GST ON CONSTRUCTION SERVICES BEFORE COMPLETION CERTIFICATE: DAAR DELHI RULES FULL TAXABLE VALUE

GST ON CONSTRUCTION SERVICES BEFORE COMPLETION CERTIFICATE: DAAR DELHI RULES FULL TAXABLE VALUE

DELHI AUTHORITY FOR ADVANCE RULING

GOODS AND SERVICES TAX

Case Title: Shri Sanjeev Sharma

(GST DAAR DELHI)

Advance Ruling No.: 03/DAAR/2018
Date of Judgement /Order: 28th March 2018

IMPORTANT PARAGRAPHS

Para No. 14. The issue for decision in this case is regarding value and rate of tax for payments of GST on the service of 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, which ever is earlier.

Para No. 17. It is also observed that during the construction of a complex, building etc., the land and its superstructure becomes inseparable and hence, separate sale of land and its superstructure does not appear to be permissible. During the hearings, the applicant was asked to submit a sample copy of ‘Rejected Sale Agreement’ in Delhi where sale of land and sale of its superstructure have been separately registered. However, they could not produce any such registered agreements.

Para No. 18. The applicant has submitted that laws in India recognises “land” and “supers-tructure” as separate and independent immovable properties. The applicant has referred to provision of General Clauses Act, Indian Contract Act, 1872, Specific Relief Act, Transfer of Property Act, The Indian Evidence Act, Registration Act, Stamp Act, Income Tax Act, etc., to claim that land and building are two different assets or immovable property and that land and superstructure can be independently sold and purchased. However, under GST, the valuation of supply of goods and services has to be done in accordance with Section 15 of CGST Act, 2017.

Para No. 25. However, under GST Notification No. 11/2017 – Central Tax (Rate) dated 28.06.2017- S. No. 3 r/w Paragraph 2, the deemed value of land or undivided share of land has been fixed at one-third of the total amount charged. Hence, in GST, the machinery provisions to ascertain the value of land is available in the notification which has been issued under subsection (5) of Section 15 of CGST Act, 2017 regarding value of taxable supply. The said subsection (5) of Section 15 of CGST Act, 2017, reads as under:
“Notwithstanding any contained in subsection (1) or subsection (4) , the value of such supplies as may be notified by the Government on the recommendations of the Council shall be determined in such manner as may be prescribed.”

RULING

Para No. 27. In the case of supply of services, by way of construction of a complex, building, civil structure, or a part there of, 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, which ever is earlier, the GST would be payable on two-third of the total amount consisting of amount charged for transfer of land or undivided share of land, as the case maybe, and whole of the consideration charged for the supply of goods and services. Hence, the value of land, or the undivided share of land, as the case may be, would be deemed to be one-third of the total amount, which is excluded from the value for the purpose of payment of GST. Even if agreement between the applicant and the buyer is entered after part of the construction is already completed, whole of the consideration would be added for payment of GST. The applicable rate of GST on the said two-third of total amount is 9% (CGST) and 9% SGST under S. No. 3(i) of Notification No. 11/2017 – Central Tax (Rate) dated 28.06.2017 and parallel SGST notification.