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The Indian government had issued a notification dated 29th March, 2019 under GST Act which deals with the construction services, including Joint Development Agreements (JDA). In this notification, a proviso deals with the supply of construction services and tax payment between the land owner and the builder under Joint Development Agreement.
This agreement is an arrangement between the landowner and the builder/developer where the landowner contributes his land, and the developer takes the responsibility to obtain approval, construction and marketing the project with financial resources.
The proviso says that- Where a registered person, i.e., landowner-promoter, who transfers development right or FSI (including the additional FSI) to promoter (developer-promoter) against consideration, wholly or partially, in the form of apartments construction, the developer-promoter will pay tax on supply of construction of apartments to the landowner-promoter and such a landowner-promoter will be eligible for credit of taxes charged from him by the developer-promoter towards the supply of construction of apartments by developer-promoter to him, provided the landowner-promoter supplies such apartments to his buyers before issuing completion certificate or first occupation, whichever is earlier and pays the tax charged from him on constructing such apartment by the developer-promoter.
Here developer-promoter is a promoter who constructs/converts a building into apartments or develops a plot for sale. In such a scenario- the developer must pay GST return on total value of construction when he sells them to both buyer and the land owner.
According to Section 2 (zk) (Real Estate Regulation and Development Act 2016), promoter refers to a person who constructs or causes to construct an independent building or a building consisting of apartments or converts an existing building or a part thereof into apartments, to sell all or some of the apartments to other persons & includes his assignees.
A builder or developer constructs the property for the purpose of sale under JDA. The builder takes full responsibility of construction and marketing. As stated earlier, the builder is responsible for planning, designing, getting approvals from different departments and payment of taxes.
The land owner does not have any role in JDA apart from taking proportionate build up area equal to his land value. The judicial pronouncements also express the same.
The construction of buildings/apartments undertaken by a builder is a works contract. The works contract is an indivisible contract that involves supply of goods and labour.
Thus, as prescribed under Schedule II (5) (b), the construction of apartments for sale shall be considered as services provided by the builder. Therefore the provision levy under GST is only on construction of complex, building or a part thereof, including a complex or building intended for sale to the buyer, and it is not on the build up or developed area.
According to section 31 (6), where the supply of services ceases under a contract prior to completion of the supply, the invoice will be issued at the time when the supply ceases. Such invoice would be issued to the extent of the supply made before cessation.
Therefore GST shall apply when the tax invoice is raised by the builder against the supply of the construction services. When the invoice is raised by the builder on the buyer and hands over the constructed area, then the activity of construction will get terminated, which was intended for sale to the buyer as provided in Schedule II (5) (b).
Thus, in case where the builder hands over the share of land owners’ apartment after the payment of related GST, such property becomes immoveable property in buyers’ hands as provided under Item 5- Land and Building of Schedule III of the CGST Act.
As per the judgement of the apex court, it can be said that the land owner is not a partner or a co-adventurer, in cases where his land is given to the builder cum promoter for constructing apartments under Joint Development Agreement. Further, GST levy is only on the building construction specified under Schedule II (5) (b). Thus, no liability would arise on the resale of constructed immoveable property by the land owner.
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