QUESTION

If Land owner enters into development agreement for construction of residential project and he is receiving whole consideration only for providing land in monetary terms at the end of project and not receving any units or constructed property than is it taxable in hands of either of party. Mr A (land owner) enter in development agreement with Partnership firm M/s XYZ where Mr A is also partner for say Rs. 1 crore to be paid at end of completion of project . Consideration is seggrated in two parts value of land for 90 lacs and value of development for 10 Lacs. Mr A is not receving any constructed property and 1crore is full consideration he will be receving at end of project. Sir my question is if GST is applicable in hands of either of party if yes than on what amount?

ANSWER

Facts of the case: Landowner enters into development agreement for construction of residential project and he is receiving whole consideration only for providing land in monetary terms at the end of project and not receving any units or constructed property than is it taxable in hands of either of party.
Mr A (land owner) enter into development agreement with Partnership firm M/s XYZ where Mr A is also partner for say Rs 1 crore to be paid at end of completion of project. Consideration is segregated in two parts: value of land for 90 lacs and value of development for 10 Lacs.
Mr A is not receiving any constructed property and 1 crore is full consideration he will be receiving at end of project. Who is liable to pay GST and on what amount?

Law Applicable: Notification No. 13/2017 Central Tax (Rate)

SCHEDULE III OF CGST ACT
5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.

Notification No. 11/2017 Central Tax (Rate)

2A. Where a person transfers development right or FSI (including additional FSI) to a promoter against consideration, wholly or partly, in the form of construction of apartments, the value of construction service in respect of such apartments shall be deemed to be equal to the Total Amount charged for similar apartments in the project from the independent buyers, other than the person transferring the development right or FSI (including additional FSI), nearest to the date on which such development right or FSI (including additional FSI) is transferred to the promoter, less the value of transfer of land, if any, as prescribed in paragraph 2 above.

Interpretation: Point Wise reply to your question is as follows:

1. GST is to be charged on the RCM basis by the Developer.
XYZ and Mr A are distinct persons irrespective of the fact that Mr A is a partner in XYZ.

2. GST is to be charged on Transfer of Development Right on the value of consideration. The consideration will be in cash or in-kind, so it doesn't make any difference whether Mr A is getting cash or constructed units. This will come into picture only at the time of Valuation. The value of constructed unit is to be calculated as per the explanation given in Notification No. 11/2017 Central Tax (Rate) reproduced above for charging GST.

3. When you are saying the consideration is segregated into 2 parts: Rs 90 lacs for land and Rs 10 lacs for Development Rights. Rs 90 lacs will be considered as payment against Property (Land) only if the Land is transferred with execution of Registry (Clause (5) of Schedule III).
Since the Land is not transferred by virtue of Registry. Therefore this clause will not apply and you have to charge tax on total value. (Reply dt. 05/02/2021)