Bombay HC Accepts Petition on Sale of Land Under GST

The Bombay High Court has accepted a plea against bringing the transfer of land under JDA within the GST ambit. The plea was filed by Real Estate Developers following a GST notification. The notification sought to levy GST on the sale of land/property to developers. A notice in this regard has also been served to the Central Government, the Maharashtra Government and the GST Council by the Bombay High Court.

According to the notification which was released earlier this year, both parties part of the joint development agreement (JDA) i.e the developer, as well as the landowner, are liable to pay GST on the land being transferred.

JDA’s are standard practices in the real estate sector. JDA’s clearly state the terms and conditions upon which a particular piece of land is transferred from landowner to the developer. In most cases, the land is transferred against certain units or flats pre-allocated to the landowner by the developer.

Read Also: Impact of Goods and Services Tax on Real Estate Sector in India

Shweta Infrastructure & Housing, a Nashik-based developer, has reportedly filed the petition in the Bombay High Court. The petition questions the scope of GST to charge tax on the sale of land or building. Further, it also states that prevalent Real estate Laws mandates the very practice of transferring land titles to developers against finished future flats.

Sujoy Gupta, CMD of Shweta Infrastructure & Housing, says, “Due to the levy of GST on the procurement of land, it became difficult for us to finalize the consideration with landowners. Given the scenario, we had to approach the high court”.

The Expert’s Word

Increased Tax

While the Government ponders on reducing the 28% GST on construction material to 18%, the erstwhile GST petition stands to increase tax costs on construction projects. The notification mandates tax payment during the conveyance period itself. This burdens the developer who could earlier claim tax credits. Tax netting will not be possible if the provisions in the notification come into effect.

Two Distinct Activities

While Schedule III of the CGST Act does not consider the sale of land and buildings as taxable, the GST notification goes beyond its own jurisdiction by blurring the lines between the two discernible activities i.e sale and construction. GST will be levied on both parties from the very onset of the deal.