ITC Availed is to be reversed on pro-rata basis for plots sold after issuance of completion certificate: AAR of Kerala

Categories: Advance Ruling
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Facts: M/s. PPD Living Spaces Pvt. Ltd. is executing a layout development project ‘Emerald Hills’. They have converted eleven acres of property into residential plots with the facility of paved roads up, water and electricity supply to each plot, water drains, trees, party hall, health club, play courts, compound wall etc. Total cost of plot is divided as cost of land and cost of development. Land component consists of cost of actual area of each plot and cost of undivided share of land in common area. Undivided share in common areas including roads and common facilities will be transferred to the Association through a sale deed.

Issues Involved: The petitioner is before the Kerala Authority for Advance Ruling (“the AAR”) for getting Ruling in respect to following:

  1. i) Is it correct to structure agreement by fixing the land cost by absorbing the development charges?
  2. ii) Whether the ITC availed has to be paid back on pro rata basis, on plots sold after completion?

Held: The Hon’ble AAR of Kerala vide Advance Ruling No. KER/ 20 /2018 dated September 26, 2018 stated as follows:

  • As per Paragraph 5 of Schedule III of the GST Act, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building shall be treated neither as a supply of goods nor as a supply of service.
  • As per Paragraph 5 (b) of Schedule II, construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required by the competent authority or after its first occupation, whichever is earlier shall be treated as a supply of services.

Hence the sale deed executed for plot as well as undivided share in common area attracts only stamp duty and registration charge. The Input Tax Credit availed in respect of the GST paid on goods and/ or services used / consumed for the development of the land is liable to be reversed on pro rata basis in respect of the plots sold after the issuance of completion certificate.

In view of supra observation, the following rulings were issued:

i) It is lawful to structure agreement by fixing the land cost after absorbing the development charges.

ii) The Input Tax Credit availed in respect of the GST paid on goods and/or services used/consumed for the development of the land, in respect of the plots sold after the issuance of Completion Certificate is liable to be reversed on pro rata basis.

Citation: [2018] 98 taxmann.com 158 (AAR-KERALA)

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