Question And Answer
Subject: Value of land in sale of Under construction flat under GST
Querist: Prakash
Answered by:
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Date: February 4, 2024
Query asked by Prakash

Assessee is a developer and engaged in the business of developing of real estate project. He has calculated the GST liability on sale of  under construction flats as per agreement to sale with flat purchaser by taking deduction of 1/3 of the consideration . In the GST Audit , departments is denying the deduction for 1/3 for the land on the ground that there is no involvement of share  transfer of land in the agreement to sale and land is transferred only when the sale agreement is executed with the society . Is the interpretation of the GST audit department is correct ? What is remedy for the assessee co in this situation . Pl guide

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Answer given by

The construction services in case of sale of flats are covered by entry 3 of notification 11/2017-Central Tax (R) dt.28.6.2017. The said entry and clarificatory note below the said notification are as under:
“Slno.Chapter section or heading Description of service Rate (per cent) Condition
3. 9
Heading 9954 (i) 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.
(Provisions of paragraph 2 of this notification shall apply for valuation of this service)

2. In case of supply of service specified in column (3) of the entry at item (i) against serial no. 3 of the Table above, involving transfer of property in land or undivided share of land, as the case may be, the value of supply of service and goods portion in such supply shall be equivalent to the total amount charged for such supply less the value of land or undivided share of land, as the case may be, and the value 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 paragraph 2, “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.”
As per above note, the land deduction at 1/3rd is required to be given, once such land value is involved in the supply. When developer sells flat to the buyer definitely land value i.e. undivided share of land is involved in sale price of such flat and therefore deduction is eligible. There is no agreement between developer and society for purchase of land. Collectively it is the buyers who form the society and the developer conveys the land in the name of society on behalf of all the individual buyers. Therefore, the interpretation by the department appears to be illogical and not based on correct facts. If such an interpretation is to be accepted then at no point any deduction for land will be given from the taxable value. There is no tax when the land is conveyed to the society and therefore there is no occasion to claim 1/3rd deduction. It is only buyer who is agreeing to purchase the flat at a price which includes cost of land. In the agreement normally it is also mentioned about transfer of land to society and buyers have to give consent by agreeing to such relevant clauses in agreement. Therefore certainly land cost is involved in the buyer’s price and based on the same the deduction is eligible.

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