M/s. Maarq Space Pvt Ltd V/s AAR(Karnataka)
Brief about the Applicant:
The M/s. Maarq Space Pvt Ltd (Applicant) is a Private limited company and engaged in the business of Development & Sale of Land.
Applicant is entered into agreement (JDA) with Land Owner for development and sale of land with agreed revenue share (in our case 25%) between them and the cost of development to be born by the applicant.
Pursuant to JDA, Applicant entered into an agreement with customers for sale of developed plots for consideration.
Contention of the Applicant:
Applicant is engaged in development & sale of developed land, and which is covered under entry no 5 of Schedule III- sale of Land is not a supply and development activities are incidental & ancillary activities for sale of Land.
And the Entire process is to be considered as Composite Supply.
In case of Composite supply, the Predominant element is being sale of Land and development activities like Survey, Planning, formation of Layouts, Roads, Drainages and Etc., are naturally bundled with sale of land in other words it is integrally connected with sale of land, therefore applicant is of the view that, sale of DEVELOPED PLOT is nothing but sale of land, which falls under entry no 5 of III schedule to the act, therefore does not attract tax under GST.
In view of the above, the applicant has sought advance ruling in respect of the following question:
1. Whether the activity of development and sale of land attract tax under GST?
2. If the answer to the question no.1 is yes, for the purpose of taxable value, whether provision of rule 31 can be made applicable in ascertaining the value of land and supply of service?
AAR Briefings & Findings:
As per the information provided to the AAR, AAR has found following points:
- As per the agreement entered between the land owner and the applicant, applicant has to carry out development activities such as preparing a detailed map of the proposed layout, clearing/leveling the site, carrying out the construction of roads, laying of sewage/water pipelines, designing and creating common amenities etc.
- The agreement (JDA) is irrevocable and the applicant is entitled for agreed share in the revenue and activities of developing land requires certain kind of professional knowledge (Core competence) and which may include engineering works, technical workers.
- Land owner must take permissions/clearances/licenses from the authorities for carrying out activities and the cost of such to be borne by the land owner.
- Though the applicant has right to sell the developed plots, but however, applicant is not entitled for title of the land and who does not possess title of the land cannot be considered as seller. Such a person may have a role in the activity of sale, but he cannot claim himself to be the seller.
- It is provided that the entire cost of development shall be borne by the applicant. This shows that the applicant is engaged in the activity of providing a certain service to the landowners and the landowners will compensate the applicant for the same in accordance with the terms of the agreement.
Therefore, here we need to understand is the actual nature activities required to be performed by the applicant in terms of agreement. In this regard, applicant represents himself before the landowners as a person having experience and expertise as a land Developer. This representation is of critical importance.
This shows the core competence of the applicant in the field of converting a raw piece of land into a well-developed residential layout by engaging themselves extensively in activities such as survey of the land, preparing a detailed map of the proposed layout, clearing/leveling the site, carrying out the construction of roads, laying of sewage/water pipelines, designing and creating common amenities etc. These activities change the nature of the barren land and give it a character of a marketable land.
To conclude that activities undertaken by the applicant are not qualified to be covered under entry number 5 of Schedule III of the said Act. Thus, the activities undertaken by the applicant amount to a supply of service and we answer the first question in the affirmative, i.e. the activities undertaken by the applicant, as envisaged in the agreement placed before the Authority, amount to a supply of service to the landowners and is liable to be taxed appropriately under the provisions of the CGST/KSGST Acts.
And coming to 2nd question asked by the applicant about determination of taxable value
As per the agreement, land owner doesn’t pay any amount to the applicant and applicant must recover his costs by sale of land and revenue is equal to his agreed share in the revenue. Therefore, in this case, Full value Consideration is equal to his share in the revenue (in this case 25%).
And as per section 15 of the act, taxable value to be determined as per Rule 27,28,29,30 & 31 of the act.
Rule 27- Consideration is not wholly in money
Rule 28-Between Distinct persons/related persons other than through an agent
Rule 29- Consideration through an agent
Rule 30- value not determinable by preceding rules
Therefore,
Rule 27-30 is not applicable, and Rule 31 applies in the instant case and the value of the supply is equal to the total amount received by the applicant, which is equal to 25% of the market value of each plot.
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