Key Insights On GST Under Real Estate Sector Joint Ventures

WEEKEND MCQ SELF CHALLENGE #016

Special Focus On GST On Joint Development Agreements Under Real Estate Sector

Dear Professional Seniors & Friends.

Welcome to this wonderful weekend MCQ self challenges,

This weekend's challenge is on special focus on GST on joint development agreements under real estate sector having 5 MCQs to be self-answered by participants to take a self-challenge. The detailed answers to these MCQs shall be posted on Monday for the self-assessment of the participants. This post shall be of immense use to the participant.

However, if you need any kind of support regarding taxation issues, feel free to contact the top chartered accountant firm in India.

Mr. X having a piece of land entered into a joint developer agreement with ABC Pvt Ltd a developer who will build 10 Flats in total, out of which 4 flats will be given to Mr. X

Weekend MCQ 16.1: Q.1 Which among the following is correct in relation to GST applicability on the transfer of development rights by Mr. X to the developer?

A) GST is not applicable since it is a transfer of land which is not a supply as per Schedule III of the CGST Act.

B) GST is applicable.

C) GST is not applicable since Mr. X is not receiving any consideration in money.

D) Both A&C above.

Weekend MCQ 16.2: Which among the following is correct in relation to the time of supply GST in Que No. 1 above?

(A) GST is to be paid at the time of transferring development rights

(8) GST is to be paid at the earliest issue of invoice or date of payment.

(C) GST is to be paid at the time when the builder will provide the possession of flats to Mr. X

(D) GST is not applicable in this case.

Weekend MCQ 163: Which among the following is correct in relation to GST applicability on construction services provided by the developer to

A) GST is not applicable since the consideration is received after the issuance of the completion certificate,

B) GST is applicable

C) GST is not applicable since ABC is not receiving any consideration in money

Dj Both A&Cabove

Weekend MCQ 16.4: Which among the following is correct in relation to the time of supply GST in Que No. 3 above?

(A) GST is to be paid at the time of construction in the form of a continuous supply of service.

(B) GST is to be paid at the earliest of issue of invoice or date of payment.

(C) GST is to be paid at the time when the builder will provide the possession of flats to Mr. X.

(D) GST is not applicable in this case.

Weekend MCQ 16.5: What will be the value of supply?

(A) Open market value of such supply,

(B) Sum total of consideration in money and any such further amount in money as is equivalent to the consideration not in money

(C) Value of supply of goods or services or both of like kind and quality.

(D) Either A, B, or C depending on the cases

Answer MCQ Self Challenge #016

This post of #MCQ is on the provisions relating to GST applicability on joint development agreements.

To understand the provisions related to joint development agreement under #GST, I have divided the provisions into 3 categories-

Answer to MCQ 16.1: B)

Answer to MCQ 16.2: C)

Answer to MCQ 16.3: B)

Levy of GST-Practical Analysis for MCQ 16.1 & 16.3

1: a) Taxability of Transfer Development Rights (TDR) a) Transfer of land development rights by the landowner to the builder-developer:-

TORS being a benefit arising from the land, thus the same shall be considered as a benefit arising out of immovable property as defined under Section 3(26) of General Clause Act, 1987, therefore the same is neither taxable under the Service Tax Law nor taxable under the VAT regime. Now, as per entry no. 5 of Schedule-III to the CGST 2017, only the sale of land and buildings is neither a supply of goods nor a supply of services. Thus, it needs to be clarified by the Government whether the benefit arising out of such land and building would be covered under the ambit of entry no. 5 of Schedule -III to the CGST, 2017. As per Notification No. 4/2018-Central Tax (Rate) dated 25th January 2018(discussed below), the government intends to tax the same and does not want to cover the same under entry no. 5 of Schedule III

1. b) Construction service provided by the builder/developer

The builder/developer receives consideration for the construction service provided by him from two categories of service receivers:

1. from the landowner, in the form of land/development rights:

In this case, the builder/ developer has already received the consideration in the form of a transfer of development rights prior to the issuance of the completion certificate by the competent authority, The same will not covered under entry no. 5 of Schedule II which provides that in the case

where entire consideration received after issuance of the completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier shall not be a supply of goods or services.

2. from other buyers:

In this case. If the builder-developer receives any consideration prior to the issuance of the completion certificate by the competent authority. then the same is taxable as per entry no. 5 of Schedule II.

• Based on the above analysis correct answer to MCQ 16.1:B) GST is applicable

•Correct answer to MCQ 16.3: B) GST is applicable

Answer to MCQ 16.2: C)

Answer to MCQ 16.3: B)

Answer to MCQ 16.4:C)

Time of Supply - Practical Analysis for MCQ 16.2 & 164

• Section 13 of the CGST Act, 2017 deals with the provisions relating to the determination of time of supply of services.

The time of supply shall be

1. Date of issue of invoice or the date of receipt of payment whichever is earlier

2 in cases where the invoice is not issued within 30 days of completion of service, it shall be the date of completion of service or the date of receipt of payment whichever is earlier

3. In cases where the time of supply cannot be determined as per the above two clauses, then it shall be the date on which the recipient shows the receipt of services in his books of accounts

• It may be observed that the builder would not be raising any invoice and would not claim any payment from the landowner. The service being provided by the builder is a continuous supply of service. It may be observed that clauses (a) and (b) of sub-section (2) of section 13 are not applicable in this case as neither any Invoice is raised by the builder on the landowner, nor any payment received. As per clause (C) the time at which the landowner shows the receipt of service in his books of accounts would be the time of supply. If the landowner is retaining such units for his own use, he would recognize the same as his capital assets and if the landowner is going to again sell such units, he would recognize the same as his stock in trade. So it can be taken that the builder would be able to pay GST at the time when the landowner recognizes the receipt of units from the builder. However, from the builder's point of view, it would be very difficult to conclude when the landowner recognizes receipt of service. Thus the determination of the time of supply was no less than a mystery
  
• These confusions have been resolved by Notification No. 4/2018-Central Tax (Rate) dated 25th January 2018 The clarification brought out in this notification is similar to what existed in the Pre-GST Era. As per the notification, the time of supply in case of the issue of development rights and construction services in its consideration shall rise 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)
  
• Based on the above analysis, the correct answer to MCQ 162: (C) GST is to be paid at the time when the builder will provide the possession of flats to Mr. X
  
• Correct answer to MCQ 16. 4 : (C) GST is to be paid at the time when the builder will provide the possession of flats to Mr. X
  

Answer to MCQ 165:D)

Value of Supply-Practical Analysis for MCQ 16.5

• Now comes the valuation aspect, which is given under Section 15 of CGST Act 2017 read with Rule 27 to 35 of CGST Rules. It is pertinent to note that there is no explicit provision as regards the valuation that's given to the land owner under the joint development agreement,
• Consequently, the most appropriate Rue is to be applied. Rule 27 of CGST rules states that where the value of supply of goods or services is for a consideration not wholly in money, the value of supply shall be the open market value of such supply if the open market value is not available, it will be determined as total consideration received in money or its equivalent. Its value cannot be determined by this formula, it will be the value of the supply of like goods/services
• Based on the above analysis, correct answer to MCQ 16.5 (D) Either A, B, or C depending on the cases

(Disclaimer: The objective of the MCC post is just to discuss the concept. It may happen, by change of facts, the answer may be different. Please do not treat this as professional opinion: you can definitely have your own opinion)

Sincere Regards

CA Sanjay Kumar Agrawal

Mobile: 9810116321 , WhatsApp: 8799772245