act, 2017.
Rate
of Tax- 18% subject to paragraph 2 of the Notification No.
8/2017-Integrated Tax (Rate) dated 28.06.2017 (i.e., value of land is to
be received where consideration includes the same).
GST on Transfer of property under Tripartite Agreement (Part-I)
Introduction
A
typical transaction in this business will entail three parties, namely; builder
(or developer), land owning party and flat buyer. The developer enters into a
development agreement with landowner, whereby the developer acquires the
development rights with respect to the land.
The
agreement for transfer of development rights executed between developers and
landowners involve payment of consideration by the developers to the landowners
for transfer/acquisition of development rights. Such consideration may be in
monetary terms or by way of ownership rights of certain percentage of the
developed area.
Therefore,
an opinion has been sought for the GST on Transfer of Property under Tripartite
Agreement.
Stages
for discussion are as follows:
Transfer
of Development Rights (TDRs)
Transfer
of some flats to the landowner as a consideration for land
Sale/transfer
of flats by the landowner
Sale/transfer
of flats by the developer or builder
Time
of Supply
Valuation
Input
Tax Credit
STAGE-I: TRANSFER OF
DEVELOPMENT RIGHTS (TDRs)
What
are development rights?
In
order to determine the taxability of the transfer of development rights, it is
important to first analyze the legal nature of development rights. Accordingly,
A
landowner enjoys various rights with respect to the land, such as cultivation
rights, easement rights etc. One of such rights is the right to develop such
land into an agricultural, industrial, commercial, residential or for any other
purpose.
In
other words, these are rights to modify an immovable property by carrying out
improvements, constructing building thereon etc.
Modus-operandi for
TDRs
Following
steps are undertaken with respect to transfer of development rights:
Developer
is given permission to enter the land for the purpose of carrying out the
development activity. However, ownership in land continues with the
landowner (i.e. license to occupy land);
Developer
enters into an agreement with a landowner, wherein the right to develop the
land is permanently and irrevocably transferred by the landowner to the
developer (i.e. sale of land);
As
a consideration for sale of development right, a fixed consideration or a share
in sales proceeds or ownership of certain developed area is given by the
developer to the landowner;
Accordingly,
the developer acquires exclusive, permanent and irrevocable rights for
development and subsequently transfers (by way of sale, lease, license, etc. to
end customers) the entire or certain percentage of the developed area (i.e.
apartment, units, plots etc.)
The
developer is allowed to further assign the development rights to any other
person, but the landowner is precluded from doing so.
Relevant
provisions under GST Act, 2017
Definition
of goods
Section
2(52) of the CGST Act, 2017, “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.
Definition
of services
Section
2(102) of the CGST Act, 2017, “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.
Scope
of supply
Section
7 of the CGST Act, 2017, (1) For the purposes of this Act, the
expression “supply” includes––
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;
import
of services for a consideration whether or not in the course or furtherance of
business;
the
activities specified in Schedule I, made or agreed to be made without a
consideration; and
the
activities to be treated as supply of goods or supply of services as referred
to in Schedule II.
(2)
Notwithstanding anything contained in sub-section (1),––
activities
or transactions specified in Schedule III; or
such
activities or transactions undertaken by the Central Government, a State
Government or any local authority in which they are engaged as public
authorities, as may be notified by the Government on the recommendations of the
Council, shall be treated neither as a supply of goods nor a supply of
services.
(3)
Subject to the provisions of sub-sections (1) and (2), the Government may, on
the recommendations of the Council, specify, by notification, the transactions
that are to be treated as-
a
supply of goods and not as a supply of services; or
a
supply of services and not as a supply of goods.
IV.
Schedule-II- Activities to be treated as supply of goods or supply of services
Clause
2(a) of the Schedule-II, any lease, tenancy, easement, license to occupy
land is a supply of services.
Clause
5(b) of the Schedule-II, 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.
Schedule-III-
Activities or transactions which shall be treated neither as a supply of goods
nor a supply of services
Clause
5 of the Schedule-III, Sale of land and, subject to clause (b) of
paragraph 5 of Schedule II, sale of building.
Taxability
of Development Rights under GST regime
In respect to the taxability of TDRs, there are two situations, as follows:
Where
TDRs of the land transferred but ownership in land continues with the
landowner (i.e., license to occupy land) , and
Where
TDRs of the land transferred permanently and irrevocably transferred by the
landowner to the developer (i.e., sale/transfer of land).
As
per ‘Clause 2(a) of Schedule-II of the CGST Act, 2017 read with
Section 7 of the said Act merits consideration. Under the said clause, any
lease, tenancy, easement, licence to occupy land is a supply of services.
Accordingly, GST is applicable on license to occupy land being a supply of
service.
On
other hand, as per ‘Clause 5 of Schedule-III of the CGST Act, 2017 read
with Section 7 of the said Act, under the said clause, Sale of land and,
subject to clause (b) of paragraph 5 of Schedule II, sale of building
shall be treated neither as a supply of goods nor a supply of services. Accordingly,
GST is not applicable on sale of land.
Thus,
acquisition of development rights with respect to a vacant land (not intended
solely for residential property) is subject to GST if it qualifies as: (i)
lease of vacant land; or (ii) tenancy of vacant land; or (iii) easement of
vacant land; or (iv) license of vacant land.
Thus,
to assess the applicability of GST on acquisition of development rights, it is
important to discuss the concept of ‘lease’, ‘tenancy’, ‘easement’ and
‘license’.
What
is the concept of ‘lease’, ‘tenancy’, ‘easement’ and ‘license’?
Lease
The
term ‘lease’ of immovable property is defined as a transfer of a right to enjoy
property for a limited period or in perpetuity for a consideration, whether
periodic or otherwise.
Section
105 of the Transfer of Property Act, 1882 defines lease as: “A lease of
immoveable property is a transfer of a right to enjoy such property, made for a
certain time, express or implied, or in perpetuity, in consideration of a price
paid or promised, or of money, a share of crops, service or any other thing of
value, to be rendered periodically or on specified occasions to the transferor
by the transferee, who accepts the transfer on such terms."
Tenancy
As
per Duhaime's Law Dictionary, the term ‘tenancy’ means ‘a contract by
which the owner of real property (the landlord), grants exclusive possession of
that real property to another person (tenant), in exchange for the tenant's
periodic payment of some sum of money (rent)’.
Accordingly,
tenancy is the right to occupy real property permanently, for a time which may
terminate upon a certain event, for a specific term, for a series of periods
until cancelled (such as month-to-month), or at will (which may be terminated
at any time). Some tenancy is for occupancy only as in a landlord-tenant
situation, or a tenancy may also be based on ownership of title to the
property.
Easement
As
per section 4 of the Easement Act, 1882 easement defined as an easement is
a right which the owner or occupier of certain land possesses, as such, for the
beneficial enjoyment of that land, to do and continue to do something, or to
prevent and continue to prevent something being done, in or upon, or in respect
of, certain other land not his own.
Accordingly,
easement is a right of use over the property of another. Traditionally the
permitted kinds of uses were limited, the most important being rights of way
and rights concerning flowing waters. The easement was normally for the benefit
of adjoining lands, no matter who the owner was (an easement appurtenant),
rather than for the benefit of a specific individual (easement in gross).
License
The
term ‘license’ is defined as a grant of right to do over immovable property
which otherwise for such grant of right would be unlawful. It is defined in
section 52 of the Indian Easements Act, 1882 as:
“Where
one person grants to another, or to a definite number of other persons, a right
to do, or continue to do, in or upon the immovable property of the grantor,
something which would, in the absence of such right, be unlawful, and such
right does not amount to an easement or an interest in the property,
the right is called a license"
The
determinative test of whether a right is prima facie a lease of
immovable property is whether the effect of the instrument of lease is to give
the holder the exclusive right of occupation of the land, though subject to
certain reservations, or to a restriction of the purposes for which it may be
used.
In
case of license, only a right to use the property in a particular way or under
certain terms is given which permits another person to make use of the
property, of which the legal possession continues with the owner. There is no
creation of interest in property and merely permission is granted to undertake
an activity.
Whether
acquisition of development rights constitutes a license of vacant land?
With
respect to license, as per the definition and various judicial precedents, it
is a settled position that there cannot be a license, if the activity
creates an interest in the property.
If
as per the terms of the agreement, the developer has all the rights required
for development and transfer (by way of sale, lease, license, etc. to end
customers) of the property against a fixed consideration. Further, such rights
are granted in exclusivity.
In
other words, by the activity of permanent and irrevocable transfer of
development rights in lieu of a fixed fee, the owner not only gives permission
to develop the land, but allows the developer to construct, sell and collect
sales proceeds at its own will, i.e. without any intervention from the owner.
In
light of above, it is clear that the transaction, i.e., ‘Development rights’
creates an interest in the immovable property and thus, it does not tantamount
to ‘license’ of immovable property (i.e. land) by the landowner to the
developer. Accordingly, it is to be considered as sale of land.
Having
discussed that in the instant case the transfer of development rights does not
constitute license of vacant land, it is important to discuss the nature of
development rights.
What
is the legal nature of the transaction involving transfer of development
rights?
From
the discussions in the preceding paragraphs, it is clear that a transaction
involving transfer of developmental rights is not a license of a vacant land.
Given the extent and nature of rights transferred, it can be said that the
transactions involves outright transfer i.e. ‘sale’ of development rights.
Whether
development rights can be treated as an ‘immovable property’?
The
term ‘immovable property’ has not been defined under the GST law. However, as
per the General Clauses Act, 1987, ‘immovable property’ also includes benefits
arising out of land, and things attached to the earth, or permanently fastened
to anything attached to the earth.
The
Courts in India have consistently held that any right associated with an
immovable property also partakes the nature of ‘immovable property’.
Accordingly, benefits arising out of land are also in the nature of immovable
property.
The
Courts have also held that rights to develop property and avail benefits
arising from such developed property are benefits arising out of land, which
cannot be severed from the land. Accordingly, it could be argued that
development rights should qualify as ‘immovable property’.
Reliance
is placed on the below-mentioned judicial precedents in support of the above
paragraph:
The
Hon’ble Bombay High Court in Chheda Housing Development Corporation v.
Bibijan Shaikh [Farid] 2007 (2) TMI 664 - Bonbay High Court,
observed that Transferable Development Rights (TDR) being a benefit arising
from the land must be held to be an immovable property.
In Sadoday
Builders Private Limited v. Joint Charity Commissioner [ 2011 (6) TMI 936 - Bombay High Court], the Hon’ble Bombay High Court
was dealing with Section 36(1)(c) of the Bombay Public Trusts Act, 1950 which
necessitated taking permission of the Charity Commissioner for sale of
immovable property. The Court held that transferable development rights are
benefits arising out of land and must be considered as immovable property.
In State of Orissa v. Titaghur Paper
Mills Co. Ltd.[ 1985
(3) TMI 226 - Supreme Court of Ibdia ],the Supreme Court held that bamboo
contract was neither a contract for the sale of goods or lease or the grant of
an easement. Rather the
same conferred upon the company a benefit to arise out of land, namely, the
right to cut and remove bamboos which would grow from the soil coupled with
ancillary rights and was thus a grant of a profit which is a benefit arising
out of land.
In Shakti
Insulated Wires Limited v. JCIT, it was held that the developmental rights are
embedded in the ownership of land only. These were valuable rights inherent in
the ownership of land.
Basis
the ratio laid out in the above judgments it can be said that development
rights a benefit arising from the land and, thus, qualify as ‘immovable
property’.
Whether
a permanent transfer of development rights is akin to transfer of title in
immovable property?
‘Sale’
is defined as transfer of ownership in exchange for a price paid or promised or
part paid or part promised. Therefore, with respect to an agreement for
transfer of development rights whereby such rights are transferred permanently
on an irrevocable basis, a view may be taken that the transfer of development
rights under such agreement constitutes a ‘sale’ of immovable property
In
other words, it can be said that an agreement for transfer of development
rights constitutes transfer of title in immovable property, accordingly excluded
from the definition of ‘service’.
It
may be noted that Transfer of an immovable property should be made through a
registered instrument, per the Registration Act, 1908. Whether any stamp duty
is payable on such a transfer would depend on the relevant Stamp Duty law
applicable.
STAGE-II: TRANSFER OF SOME
FLATS TO THE LANDOWNER AS A CONSIDERATION FOR LAND
Taxability of transfer of
flats to the landowner by the developer as a consideration
The
transfer of development rights by landlord to developer involves payment of
consideration. Such consideration is generally given in kind by way of
ownership rights of certain percentage of the developed area. The developer
receives consideration normally in two ways:
From
landowner, in the form of land /development rights; and
From
other buyers, in the form of money.
For
instance assume, GKC developers limited enters into a agreement with land owner
Mr. Nagarjuna whereas in lieu of this agreement a total of 1000 residential
units will be constructed by GKC ltd on the land provided by Mr. Nagarjuna,
whereas 40% of the units i.e. 400 units shall be given to Mr. Nagarjuna and
rest 600 units shall be taken by GKC ltd. Both can commercially sell the units
in the open market. Land owner gets 400 units of flats in lieu of the land
given and Developer gets 600 units of flats in lieu of the construction work
done.
Based
on above, redevelopment transaction is a barter transaction between landowner
and developers. Here developer is providing construction service to landowner.
Value of construction service shall be ascertained on the basis of flats given
to landowner in exchange of development rights given by him to builder.
Further,
as per decisions taken in 14th Meeting of the GST Council held on May 18-19,
2017 in Srinagar, J&K; 18 sectoral groups have been constituted
representing various sectors of the economy in order to ensure smooth roll-out
of GST. One such sectoral group is "MEDIA & ENTERTAINMENT SECTORAL
GROUP" which has issued some FAQs on GST in respect of Construction of
Residential Complex by Builders/Developers. In these FAQs, following
clarification has been given in respect of land owner's share of the
flats/houses:-
"Q.16)
Whether GST is payable on the owner's share of the flats/houses/portion of the
building constructed by the builder/developer and given to the land owner as
per the development agreement?
Ans.
16:- The builder/developer is liable to pay GST even on the share of the land
owner and given in lieu of the land received for the development, besides GST
on the builder/developer's share of the complex/building.”
In
the above transaction, the builder/developer receives consideration for the
construction service provided by him, from two categories of service receivers:
(a) from landowner: in the form of land/development rights; and (b) from other
buyers: normally in cash. Thus, the builder is liable to pay GST not only on
his portion of the complex/building, but also on the share of the land owner.
Thursday 21 December 2017
Wednesday 20 December 2017
GST – ELECTRONIC WAY BILL
The GST Council deciding
to advance the date for implementing the e-way bill - an electronic way of
tracking movement of goods -- system. Now, trial runs can be conducted from
January 16, and the full implementation will take place from February 1. The
originally scheduled date was June 1.
The logic behind the
e-Way bill is to track the movement of goods above Rs 50,000 within the state,
and from one state to another. It is supposed to check GST evasion and put to
rest the worries of different states that they were losing out on GST revenues.
The central government was equally keen to shorten the mismatches and delays in
matching invoices that is taking place at the moment.
But the current form of
the e-way Bill, despite the promises of technology like RFID that it promises
to apply, is quite regressive and puts onerous conditions of compliance. Any
good worth Rs 50,000 or above needs an e-way bill if it has to go beyond 10 K.M.s.
Any person or firm registered under GST will can generate the e-way bill -
including the transporter. The e-way bill needs to be generated before the good
is moved, and it has a limited validity period based on the distance covered.
For up to 100 K.M.s, an e-way bill is valid for 1 day. For 200 K.M.s, it is
valid for 2 days and so on.
If the good fails to be
shipped on the date of generation, the e-way bill can be cancelled within 24
hours. If a mode of transport is changed, a fresh e-way bill needs to be generated.
If some goods are sent back by the receiver, another e-way bill needs to be
generated.
All these are likely to
only delay the smooth movement of goods from one state to another. It could
also unleash exactly the kind of border check posts the GST had promised to
remove. And finally, it can create problems galore for everyone ranging from
physical dealers to e-commerce firms. For example, suppose a high end
television or audio set that costs over Rs 50,000 is shipped by a truck from
the factory to the dealer, and then sent on further by the dealer to the
customer's house, it will need two separate e-way bills. If the customer in the
meantime, cancels the order before it reaches him, another e-way bill will have
to be generated.
All these e-way bills
will then also have to be matched with the invoices. In general, it adds a
layer of complexity to the whole process of shipping goods from one state to
another. It adds also to the burden of the GST Network (GSTN), which is already
facing multiple problems in matching invoices.
GST – Q AND A
Q. I am a small businessman with annual turnover about Rs.20
lacs, I am into installation of
fountains, which includes complete fitting on turnkey basis, it includes
providing of material and labour whatever required for completion, what are my
tax liabilities? My materials include electrical panel, pumps, sanitary fittings
lights, electrical and so on I work for local bodies too I mean municipalities,
besides private small contracts, these
contracts may be in different states
A. Your work will be considered as Work Contract and you need
to register as a normal registered person u/s 22 of GST Act. Since Work Contract
is treated as service you cannot opt for composition scheme. Works Contract is
a mixture of goods and services but it is neither a composite supply nor a
mixed supply as it has been defined as per Sec. 2(119) of CGST Act. Schedule II
( Entry 6(a)) which states that such composite supplies which includes labour
and material both shall be treated as a supply of services namely Works contract under S. 2(119)”.
Q. We are supplying goods to various Government agencies like
Railways & Defense, PSUs and private sector industries on payment of GST.
If any materials gets rejected and needs to be rectified /replaced, we have to
get back the materials but the Govt. Agencies and PSUs are not issuing GST
Invoice for return of goods on the ground that they have not accepted &
accounted for the goods (GRN not issued) and not taken any ITC credit of GST. How
to get back the rejected GST paid goods and replace without paying GST twice. Can
we issue Credit Note against our invoice and take back the credit of GST paid
and issue fresh GST Invoice while replacing the goods. In any case, customer
will have nothing to do with GST portal till GSTR-2 is not operative.
A. 1. The customer has informed that they have not accounted
and not taken ITC.
2. Ask them to send (return) the goods on a Delivery Challan
(returning the goods is not a supply)
3. Issue Credit Note to reduce your tax liability and your
accounting.
4. After receipt of the material and issuance of credit note,
supply the replacement on a new Invoice.
Q. We are manufacturers of automobile parts supplying to OEM.
The finished goods are supplied to them through transport agency. We have an
understanding with an intermediate service provider who will receive the
transport agency invoices in his name with GST 5% and he will pay to the
transport agency and GST to the government. After that he will raise invoice on
us for this transport service along with his service and claim GST. Whether GST
paid and claimed by the intermediate service provider is eligible for GST
credit by us?
A. Yes the credit is eligible. The intermediary is a service
provider. He needs to charge GST on his invoice to you. The GST so paid can be
claimed as credit by you. One of the condition for input tax credit is that the
supplier of service should file GST return. And that the invoice uploaded by
him should match with your uploaded detail. So please make him aware of the
importance of filing return with correct information. You can take credit for payment to
intermediary (including amount paid to GTA) for his agency services and your
intermediary can take credit for amount paid to GTA. As per section
24(vii) of CGST Act, registration is mandatory for agents, so
intermediary is supposed to be registered and eligible to get credit for GTA
payment. You should not be concerned for GTA credit eligibility clause. ITC is
eligible on intermediary services and GTA part not to be considered as services
of intermediary is charged to 18% in this case.
Q.We are having different opinion for admissibility of ITC
on 1. Hotel Bills - Our sales &
marketing team is mostly on tour (domestic & foreign) and taking services
of hotels and paying applicable GST. What are the legal provisions preventing
us to avail credit on SGST & CGST paid?
2. GTA Services - Most of GTA service providers are raising invoices
without charging any GST and we are paying GST @ 5% under RCM. If ITC for the
same is admissible if not, specify the ruling/ notification issued by
authority. A.
1. The hotel bills would show the intra state GST and this would not help in
availing the credit. Foreign Tour no GST under the Indian law. In other words,
ITC not available. Please refer to FAQ also in this Regard. 2. GTA - ITC eligible.
Section 17(5)(b) disallows credit for Food and
beverages, hence any inclusion of said amount in Hotel Bill is ineligible for
ITC. However Room Rent is eligible for ITC.
Now conditions
for admissibility and Non-Admissibility
If your POS and Hotel is situated in same state, then ITC is
eligible for CGST/SGST.
In case your POS and Hotel is situated in different states,
then also CGST/SGST is applicable as per Place of Supply Rules.(Section 12 of IGST
Act) and ITC is not eligible, reason being is stated below.
Suppose your POS and Hotel is in different state, then Hotel
Business will show POS in his GSTR-1 return as his state. The same
entry will not reflect in your GSTR-2 as POS is not your state, which
makes you ineligible for credit.
ITC on CGST charged in hotel bills will available. In a
recent example, one of our client's customer (inter-state) has insisted for
charging SGST & CGST which was charged and posted on GST portal. It was
accepted and accounted for accordingly for total GST payable for the month.
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