GST

for Builders, Developers

and Works Contractors
CA Yashwant J. Kasar
B.Com, FCA, DISA, CISA, PMP, FAIA

20th March 2018

GST on construction activity
Service Accounting Code Heading for Construction Services is 9954.
Services covered under this heading are
construction of building (99541),
general construction of civil engineering works (99542),
Site preparation services (99543),
assembly and erection of pre-fabricated construction (99544),
Special trade construction services (99545),
Installation Service (99546) and
Building completion and finishing services (99547).

CA YASHWANT J. KASAR 2
Works Contract service
Works Contract Service is a specie of construction service.
However, this activity has special relevance as it was defined as
'deemed sale' in Constitution of India.
Since then, works contract has been a very litigation prone issue.
Later, after introduction of service tax on services, complexities of
'works contract' increased as issue of valuation, TDS and reverse charge
made this issue complex.
After introduction of GST and abolition of distinction between goods
and services, really the concept of 'works contract' has become
redundant. However, this term is continuing in GST also.

CA YASHWANT J. KASAR 3
What is 'works contract'
"Works contract"
means a contract for building, construction, fabrication,
completion, erection, installation, fitting out, improvement,
modification,
repair, maintenance, renovation, alteration or commissioning
of any immovable property
wherein transfer of property in goods (whether as goods or in some
other form)
is involved in the execution of such contract- section 2(119) of CGST Act.
Works contract as defined in section 2(119) of CGST Act is 'supply of
service' - para 6(a) of Schedule II of CGST Act.

CA YASHWANT J. KASAR 4
A tax on the transfer of property in goods (whether as goods or in some
other form) involved in the execution of a works contract is deemed
sale of goods under Article 366(29A) of Constitution of India. [As
inserted by 46th Amendment to Constitution in 1982]. Note that this
Article in the Constitution of India is continuing even after
Constitutional amendment.
Thus, the Constitution states that 'works contract' is deemed sale of
goods, while GST Law states that it is 'supply of service'
[in any case, GST is payable, but issues relating to rate, place of supply
or time of provision of service can arise]
Works contract is essentially and inherently a contract of service,
irrespective of legal fiction created by Article 366(29A) of Constitution
of India - Larsen and Toubro Ltd. v. CST (2015) 318 ELT 633 (CESTAT LB 3
v. 2 decision)
Basically, works contract is a contract for work, where supply of material
is incidental to the contract for work.

CA YASHWANT J. KASAR 5
Distinction between construction service
and works contract service
There is no doubt that construction contract is also a 'works contract'.
However, under GST, distinction has been made between 'works
contract service' and 'construction of complex'.
The distinction is that in case of works contract, a customer (recipient of
supply of service) approaches the supplier of service (contractor) to
undertake construction as per his requirements. In almost all the cases,
the land is owned by or taken on lease by customer. The contractor
enters into contract with customer and then undertakes construction
with his own material.
If the material is supplied by recipient himself (customer), then it is
not works contract. It is simple contract for work.

CA YASHWANT J. KASAR 6
In construction of complex, the builder or developer normally does
not have any identified customer. Even if he has some identified
customers before commencement of construction, he is undertaking
construction activity on his own and not on basis of contract with
customer. The land never belongs to the customer.
Eg. a society awards a contract to a contractor to construct residential
complex in premises owned by society, it will be a 'works contract' and
not 'construction of complex'.

CA YASHWANT J. KASAR 7
Construction Services (Heading 9954)
NOTIFICATION NO. 11/2017-CENTRAL TAX (RATE), DATED 28-6-2017,
AS AMENDED BY,
NOTIFICATION NO. 20/2017-CENTRAL TAX (RATE), DATED 22-8-2017
NOTIFICATION NO. 24/2017-CENTRAL TAX (RATE), DATED 21-9-2017
NOTIFICATION NO. 31/2017-CENTRAL TAX (RATE), DATED 13-10-2017
NOTIFICATION NO. 46/2017-CENTRAL TAX (RATE), DATED 14-11-2017
NOTIFICATION NO. 1/2018-CENTRAL TAX (RATE), DATED 25-1-2018

CA YASHWANT J. KASAR 8
Sr. GST Description of Service
No. Rate
1. 18% Construction of a comp-lex, 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.
(Provisions of paragraph 2 of this notification shall apply for valuation
of this service)

2. 18% Composite supply of works contract as defined in clause 119 of section

2 of Central Goods and Services Tax Act, 2017.

CA YASHWANT J. KASAR 9
Sr. GST Description of Service
No. Rate
3. 12% Composite supply of works contract as defined in clause (119) of
section 2 of the Central Goods and Services Tax Act, 2017,
supplied to the[Central Government, State Government, Union
territory, a local authority, a Governmental Authority or a
Government Entity] by way of construction, erection,
commissioning, installation, completion, fitting out, repair,
maintenance, renovation, or alteration of,—
(a) a historical monument, archaeological site or remains of
national importance, archaeological excavation, or antiquity
specified under the Ancient Monuments and Archaeological
Sites and Remains Act, 1958 (24 of 1958);
(b) canal, dam or other irrigation works;
(c) pipeline, conduit or plant for (i) water supply, (ii) water
treatment, or (iii) sewerage treatment or disposal

CA YASHWANT J. KASAR 10
Sr. GST Description of Service
No. Rate
4. 12% Composite supply of works contract as defined in clause (119) of
section 2 of the Central Goods and Services Tax Act, 2017, supplied
by way of construction, erection, commissioning, installation,
completion, fitting out, repair, maintenance, renovation, or
alteration of,—
(a) a road, bridge, tunnel, or terminal for road transportation for
use by general public;
(b) a civil structure or any other original works pertaining to a
scheme under Jawaharlal Nehru National Urban Renewal
Mission or Rajiv Awas Yojana;
(c) a civil structure or any other original works pertaining to the
"In-situ redevelopment of existing slums using land as a
resource, under the Housing for All (Urban) Mission/ Pradhan
Mantri Awas Yojana (Urban);]
(d) a civil structure or any other original works pertaining to the
"Beneficiary led individual house construction/enhancement"
under the Housing for All (Urban) Mission/Pradhan Mantri
Awas Yojana;

CA YASHWANT J. KASAR 11
Sr. GST Description of Service
No. Rate
4. 12% (da) a civil structure or any other original works pertaining to the
"Economically Weaker Section (EWS) houses" constructed under
the Affordable Housing in partnership by State or Union territory
or local authority or urban development authority under the
Housing for All (Urban) Mission/ Pradhan Mantri Awas Yojana
(Urban);

(db) a civil structure or any other original works pertaining to the

"houses constructed or acquired under the Credit Linked Subsidy
Scheme for Economically Weaker Section (EWS)/Lower Income
Group (LIG)/Middle Income Group-1 (MIG-1)/Middle Income
Group-2 (MIG-2)" under the Housing for All (Urban) Mission/Pra-
dhan Mantri Awas Yojana (Urban);]

(e) a pollution control or effluent treatment plant, except located as

a part of a factory; or

(f) a structure meant for funeral, burial or cremation of deceased

CA YASHWANT J. KASAR 12
Sr. GST Description of Service
No. Rate
4. 12% (g) a building owned by an entity registered under section 12AA
of the Income-tax Act, 1961 (43 of 1961), which is used for
carrying out the activities of providing, centralised cooking or
distribution, for mid-day meals under the mid-day meal scheme
sponsored by the Central Government, State Govern-ment,
Union territory or local authorities.

CA YASHWANT J. KASAR 13
Sr. GST Description of Service
No. Rate
5. 12% Composite supply of works contract as defined in clause (119) of section
2 of the Central Goods and Services Tax Act, 2017, supplied by way of
construction, erection, commissioning, or installation of original works
pertaining to,—
(a) railways, [including] monorail and metro;
(b) a single residential unit otherwise than as a part of a residential
complex;
(c) low-cost houses up to a carpet area of 60 square metres per house
in a housing project approved by competent authority empowered
under the 'Scheme of Affordable Housing in Partnership' framed by
the Ministry of Housing and Urban Poverty Alleviation, Gov-
ernment of India;
(d) low cost houses up to a carpet area of 60 square metres per house
in a housing project approved by the competent authority under—
(1) the "Affor-dable Housing in Partnership" component of the
Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana;
(2) any housing scheme of a State Government;

CA YASHWANT J. KASAR 14
Sr. GST Description of Service
No. Rate
5. 12% (da) low-cost houses up to a carpet area of 60 square metres per
house in an affordable housing project which has been given
infrastructure status vide notification of Government of India, in
Ministry of Finance, Department of Economic Affairs vide F. No.
13/6/2009-INF, dated the 30th March, 2017;

(e) post-harvest storage infrastructure for agricultural produce

including a cold storage for such purposes; or

(f) mechanised food grain handling system, machinery or

equipment for units processing agricultural produce as food stuff
excluding alcoholic beverages.

CA YASHWANT J. KASAR 15
Sr. GST Description of Service
No. Rate
6. 12% Composite supply of works contract as defined in clause (119) of
section 2 of the Central Goods and Services Tax Act, 2017,
provided] to the Central Government, State Government, Union
Territory, [a local authority, a Governmental Authority or a Govern-
ment Entity] by way of construction, erection, commissioning,
installation, completion, fitting out, repair, maintenance,
renovation, or alteration of—
(a) a civil structure or any other original works meant
predominantly for use other than for commerce, industry, or
any other business or profession;
(b) a structure meant predominantly for use as (i) an educational,
(ii) a clinical, or (iii) an art or cultural establishment; or
(c) a residential complex predominantly meant for self-use or the
use of their employees or other persons specified in paragraph
3 of the Schedule III of the Central Goods and Services Tax Act,
2017.]

CA YASHWANT J. KASAR 16
Sr. GST Description of Service
No. Rate
7. 5% Composite supply of works contract as defined in clause (119) of
section 2 of the Central Goods and Services Tax Act, 2017, involving
predominantly earth work (that is, constituting more than 75 per
cent of the value of the works contract) provided to the Central
Government, State Government, Union territory, local authority, a
Govern-mental Authority or a Government Entity.
8. 12% Composite supply of works contract as defined in clause (119) of
section 2 of the Central Goods and Services Tax Act, 2017 and
associated services, in respect of offshore works contract relating to
oil and gas exploration and production (E&P) in the offshore area
beyond 12 nautical miles from the nearest point of the appropriate
base line.
9. 12% Composite supply of works contract as defined in clause (119) of
section 2 of the Central Goods and Services Tax Act, 2017 provided by
a sub-contractor to the main contractor providing services specified
in item (iii) or item (vi) above to the Central Government, State
Government, Union territory, a local authority, a Governmental
Authority or a Government Entity.

CA YASHWANT J. KASAR 17
Sr. GST Description of Service
No. Rate
10. 5% Composite supply of works contract as defined in clause (119) of
section 2 of the Central Goods and Services Tax Act, 2017 provided
by a sub-contractor to the main contractor providing services
specified in item (vii) above to the Central Government, State
Government, Union territory, a local authority, a Govern-mental
Authority or a Government Entity.
11. 5%` Services by way of house-keeping, such as plumbing, carpentering,
etc. where the person supplying such service through electronic
commerce operator is not liable for registration under sub-section
(1) of section 22 of the Central Goods and Services Tax Act, 2017.
Provided that credit of input tax charged on goods and services has
not been taken
12. 18% Construction services other than (i), (ii), (iii), (iv), (v), (vi), (vii), (viii),
(ix), (x) and (xi) above.

CA YASHWANT J. KASAR 18
In case of supply of service above,
For in item (1); and

For sub-item (b), sub-item (c), sub-item (d), sub-item (da) and sub-item (db) of item (4);
For sub-item (b), sub-item (c), sub-item (d) and sub-item (da) of item (5);
And for sub-item (c) of item (6),
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.
Explanation.—For the purposes of this paragraph, "total amount" means the sum total
of,—

(a) consideration charged for aforesaid service; and

(b) amount charged for transfer of land or undivided share of land, as the case may be
including by way of lease or sub-lease

CA YASHWANT J. KASAR 19
In case of service supplied by main contractor to a Government entity, the
concessional rate is available only if the service has been procured by
Government Entity in relation to work entrusted to it by the Central
Government, State Government, Union Territory or Local Authority as the
case may be.

In Case of Item Sr.No. (3), (6) and (7) in the above table ,the concession is
only to sub-contractor and not to sub-sub-contractor.
But, in case of Item Sr. No. (4), (5) and (8), the concessional rate applies
to sub-contractor or sub-sub-contractor also ie. The concessional rate of
12% is applicable to sub-contractor or even sub-sub-contractor if he is
providing works contract service of construction, as the service is exempt,
irrespective of person to whom it is provided.

CA YASHWANT J. KASAR 20
Pradhan Mantri Awas Yojana

CA YASHWANT J. KASAR 21
RECOMENDATIONS MADE BY THE GST COUNCIL FOR HOUSING
SECTOR TO PROMOTE AFFORDABLE HOUSING FOR MASSES
COME INTO FORCE - PIB PRESS RELEASE, DATED 7-2-2018
In its 25th Meeting held on 18th January, 2018, the GST Council had
made several important recommendations for the Housing Sector which
have come into force with effect from 25th January, 2018. The
recommendations are expected to promote affordable housing for the
masses in the country.
One of the important recommendations made is to extend
the concessional rate of GST of 12% (effective rate of 8% after
deducting one third of the amount charged for the house, flat etc.
towards the cost of land or undivided share of land, as the case may be)
in housing sector to construction of houses constructed/acquired under
the Credit Linked Subsidy Scheme (CLSS) for Economically Weaker
Sections (EWS)/Lower Income Group (LIG)/Middle Income Group-1
(M1G-1)/Middle Income Group-2 (M1G-2) under the Housing for All
(Urban) Mission/Pradhan Mantri AwasYojana (Urban).

CA YASHWANT J. KASAR 22
Credit Linked Subsidy Scheme (CLSS) is one of the components of Housing
for All (Urban) Mission/Pradhan Mantri Awas Yojana (PMAY) (Urban). Under
this component, subsidy would be provided on home loans taken by eligible
urban poor (EWS/LIG/MIG-L MIG-II) for acquisition and construction of
house. Credit linked subsidy would also be available for housing loans
availed for new construction and for addition of rooms, kitchen, toilet etc,
to existing dwellings as incremental housing.
The carpet area of houses constructed under this component of the mission
would be up to 30 square meters for EWSA, 60 Square Meters for LIG, 120
sqm for MIG I and 150 Sqm for MIG II. The benefit of Credit Linked Subsidy
Scheme may be taken by the Economical Weaker sections or Low/Middle
Income Groups for purchase of houses under any project. The maximum
annual income for eligibility of beneficiaries under the scheme can be up
to Rs.18 lakhs. It covers a very large section of population which aspires to
own a home.

CA YASHWANT J. KASAR 23
So far, houses acquired under CLSS attracted effective GST rate of 18% (effective
GST rate of 12% after deducting value of land). The concessional rate of 12%
was applicable only on houses constructed under the other three components
of the Housing for All (Urban) Mission/Pradhan Mantri AwasYojana (Urban),
namely (i) ln-situ redevelopment of existing slums using land as a resource
component; (ii) Affordable Housing in partnership and (iii) Beneficiary led
individual house construction/enhancement. The exemption has now been
recommended for houses acquired under the CLSS component also. Therefore,
the buyers would be entitled to interest subsidy under the Scheme as well to a
lower concessional rate of GST of 8% (effective rate after deducting value of
land).
The GST Council has also recommended that the benefit of concessional rate of
GST of 12% (effective GST rate of 8% after deducting value of land) applicable to
houses supplied to existing slum dwellers under the in-situ redevelopment of
existing slums using land as a resource component of PMAY may be extended
to houses purchased by persons other than existing slum dwellers also. This
would make the in-situ redevelopment of existing slums using land as a
resource component of PMAY more attractive to builders as well as buyers.

CA YASHWANT J. KASAR 24
The third recommendation of the Council is to include houses
constructed for 'Economically Weaker Section (EWS)' under the
Affordable Housing in partnership (PMAY) under the concessional rate
of GST of 8% (effective rate after deducting value of land). This will
support construction of houses up to 30 sqm carpet area.
The Fourth Recommendation of the Council is to extend
the concessional rate of 12% to services by way of construction of low
cost houses up to a carpet area of 60 sqm in a housing project which
has been given infrastructure status under notification No. 13/06/2009
dated 30th March, 2009. The said notification of Department of
Economic Affairs provides infrastructure status to Affordable Housing.

CA YASHWANT J. KASAR 25
Affordable Housing has been defined in the said notification as a
housing project using at least 50% of the FAR/FSI for dwelling units
with carpet area of not more than 60 sqm. The recommendation of the
Council would extend the concessional rate of 8% GST (after deducting
value of land) to construction of flats/houses of less than 60 sqm in
projects other than the projects covered by any scheme of the Central
or State Government also.
In addition to the above, in order to provide a fillip to the housing and
construction sector, GST Council has decided to give exemption to
leasing of land by Government to Governmental Authority or
Government Entity. [Government Entity is defined to mean an authority
or board or any other body including a society, trust, corporation, (i) set-
up by an Act of Parliament or State Legislature; or (ii) established by any
Government, with 90% or more participation by way of equity or
control, to carry out any function entrusted by the Central Government,
State Government, UT or a local authority].

CA YASHWANT J. KASAR 26
Also, any sale/lease/sub-lease of land as a part of the composite sale of flats
has also been exempted from GST. Therefore, in effect, the Government does
not levy GST on supply of land whether by way of sale or lease or sub-lease to
the buyer of flats and in fact, gives a deduction on account of the value of land
included in the value of flats and only the value of flat is subjected to GST.
It may be recalled that all inputs used in and capital goods deployed for
construction of flats, houses, etc attract GST of 18% or 28%. As against
this, most of the housing projects in the affordable segment in the country
would now attract GST of 8% (after deducting value of land). As a result, the
builder or developer will not be required to pay GST on the construction
service of flats etc. in cash but would have enough ITC (input tax credits) in his
books to pay the output GST, in which case, he should not recover any GST
payable on the flats from the buyers. He can recover GST from the buyers of
flats only if he recalibrates the cost of the flat after factoring in the full ITC
available in the GST regime and reduces the ex-GST price of flats.
The builders/developers are expected to follow the principles laid down under
Section 171 of the GST Act scrupulously. The above changes have come into
force with effect from 25 January 2018.

CA YASHWANT J. KASAR 27
Construction of residential, commercial
or industrial complex
Following is 'supply of service' as per para 5(b) of Schedule II of CGST
Act.
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.

CA YASHWANT J. KASAR 28
Explanation.—For the purposes of this clause-
(1) the expression "competent authority" means the Government or any
authority authorized to issue completion certificate under any law for the time
being in force and in case of non-requirement of such certificate from such
authority, from any of the following, namely –
(i) an architect registered with the Council of Architecture constituted under the
Architects Act, 1972; or
(ii) a chartered engineer registered with the Institution of Engineers (India); or
(iii) a licensed surveyor of the respective local body of the city or town or village
or development or planning authority.

(2) the expression "construction" includes additions, alterations, replacements

or remodelling of any existing civil structure.

CA YASHWANT J. KASAR 29
Residential Complex
"Residential complex" means any complex comprising of a building or buildings,
having more than one single residential unit - para 2 of Notification No.
12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective
from 1-7-2017.
Single Residential Unit
"Single residential unit" means a self-contained residential unit which is
designed for use, wholly or principally, for residential purposes for one family -
para 2 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both
dated 28-6-2017, effective from 1-7-2017. The tax rate is 12% - SGST - 6% and
CGST - 6%.
Occupancy certificate granted in Mumbai is equal to completion certificate
In Mumbai i.e. Brihanmumbai Municipal Corporation (BMC), occupancy
certificate is granted. Sale after such occupancy certificate (even before
completion certificate) will be sale of immovable property and outside service
tax net - PIB (Press Information Bureau), Ministry of Finance dated 26-10-2015.

CA YASHWANT J. KASAR 30
Is Completion certificate essential for builder or
developer or first occupation sufficient?
If entire consideration is received 'after its first occupation', a builder or
developer is not liable to pay GST, even if completion certificate or occupancy
certificate is not obtained from authorities.
The words 'after its first occupation' are confusing.
'Occupation' by whom?
The 'occupation' should be of that particular flat which is being sold or any flat
in that complex?
In many places, there is delay in issuing completion certificate
However, the customers start occupying the flats.

CA YASHWANT J. KASAR 31
No separate tax for supply of land or undivided share
of land as part of composite supply of flats
When a builder sales flat to buyer, he also transfers to him undivided share of land by
way of lease or sub-lease : the service falls under heading 9972.
In such cases, the value of service for GST is Nil, if the amount charged for such lease
or sub-lease is one-third of total amount charged for composite supply or less than
one-third of total amount charged - Sr No. 16(ii) of Notification Nos. 11/2017-CT
(Rates) and 8/2017-IT (Rates) dated 28-6-2017 inserted w.e.f. 25-1-2018.
The detailed wording is quite clumsy, but its essence is that such leasing of land may
be during
(a) construction of complex
(b) low cost housing, scheme or
(c) residential complex for Government, Local Authority, Governmental Authority or
Governmental Entity.
Even otherwise, since supply of flat is a composite contract, there should not be any
separate tax on lease of land.
CA YASHWANT J. KASAR 32
Supply (Chapter III-Sec. 7)
Ø“Supply” includes all forms of supply such as Sale, Transfer, Barter,
Exchange, License, Rental, Lease or disposal made or agreed to be
made for a consideration.
ØIncludes Importation of service, for a consideration whether or not in
the course or furtherance of business.
ØFirst identify whether the transaction is for Goods or Services
ØThis will enable to decide the rules in relation to point of taxation i.e.,
Time of Supply and Place of Supply (for levy of tax)
ØAs per Schedule II (5) - Construction Activity is being described as
“Service”, hence all the provisions of Place of Supply & Time of Supply
relevant to “Services” shall apply to Construction Activity.

CA YASHWANT J. KASAR 33
Time of Supply of Services - Point of Taxation – Sec. 13
Liability to pay GST on Supply of Services shall arise at the earliest of the
following dates:
Ødate of issue of invoice / demand note or
Ødate of provision of service or
Øthe date of receipt of payment or
Øin absence of above, date on which recipient shows the receipt of service
in Books of A/c

In case of Continuous Supply of Services, Time of Supply shall be...

Øthe due date of ascertainable from Contract or
Øthe date on which the supplier receives the payment with respect to the
supply

CA YASHWANT J. KASAR 34
Place of Supply – Significance
ØWhether Supplies are intra-state or inter-state / inter-national
ØWhich tax to pay - CGST & SGST or IGST?
ØAchieving the objective of destination based taxation
ØITC of IGST allowed to purchaser in his state i.e., destination State

Location of Place of Supply Intra-State or Tax Applicable

Supplier Inter State

Maharashtra Maharashtra Intra-State CGST+SGST

Karnataka Maharashtra Inter-State IGST

CA YASHWANT J. KASAR 35
Place of Supply – Exception for Immovable Properties
In case of Immovable Properties, the Place of Supply shall be deemed
to the “Location of Immovable Property”
Few Illustrations:
Location of Service Recipient of Service Immovable Place of Provision of
Provider Property Location Services
(Tax Applicable)
Maharashtra Gujrat Gujrat Gujrat (IGST)
Maharashtra Gujrat Madhya Pradesh Madhya Pradesh (IGST)

Maharashtra Singapore Maharashtra Maharashtra

(CGST+SGST)
Maharashtra Dubai Dubai Dubai (Will be treated
as export of service)

CA YASHWANT J. KASAR 36
Valuation – Sec. 15
Transaction value is the price actually paid or payable for the said
supply of goods or services between un-related parties and price is the
sole consideration.

Transaction value includes...

ØTaxes other than GST
ØExpenses incurred by recipient in relation to supply
ØIncidental expenses charged at the time or before the supply-
commission, packing or amount charged for anything done by the
supplier
ØInterest, late fee or penalty for late payment of consideration

CA YASHWANT J. KASAR 37
Input Tax Credits (ITC)
ITC means...
…IGST / CGST / SGST/UTGST charged in the invoice on any supply of goods
or services which are used in the course of furtherance of business.
Conditions for claiming ITC
ØRegistered Person should posses tax invoice / Debit Note issued by
Supplier
ØGoods or Services must be actually received by him. ITC is not available
on Mobilisation Advances provided to Contractors
ØSupplier should have paid the taxes
ØSupplier should have filed valid Return u/s 39
ØMatching of Invoice

CA YASHWANT J. KASAR 38
ØIn case the claimant (i.e., Receiver) fails to pay consideration to
supplier within 180 days from date of invoice the ITC availed earlier,
will be added to the output tax liability along with interest
ØOn making payment towards supply he will be entitled for credit of
Input Tax.
ØIf Depreciation is claimed on ITC, ITC shall be disallowed
ØConfirm the availability of ITC / Reversal of ITC, where Project is
completed and some units are unsold – the Balance credit needs to be
reversed
ØITC of 1 Project could be utilised for the other Project (carried out in
same firm); subject to availability as discussed above
ØRefund, due to excess ITC – Not allowed

CA YASHWANT J. KASAR 39
Negative List Under ITC / Blocked Credits – Sec. 17
ØMotor vehicles,
ØFood and beverages,
ØBeauty treatment, health services,
ØMembership of a club, health and fitness centre,
ØRent-a-cab, life insurance, health insurance
ØTravel benefits extended to employees
ØTax paid for Goods or Services used for Personal Consumption
ØITC reversal in case of goods lost, stolen, destroyed in fire / flood / etc.
or where goods have been distributed as free samples / gifts

CA YASHWANT J. KASAR 40
Works Contract For Immovable Property – Sec. 17(5)(c) &(d)
The ITC on inward supplies of works contract service is allowed only
when the same is used for supply of works contract service.
ITC on goods and services is denied when such inward supplies is used
for construction of an immovable property on his own account other
than Plant and Machinery even when such immovable property is used
in course or furtherance of business.
Eg.: Immovable property is let out or used for business purpose like
mall, theatre or factory etc.

CA YASHWANT J. KASAR 41
ITC on Cancellation of Agreement
As per Sec. 31(3)(e)...
where advance payment has been received for which receipt voucher is
issued but subsequently no supply is made and no tax invoice is issued
then Registered person may issue Refund Voucher against such
payment and claim the ITC paid as refund
However this provision is applicable when no service is started.
If construction for the said unit is begun then this will be treated as
continuous supply of service and in such case, credit note is required to
be issued for cancellation of agreement – (Applicable only if within 6
months)

CA YASHWANT J. KASAR 42
Reversal of ITC on Sale of Completed Flats
Section 17(2) provides that where goods or services are used partly for
effecting taxable supplies and partly for exempt supplies, ITC credit
attributable to taxable supplies can only be taken
Sale of completed flat will be exempt supply for the purpose of reversal
of ITC u/s 17(2) of the Act
If the supply is not taxable, then ITC will have to be reversed

When to reverse the tax?

at the stage of completion of project or
at the point when such completed flats/units are sold?

CA YASHWANT J. KASAR 43
Purchaser of flat is not liable to tax even if he
sales before occupation or completion

The Purchaser of flat is not liable to tax even if he sales before

occupation or completion, for two reasons :

(a) He is not supplying construction service, as deeming provision

requires supply of construction service

(b) He is not in the business of sale of flats

CA YASHWANT J. KASAR 44
No refund of ITC even if input tax credit more
than GST payable on outward supply
In case of inverted duty rates (i.e. input tax credit more that tax payable
on outward supply), there is provision of refund of excess credit under
section 54(3) of CGST and SGST Act.
However, in case of service of construction of complex [specified in Item
5(b) of Schedule II of CGST Act], refund of unutilized ITC will not be
available - Notification No. 15/2017-CT (Rate) dated 28-6-2017.

CA YASHWANT J. KASAR 45
Supply of some flats/shop/commercial
unit free of cost to the landowner
It is normal practice to give some flat/commercial unit/industrial gala/shop free
to the land-owner, who has given the land for construction.
Really, the flats/shops are not given free but are in lieu of land cost.
In my view, GST should be payable in respect of free flats/shops given to the
land owner. See also CBE&C circular dated 10-2-2012 and Para 6.2.1 of CBE&C's
'Taxation of Services : An Education Guide' published on 20-6-2012, where the
same view has been expressed.
In LCS City Makers P Ltd. v. CST (2012) 36 STT 228 = 23 taxmann.com 169 = 68
VST 318 (CESTAT). It has been held that service tax is payable even when
consideration is received in form of land - same view in Direktorna Direktsia
Obzhalvane I Upravlenien aizpalnenieto v. Orfey Balgaria EOOD (2013) 38 STT
289 (ECJ) * Southern Properties v. CCE (2015) 52 GST 413 = 61 taxmann.com 423
(Mad HC DB).

CA YASHWANT J. KASAR 46
Valuation of flats given free to land
owner
Value of service in respect of flats given free to land owner will have to be found
out on basis of value of service of identical or similar flat/shop or on basis of
cost of construction plus reasonable profit.
In Southern Properties v. CCE (2015) 49 GST 695 = 54 taxmann.com 116
(CESTAT), a prima facie view has been held that valuation should on basis of
value of similar flats and not on basis of value of land.
As per CBE&C circular dated 10-2-2012, the first method i.e. value of similar
service should be used.
CBE&C had issued a 150 page booklet titled 'Taxation of Services : An Education
Guide' on 20-6-2012, explaining salient aspects of the new provisions relating to
negative list of service tax. In para 6.2.1 of the Education Guide, valuation of
flats given to land owner shall be on basis of value of land.
Thus, there was conflict in views expressed in circular dated 10-2-2012 and the
Education Guide released on 20-6-2012.

CA YASHWANT J. KASAR 47
The issue was discussed by High Level Committee set up by Ministry of
Finance.
On basis of their opinion, it has been clarified that valuation of flats
given to land owner should be on basis of value of similar/identical
or
flats on basis of cost plus profit, as stated in circular dated 10-2-
2012 - CBE&C Instruction No. 354/311/2015-TRU dated 20-1-2016.
This principle should apply under GST also.

CA YASHWANT J. KASAR 48
Joint Development by land owner
and builder/developer
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.
Para 2.7 of CBE&C Circular No. 151/2/2012-ST dated 10-2-2012 states as follows
-
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.
Clarification: Circular 148/17/2011-ST dated 13/12/2011, particularly
paragraphs 7, 8, 9 apply mutatis mutandis in this regard.

CA YASHWANT J. KASAR 49
Time of supply in case of land
development rights
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.
However, CBE&C, vide 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.
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.
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.

CA YASHWANT J. KASAR 50
NOTIFICATION NO.4/2018-CENTRAL TAX
(RATE), DATED 25-1-2018
In exercise of the powers conferred by section 148 of the Central Goods
and Services Tax Act, 2017 (12 of 2017), the Central Government, on the
recommendations of the Council, hereby notifies the following classes
of registered persons, namely :—
(a) registered persons who supply development rights to a developer,
builder, construction company or any other registered person against
consideration, wholly or partly, in the form of construction service of
complex, building or civil structure; and
(b) registered persons who supply construction service of complex,
building or civil structure to supplier of development rights against
consideration, wholly or partly, in the form of transfer of development
rights,

CA YASHWANT J. KASAR 51
as the registered persons in whose case the liability to pay central tax
on supply of the said services, on the consideration received in the
form of construction service referred to in clause (a) above and in the
form of development rights referred to in clause (b) above,
shall arise at the time when the said developer,
builder, construction company or any other registered person, as the
case may be, transfers possession or the right in
the constructed complex, building or civil structure, to the person
supplying the development rights by entering into a conveyance deed
or similar instrument (for example allotment letter).

CA YASHWANT J. KASAR 52
Taxability of FSI / Development Rights, etc.
Under General Clauses Act ‘Immovable property’ is defined to include
land, benefits to arise out of land and things attached to earth or
permanently fastened to anything attached to earth
Term “Land” and “Building” is not defined under GST

Whether under GST regime rights in land and/or building can be

regarded as land and/or building?

If yes, sale of development rights, FSI, etc. will not be treated as

supply liable to GST
If not, then development potential, FSI, etc. will be exposed to GST
liability

CA YASHWANT J. KASAR 53
Taxability of Transferable Development Rights (‘TDR’)

Taxability of TDR can be examined in two different situations:

- When granted by a local authority
- When sold by one developer to another

CA YASHWANT J. KASAR 54
Taxability of TDR when granted by a local authority:
Let us examine the taxability of TDR granted by a local authority in pursuance of
Development Control Regulations (‘DCR’). In lieu of the area relinquished or
surrendered by the owner of the land, the Government allows construction of
additional built-up area. The landowner can use extra built-up area, either himself
or transfer it to another who is in need of the extra built-up area for an agreed
sum of money. TDR is, thus, an instrument issued by the government authorities
which gives the right to person to build over and above the permissible Floor
Space Index (FSI) within the permissible limit of DCR. The TDR certificates can also
be traded in the market for cash. Developers purchase and utilise them for
increasing their development rights.
Against this factual background, it is to be considered whether TDR is ‘goods’ or
‘services’ and whether the ‘supply’ thereof is taxable under the GST laws or not.

CA YASHWANT J. KASAR 55
FSI vs. TDR
Not all development rights are TDR as grant and use of FSI is
development right, a specie of right in land embedded in the same
piece and parcel of land and cannot be divested to another piece of
land to load development potential on it.
FSI is not transferable for use of development on another piece of land
unlike TDR which is transferable for use on any other piece of land and
therefore tradable by its very name and nature.
Secondly, TDR is initiated and issued by a local authority unlike FSI
which a private land owner also owns or possess as incorporeal right in
his land with development potential as per prevailing town planning or
DCR.

CA YASHWANT J. KASAR 56
Is TDR an ‘Immovable Property’?
We shall now examine whether TDR or right to obtain extra FSI is an ‘immovable property’ or not. The
expression ‘immovable property’ has not been defined under the GST law. It is, therefore, relevant to
note the definition of ‘immovable property’ under other enactments. Some of these enactments are
General Clauses Act, 1897, Transfer of Property Act, 1882, Maharashtra Stamp Act, Registration Act, 1908,
The Real Estate (Regulation and Development) Act, 2016. The definition of ‘immovable property’
contained these legislations are given in the previous article and hence not repeated here.
A perusal of the definitions in the aforesaid enactments would show that they are more or less similar.
Thus, the definition of “immovable property” not only includes land but also the benefit arising out of
land and the things attached to the earth or permanently fastened to anything attached to the earth. The
scope of the term ‘immovable property’ is not restricted to mere land or a building but extends even to
the benefits arising out of land.
The “benefit to arise of land” is that benefit whose origin can be traced to existence of land. It owes its
source to land. Such benefit is inextricably linked to land.
The expression “development right” is not defined in DCR issued under the Maharashtra Regional and
Town Planning Act, 1966. However, a careful perusal and harmonious reading of various provisions of the
DCR as also various judicial pronouncements show the artificial manner in which ‘development rights’ are
carved out of the land.
This would establish that ‘development rights’ are the ‘rights in immovable property’.

CA YASHWANT J. KASAR 57
Section 7(2) of the CGST Act reads as under:
“S.7(2) Notwithstanding anything contained in sub-section (1),––
(a) activities or transactions specified in Schedule III; or
(b) 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.”
Serial no. 5 of Schedule III of the CGST Act specifying activities or transactions which shall be
treated neither as a supply of goods nor a supply of service reads as under:
“5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.”
Therefore, by virtue of section 7(2) read with Schedule III, sale of land and sale of building are
treated neither as supply of goods nor as supply of services.
Issue is “can one state that as serial no. 5 of Schedule III uses the expression “land” and
“building”, the benefit of this entry is not available to right in land or building?”
The answer is : no

CA YASHWANT J. KASAR 58
We have already explained that transfer of immovable property is not liable for
GST as it is neither goods nor service.
Immovable property, by definition, includes even right in immovable property.
Therefore, just because right in immovable property has not been specifically
stated in Schedule III, it doesn’t mean that they are liable for GST. It is a well-
settled legal principle that exemption doesn’t pre-suppose a charge.

Even otherwise, the expression “land” and “building” in Schedule III includes even
right in land/building. This is evident from Entry 18 of List II of Seventh Schedule of
The Constitution read with Entry 49 of the same list.
It is, therefore, viewed that TDR/FSI is neither ‘goods’ nor ‘services’ and hence,
cannot be subjected to levy of GST.

CA YASHWANT J. KASAR 59
Can TDR be considered as an ‘Actionable Claim’?
The entire issue of the ‘taxability of TDR’ can be looked at from a different perspective also.

TDR is a right which has been conferred by the Government. It is transferrable by endorsement and
delivery. When it is transferred and can be used on any other land, there is no connection with any
particular land. TDR can change many hands before it is used in a particular land for availing
construction right.

Section 3 of the Transfer of Property Act, 1882, defines ‘actionable claim’ as “a claim to any debt,
other than the debt secured by mortgage of immovable property or by hypothecation or pledge of
movable property or to beneficial interest in movable property.” It means that any beneficial
interest in a movable property is actionable claim if the same is not in the possession of the
claimant. ‘Movable property’ has been defined in section 3 (36) of the General Clauses Act, 1897, as
‘property of any description except immovable property’. TDR is not a right in respect of an
“immovable property” as defined in section 3 (26) of the General Clauses Act 1897, and, therefore,
it is a beneficial interest arising out of a “movable property” as per the section 3 (36) of the Act.
This right is intangible, and it cannot be said that it is capable of being in physical possession of
anyone. Any movable property that can be possessed, can be handed over by the owner to another
for use. But in case of intangible property, the right to use such property can be transferred by an
agreement and the transferee can enforce the right, in case of dispute, by going to the Court.
Therefore, TDR should be construed as an actionable claim. Therefore, its arrangements are
transactions in actionable claims. Support can be taken from the Apex Court’s decisions in Sunrise
Associates vs. Government of NCT of Delhi, 2006 (145) STC 576 (SC) and Vikas Sales ([1996] 102 STC
106 (SC)) (1996) 4 SCC 433.

CA YASHWANT J. KASAR 60
Applying the ratio of Sunrise Associates’ case (supra), it can be construed that
TDR is an intangible valuable right which can be sold and purchased
independent of land and should be considered as an actionable claim.
Actionable claim is also out of the scope of supply in terms of paragraphs 6 of
Schedule III of the CGST Act. Accordingly, GST is not payable by any person
when he transfers TDR to another.
In view of the above, TDR whether as ‘immovable property’ or ‘actionable
claim’ remains outside the scope of levy of GST.

CA YASHWANT J. KASAR 61
GST on Re-Development Of Society Building,
SRA And JDA
Implications of GST on the builders / developers, a co-operative housing society
(society), its members, landlords, tenants and unauthorised occupants (viz.
slum dwellers on encroached land)
The most important issue is that whether there is any change under GST regime
from the earlier service tax regime?
Under service tax, , immovable property was outside the scope by way of
definition of ‘activity’. The term ‘activity’ was of wider and unrestricted
implication.
However, in case of GST, a ‘supply’ is liable to tax only if made in the course or in
furtherance of business. This has resulted in interesting debate and
complexities.

CA YASHWANT J. KASAR 62
GST on re-development of society building
Let us say, a Co-operative Housing Society registered under the Maharashtra Co-
operative Societies Act, 1960 and its members (for the sake of brevity, the
Society and Members are collectively referred to as ‘SM’) decide to redevelop
the existing building which is in dilapidated condition and is required to be re-
developed as per prevailing Development Control Regulations [DCR].

In case of re-development of the dilapidated building, the municipal regulations

in Maharashtra presently allow approx. 3:1 FSI instead of 1:1 which is allowed
under normal circumstance.

CA YASHWANT J. KASAR 63
The key contents that are incorporated in the Development Agreement with the
developer (DA) are discussed below:

Society and Members (SM) shall allow the developer to reconstruct building by
demolishing the existing one with some additional area, may be by way of constructing
additional floors. The developer shall do so by employing his funds and at his attendant
cost and risk. To avail the benefit of extra construction is permitted under DCR, the
developer is required to purchase necessary Transferable Development Right (TDR) from
permissible sources. As per the terms of DA, the developer may be required to construct
some extra area for the existing members which is to be given to them free of cost to
incentivise the project.

Out of the total constructed area after utilising full potentiality of FSI and TDR, the
remaining area after allotment to the existing members as warranted by DA belongs to
developers which is known as “Developer’s free sale portion” and he can sell it at his
discretion and price. SM undertakes to enrol and register the purchasers of such free
sale portion as the members of the society upon fulfilment of necessary formalities.
The newly enrolled members are entitled to the same rights as of existing members
and also have undivided share in the title of the land in the similar manner.

In addition to re-development, the developer shall pay to SM cash consideration in

form of corpus fund, hardship allowance, rent for alternate accommodation till
permanent alternate accommodation is granted in the new building, brokerage,
shifting allowance etc.
CA YASHWANT J. KASAR 64
In the above background, we will examine the incidence of GST from the point of view of:
a.The society and its members
b.The developer

Taxability of development right in the hands of SM

The issue here is that the SM is supplying development right to the developer to re-develop
the building, putting up extra area / floor by using permissible FSI, TDR etc. in return for
newly constructed flats with some additional area free of cost and some cash consideration
mentioned above in terms of DA.
Under GST law, SM may not be liable to tax for the following reasons:
Supply not in the course or furtherance of business:

For the purpose of determining the liability under GST, it is necessary to look into Charging
Section 91 according to which central goods and services tax is leviable on all intra-State
supplies of goods or services or both. Thus, ‘supply of goods or services or both’ is the vital
element for charge of tax. Section 7 (a) defining ‘supply’ require that the supply for a
consideration by a person should be in the course or in furtherance of business.
“S.7 - 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, license, rental,
lease or disposal made or agreed to be made for a consideration by a person in the course or
furtherance of business”.

CA YASHWANT J. KASAR 65
Supply of goods or service or both” for the purpose of levy of GST u/s. 7, has to be in
the course or furtherance of business.
The society and / or members cannot be said to be in the business of grant of
development right, whether the re-development of a society building is undertaken
by virtue of compulsion on account of dilapidated condition or not.
A society or its members cannot be said to be involved in supply of development right
to the developer in the course or in furtherance of business by entering into
development agreement.
By agreeing to get a new flat in lieu of the old flat, the members of society have not
made any supply.

CA YASHWANT J. KASAR 66
Whether the amounts paid by developer to SM in terms of DA like hardship
allowance, rent, shifting allowance, contribution to the corpus of the society,
brokerage and such other amounts as agreed upon can be treated as
‘consideration’ in the hands of SM so as to attract the levy of GST?

The consideration flowing from a developer to the SM, in whatever form, is not
against any taxable supply.
All payments from the developer to the SM is flowing out from DA.
Appointing developer to re-develop the existing building is not a taxable supply as
we have discussed earlier. The developer makes payment to the members of
society in satisfaction of the obligation to the society and its members. Viewed in
this manner, the allotment of a new flat, the payment of compensation being rent
for alternate accommodation and hardship allowance is also governed by the
principle of mutuality. Payment of corpus fund to the society by the developer is
also in satisfaction of the obligation flowing out from DA as a part of design of the
re-development arrangement.
Therefore, the SM are not liable for GST as they have not effected any supply
under the DA.

CA YASHWANT J. KASAR 67
It may be argued that the developer makes payment to the members and /or the
society as compensation for the act of agreeing to the obligation to refrain from an act,
or to tolerate an act or a situation, or to do an act treated as supply of service as per
section 7(1)(d) read with paragraph no. 5(e) of Schedule II.
However, there is no stipulation in the DA which requires the members of society to
agree to the obligation to refrain from an act or to tolerate an act or a situation, or to
do an act; for which a consideration is stipulated.
The essential ingredient of the contract is redevelopment.
Therefore, the members or the society are not liable to GST even under this
entry. There is no supply made by SM to developer though they have been
compensated.

CA YASHWANT J. KASAR 68
 Whether the DA involves any taxable
supply by developer to SM under GST?
Developer is constructing the building, a part of which will be given to the members of SM.
The other part of the building will be sold by it for a consideration. For the construction of
the building for the members of SM, developer is not receiving any monetary consideration
from them, but a right from SM is received to load TDR on its plot so that the
developer would be able to construct extra area in the building for selling in the market.
There are common facilities and common spaces which are owned and used jointly by the
owners of these units. These units do not have any independent existence. Therefore,
construction of entire building is necessary before handing over the units to the members. In
other words, developer cannot construct the building for selling to new customers unless he
would construct that part of the building which would be allotted to SM. Hence, the
developer is constructing the entire building in order to sell a part of the building.

Effectively, the developer is providing service to both SM and the buyers of additional flats
under DA as a part of a single supply. The entire revenue in this arrangement flows from the
buyers of additional flats, a part of which is paid by developer to the members of SM by way
of construction and monetary consideration. The proportionate ownership of the land
obtained by the developer from SM would be passed on to the flat buyers. For all these
efforts, the developer would be remunerated by way of sale consideration from the
additional flats constructed for sale.
CA YASHWANT J. KASAR 69
Support may be found from the definition of consideration contained under CGST Act.

2(31) “consideration” in relation to the supply of goods or services or both

includes–

(a) any payment made or to be made, whether in money or otherwise, in respect of, in
response to, or for the inducement of, the supply of goods or services or both,
whether by the recipient or by any other person but shall not include any subsidy given
by the Central Government or a State Government;

(b) the monetary value of any act or forbearance, in respect of, in response to, or for
the inducement of, the supply of goods or services or both, whether by the recipient
or by any other person but shall not include any subsidy given by the Central
Government or a State Government:
…………………”

Thus, it can be said that the SM by virtue of entering into DA, induces developer to
supply works contract service and to sell additional area to outsiders to recoup the
cost of construction and other monetary consideration. In turn they undertake to make
the purchasers as members by allotting undivided share in land. The sale consideration
will also be the consideration for re-construction of the existing building.

CA YASHWANT J. KASAR 70
Availment of input tax credit (ITC) and reversal thereof
attributable to the units allotted free of cost to SM.
Units allotted free of cost to SM are not without consideration. The
consideration flows from other persons. The service provided by developer is
taxable. Hence, ITC under the law is available fully and can be used for the GST
payable on the sale of under constructed flats from free sale area.

Without receiving such inputs and input services, it would be impossible to

construct that part of the building on which GST is payable. Therefore, it cannot
be said that the entire inputs and input services used for construction of the
building are not used for providing taxable supply.
Therefore, ITC is eligible. It has been discussed earlier that there is a single
supply to SM and the purchasers of free sale area.

CA YASHWANT J. KASAR 71
Leviability of GST in case of Slum
Rehabilitation Authority (SRA) Projects
In case of slum encroached private land, the landlord approaches the Slum
Rehabilitation Authority (SRA), a governmental authority covered under Article
243W of the Constitution which declares the land as slum land and issues order
for rehabilitation of slum dwellers (in pursuance of DCR 33(10) of Brihan
Mumbai Municipal Corporation, and similar regulations in other metropolitan
cities).
The landlord approaches a developer to develop the land and SRA grant extra
FSI to the developer for construction of rehabilitation of slum dwellers as per
DCR. The developer constructs a building for slum dwellers and another for
landlord including free sale area and for himself to recover the cost of
construction. As an incentive to construct building for slum dwellers, SRA may
issue TDR in form of DRC (Development Right Certificate) which can be used on
another plot or even may be sold in open market by endorsement and delivery.
Registration of document of transfer of DRC with local authority is a regulatory
requirement. Stamp duty is paid for transfer of TDR as moveable property but is
not required to be registered under Registration Act as conveyance. Over and
above this, the developer may pay cash consideration to the landlord.

CA YASHWANT J. KASAR 72
In another scenario, the land may belong to the Government that has been encroached
upon by the slum dwellers.
In such a case, the Developer may agree to develop the land, construct the building for
the slum dwellers and allotment of units therein free of cost to the slum dwellers in
terms of the agreement entered into with SRA. As against this, the Developer would be
granted TDR as may be permitted by the town planning regulations on the
recommendations of SRA which can be exploited by the Developer to construct another
building, the units in which can be freely sold by him. The Developer may even decide to
sell TDR in open market.

A perusal of the regulations relating to slum rehabilitation schemes would show that it is
an integral scheme. The developer is required to carry out the work of construction of
tenements for slum-dwellers.
Some portion of the built-up area is also allotted to the Land Owner as per terms of DA.
The remaining constructed area belongs to the developer which is freely saleable by the
Developer to recover the cost of construction of the entire project along with his margin
for the risk and reward.

CA YASHWANT J. KASAR 73
Therefore, it is a single contract for construction under an integral scheme. The entire supply
involves consideration. Just because the scheme states that certain share in the built-up area
is to be handed over free of cost to slum dwellers and land owner, it is not free in the legal
sense. There is consideration for the built-up area handed over to all them. It is to be noted
that the FSI / TDR that is sanctioned to the developer would enable him to construct units out
of which portion of it is available to him as freely saleable area. Alternatively, the developer
would be able to sell TDR in open market and monetize the same. Once an area is declared as
slum area and SRA frames slum rehabilitation scheme, Regulation 33(10) of DCR is required to
be followed. Once the redevelopment / construction is carried out in accordance with
Regulation 33(10), there are various conditions to be fulfilled. Therefore, different events
cannot be broken to ascertain the GST liability. The supply is only one. Section 2(31) of the
CGST Act defines ‘consideration’, the relevant portion of which is reproduced below:
“S.2(31) “consideration” in relation to the supply of goods or services or both includes––
(a) any payment made or to be made, whether in money or otherwise, in respect of, in
response to, or for the inducement of, the supply of goods or services or both, whether by the
recipient or by any other person but shall not include any subsidy given by the Central
Government or a State Government;
(b) the monetary value of any act or forbearance, in respect of, in response to, or for the
inducement of, the supply of goods or services or both, whether by the recipient or by any
other person but shall not include any subsidy given by the Central Government or a State
Government”.

CA YASHWANT J. KASAR 74
The above would show that consideration is linked to supply. The expression consideration
should not be read in isolation of supply and scope of supply should not be read independent
of the word consideration. Consideration can move even from third person as per the
definition of consideration as given in section 2(31). This concept is also recognized u/s. 2(d)
of the Indian Contract Act, 1872.
Whether the landlord can be considered to have made any supply in the above case and
whether the free of cost area allotted by the developer to the landlord in the newly
constructed building (with or without additional cash payment to the landlord) would
constitute ‘consideration’ in the eyes of law?
In the first scenario, the landowner whose land has been encroached by the slum dwellers
engages the developer to construct a building for rehabilitation of the slum dwellers as
mandated by the authorities to make the rest of the land free from such encumbrance and
another building or buildings which is to be shared by the developer and landlord in agreed
manner. Effectively, the land owner is sharing his land with the developer as against which
the constructed area is being shared between them as per the terms of DA. Hence,
landowner is transferring his ownership right in the land for area of construction of his share
as well as construction of the building required for rehabilitation of the slum dwellers.
Transfer of land is specifically excluded from the meaning of supply on which GST is not
payable. However, the building constructed by developer for landlord is in form of works
contract service, depending on the, terms of contract that whether the land is transferred to
the developer or mere development right is granted. In the first case, the service may be
termed as Construction Service covered in Entry 5(b) of Schedule II of CGST Act and in later
case, it may be termed as Works Contract Service covered in Entry 6(a) of the same
Schedule.
CA YASHWANT J. KASAR 75
Alternatively, it can be argued that the Developer constructing building for Landlord and
slum dwellers is, in lieu of, free sale area received by Developer. Viewed from this angle,
the consideration is the market value of land portion received by the Developer and GST is
payable.
In this scenario, if the development right is considered taxable under GST, the land
owner may issue invoice for transfer of development right. Based on this, the developer
shall be entitled to avail ITC against under constructed flats sold from free sale area.

In case of Government land, TDR is issued against construction of building for slum
dwellers which may be encashed by selling the same in open market. In such a case, the
realized value of TDR may be liable as consideration for construction of SRA building.

It may be pointed out here that SRA being covered by Article 243W of the Constitution,
neither SRA nor the Developer will be liable to GST in respect of issue of TDR by SRA.

CA YASHWANT J. KASAR 76
Leviability of GST on Joint Development
Agreement (JDA)
JDA signifies a landlord entering into Development Agreement with a Developer
to develop his land having development potential (FSI) and JV is formed.
The landlord contribute his land into JV and transfer the same by virtue of JDA
or promise to convey the land to the society of the purchasers of flats as may be
formed by the JV.
The landlord may have a passive or active role in JV. In most of the cases,
landowner is not having any active role in the venture except giving his land for
construction through this arrangement. Contribution in form of land is a form of
sale of land and outside the scope of GST. Even when the development right is
granted instead of transfer of land per se, it is normally in form of available FSI
of the same plot of land on which it is consumed. Grant of FSI is certainly the
right arising out of the land and even on better footing than TDR which is
transferrable.
Thus, grant of development right is outside the scope of GST.

CA YASHWANT J. KASAR 77
We may, however, hasten to say here that the joint control of the partners over
a venture is the essential criterion for considering such association as joint
venture.
The landowner has no role to play after handing over the land to the developer
for construction, whether the revenue is shared or developed area is shared
between the owner and the developer.
Hence, there is no joint venture between the landowner and the developer. The
landowner is giving up part ownership of the land to the developer in exchange
for getting share in revenue of constructed area
Generally, two models are in vogue in case of JDA between the landowners and
a Developer, viz:
1. Revenue Sharing Model
2. Area Sharing Model.

CA YASHWANT J. KASAR 78
1) Revenue Sharing Model:
In case of a landlord entering into Joint Development Agreement with
Developer wherein development right of the land is granted to JDA for
exploiting full potential of land on the following terms and conditions:
- Value of land (FSI value) is credited to the landlord’s capital account;
- All expense from plan approval to construction cost, supervision, etc.
is to be borne by JDA to be funded by the Developer. In most of the
cases landlord has no further role to play;
- Upon completion of construction, net profit will be shared between
the Landlord and Developer in agreed ratio.

CA YASHWANT J. KASAR 79
Taxability of Share of Revenue in the hands of Owner:
Issue may be checked up whether there is a supply of goods / service
between two joint developers?
Revenue share to owner / developer is a consideration in lieu of
development potentials received from owner / developer
If transfer of development potentials are considered to be “supply”
then revenue share will be liable to GST
If transfer of development rights are not considered to be “supply” then
revenue share will not liable to GST

CA YASHWANT J. KASAR 80
2) Area sharing Model:
Alternative structure of the transaction is that the landlord appoints the developer
by transfer of development right of the entire portion of the land and in turn the
developer agrees to give agreed percentage of constructed area to the landlord.
Balance area shall be retained and sold in open market by the Developer.
Can the relationship between the landlord and the developer in area sharing
model be considered as ‘barter’ so as to constitute ‘supply’ and attract the levy of
GST ?
In area sharing model, the landowner is giving development right to the developer
in exchange for getting share of constructed area (works contract service). This is a
case of barter.
Taking conservative view, both the landlord and developer will be required to pay
GST, however albeit with entitlement of input tax credit.

CA YASHWANT J. KASAR 81
In revenue sharing model, no service is provided by the developer or JV to the
landlord. In fact, the JV sell the flats and the revenue is to be distributed
between the developer and the landlord in the agreed ratio. The amount
received by the landlord is towards sale / transfer of land which is outside the
scope of GST as per Sch. III of CGST Act. Hence, no GST liability can arise on
revenue sharing model.

Time of payment of GST on supply of under on development right – NN.

4/2018 CT (Rate) dtd. 25.1.2018
By virtue of this notification, the liability of payment of GST is deferred from
the date of supply of development rights, i.e. date of entering into DA/JDA to
date of grant of possession or right in the constructed complex by entering
into conveyance deed or similar instrument (eg. Allotment letter).
However, the notification can be said to be a facilitation measure. The
developer is not prevented from making payment even before grant of such
possession and avail input credit of the same against the sale of under
constructed units.

CA YASHWANT J. KASAR 82
From the GST perspective, the issues relating to the Real Estate/ Construction
Sector are varied and complex. We have made an attempt to deal with certain
crucial issues and shed light on the legal position and principles set by the
judiciary.
What is required is a very critical examination of the issues and the
interpretation of relevant statutory provisions in light of the principles of the
law settled by various judicial pronouncements. Needless to say, the readers
may apply the views expressed in this article based on the fact of this case and
after obtaining expert opinion.

CA YASHWANT J. KASAR 83
 Thank You !

CA Yashwant J. Kasar
B.Com, FCA, DISA, CISA, PMP, FAIA
Cell: +91 98224 88777
Email : yashwant@ykc.co.in

CA YASHWANT J. KASAR 84