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Sale of developed plot does not attract GST

Sale of developed plot does not attract GST

Clarification provided by GST Council that the sale of land after leveling, laying down of drainage lines, etc. is the sale of land and does not attract GST.

There were various grey areas in GST, where chargeability or rate of tax is a matter of constant debate and discussion. The contradictory rulings issued by various Advance Ruling Authorities on a same nature of transaction add up to the confusion.

Development of land consists of leveling, road construction, drainage, electricity, water line, demarcation of plots, laying the underground cables, fencing etc.

This issue has arisen because of the element of the development of the land contained in the transaction.

As a welcome step, the 47th GST Council meet, held on 28th & 29th of June, 2022 in Chandigarh, provided clarity on some of these issues.

In the press release, issued on 29th June 2022 with respect to recommendations of 47th GST Council meet, clarification with respect to chargeability of GST on sale of land was also provided.

As per the press release: “Sale of land after leveling, laying down of drainage lines etc. is sale of land and does not attract GST.” Background:

Business of developing and selling plotted area takes place in three ways i.e.

1. The land owner develops a large piece land on his own account and divides it into small developed plots and then sells such small pieces of land as developed plots.

2. The land owner hires a developer to develop a large piece of land into small plots and the later on is provided consideration for his construction services in money.

3. The land owner and a developer (providing development services on a large piece of land to make it marketable into small plots) enters into a contract where:

a) Either the consideration received on sale of final plots are divided into a predetermined ratio between the land owner and the developer, or

b) The ownership of developed plots is divided in a pre-determined ratio between the land owner and the developer.

Schedule III of CGST Act/ State GST Act states that the 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 and thereby GST is not leviable on the sale of land.

Section 9 read with section 7 of the CGST Act 2017, defines the scope of supply of goods or services or both, on which GST shall be applicable. Further Schedule III of the CGST Act, read with section 7 of the said act, specifically excludes 8 activities which shall not be considered as a supply of goods or service or both and hence, GST shall not be applicable on same. As per the entry no. 5 of Schedule III i.e.:

Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building specifically excludes sale of land from the preview of GST.

Further, as per LIST – II of the Constitution of India which specifies exclusive power to make laws to the state, the power to collect tax on land are reserved to the states and hence tax on land is anyway excluded from the scope of GST.

Confusion started when few advance rulings and authorities namely: The AAAR, Gujarat in the matter of Shree Dipesh Anilkumar Naik [Advance Ruling No. GUJ/GAAAR/APPEAL/2021/35, dated December 12, 2021] affirmed the order passed by the AAR holding that GST is leviable on sale of plot of land, where primary amenities such as water line, electricity line, and other infrastructure are being constructed/developed.

Held that, it is a sale of developed plots and will be covered under the scope of supply of taxable service falling under the head of ‘Construction services’.

And hence liable to 18% GST

As a result, various GST authorities started demanding tax on the sale of developed land.

Those who have paid the GST on the said transaction will be entitled to get the refund u/s 54 of CGST Act/Respective State GST Act. In the authors' view, the same shall not be treated as a payment of tax, and thereby the limitation period mentioned as 2 years from the relevant date for applying for the refund u/s 54(1) shall also not be applicable in such cases.


Holding our final opinion until the legal draft with respect to said matter is issued by the Ministry and relying on the text of press-release, we can conclude that: Sale of land after performing basic development services like leveling, laying down of drainage lines ETC… will still be treated as sale of land and no GST shall be charged on same. Hence sale of plot as mentioned in point 1 & 2 above, shall not be chargeable to GST. However, works contract service provided by the developer to land owner in case no. 2 shall be taxable.


However, taxation with respect to services provided by:

a) The Land Owner to Developer i.e. TDR (Transfer Of Development Right) and

b) Services provided by developer to land owner (Development Services)

are still a subject of debate and taxability (of GST) on the same is still in question, relying on few Advance Rulings like M/s Vidit Builders by AAR-Madhya Pradesh, case number – 19/2019, order number – 02/2020, tax shall be payable on TDR and development services provided by land owner to developer and vie a versa. Policymakers are expected to clarify by bifurcating the subject matter for various types of models including own project, JDA, and JV and Partnership models separately. It may be noted that the issue of sale of land after the development of land into plots / Sale of plotted land under JDA has been held chargeable for the construction services (based on the facts) by the Karnataka Authority for Advance Ruling in the case of Maarq Spaces Pvt. Ltd. and Madhya Pradesh Authority for Advance Ruling in the case of Vidit Builders.

CA Harshad Shah, Mumbai

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