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Collaboration by developer with land owner for developement and sale of property is neither a composite supply nor an exempt supply. It is a taxable service in GST : says AAAR

Appeal dismissed by AAAR

Facts of Case are

a) Appellant is “Maarq Spaces Private Limited” a private limited company engaged in the business of property development.

b) Appellant has entered into a Joint Development Agreement (JDA) with Land Owner for development of land into residential layout along with specifications and amenities. Cost of development shall be borne by the appellant.

c) Consideration was agreed on revenue sharing basis in the ratio of 75% [for Land Owners] and 25% [for Developer / Appellant].

d) Issue under appeal is that whether the 25% consideration received by appellant is exempt under GST?

Arguments placed by the appellant are:

a) That there is nothing in JDA which give rise to the contention that appellant had agreed to supply any service to the Land Owners.

b) That the law recognizes the “recipient” as the person who is liable to pay consideration and that there is no such clause in the JDA, which fixes the responsibility on Land Owners to pay the consideration to the Appellant for development of land;.

c) That it is agreed by the appellant that, irrespective of sale of plots of not, Appellant should complete the development work within the specified time.

d) That, JDA is also silent about the consequences of unsold plots, as to whether Land Owners are liable to pay any consideration to the Appellant or not. Therefore, in the absences of consideration flowing from Land Owners, it cannot be construed that, Appellant had agreed to execute work to the Land Owners for consideration.

e) That the transaction in terms of the JDA is a composite supply where the principal supply being the sale of land is outside the purview of GST in terms of entry 5 of Schedule III of the Act. Therefore the consideration of 25% received by the appellant is not taxable under GST.

f) That appellant has not provided any services to land owners. Appellant submitted that he is actually the 25% beneficial owner of the property and sale of property is not subject to GST.

Held by AAAR

When we examine the provision of what constitutes a 'composite supply' as defined in Section 2(30) of the CGST Act, we find that composite supply means a supply made by a taxable person to a recipient

  • consisting of two or more taxable supplies of goods or services or both, or any combination thereof,
  • which are naturally bundled
  • and supplied in conjunction with each other
  • in the ordinary course of business, one of which is a principal supply.

In the instant case there are two activities involved, viz: development of land and sale of plots. The transaction relating to the sale of land is not a supply of either goods or service under GST (entry 5 of Schedule III of the CGST Act refers). This activity of sale of land cannot be considered as an 'exempt supply' for the reason that the activity is not at all a supply and hence the question exempting it under Section 11 of the Act does not arise. On the other hand, the activity of development of land is a supply in terms of Section 7 of the CGST Act. A combination of two activities one of which is not a supply under GST cannot be said to be a composite supply. We therefore, disagree with this contention of the Appellant.

The Appellant also contended that there is no supply of any service by him to the landowners; that the JDA has been executed with a mutual agreement by both the parties to jointly develop the land and share the revenues out of the sale of land. In real estate transactions involving plotted development, one party owns the land and another party has the expertise to develop the land. The two parties come together with the common intention of developing the land and sharing the revenue accruing for the sale of the developed plots in the land. However, the landowners give the rights of using the land to the developer in exchange for which, the developer gives the service of developing the land of the owners. While the Joint Development agreement is entered into for the two parties to jointly reap the benefits of the sale of the land to customers, there is a clear rendering of a service by the developer to the landowner in developing the land which belongs to the landowner. Therefore, we hold that the activity of developing the land is a supply of service by the Appellant.

We uphold the order passed by the Advance Ruling Authority and the appeal filed by the appellant stands dismissed on all accounts.

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Posted by


on May 20, 2020


By: Nikhil Makkar | Dt: May 21, 2020

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