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Joint Development Agreement (JDA): Landowner’s Share – ITC And Time of Supply

Amendment In 43rd GST Council Meeting And Notifications Dt. 02.06.2021

  1. In an Area Sharing Joint Development Agreement:
  • Landowner transfers development rights of their owned land to Developer and 
  • The developer develops and constructs superstructure inter-ala for the landowner on the Landowner’s share of Land.

2. GST is chargeable on such construction service provided by the Developer to the Landowner.

3. Time of Supply: 

  • Until now, GST law provided that Developer is liable to pay GST on construction service provided to the landowner in lieu of Development Rights at the time of issuance of Completion Certificate (CC) or first occupation (OC), whichever is earlier.
  • If Landowner further sells such allotted area (Flats) to other intended buyers before issuance of CC/OC, he is required to raise an invoice and charge GST as when payment is due from the buyer.

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4. Accumulation of ITC 

  • Since Landowner has to pay tax as and when payment is due from its buyers, he has to pay tax in Cash (if the time of supply arises i.e. payments due from buyers prior to CC).
  • If the Developer raises an invoice and charges GST at the time of CC or First Occupation, it will result into the accumulation of ITC in the hands of the Landowner.

5. Even prior to this present amendment under discussion, the Author have been suggesting in such a situation that the Developer may charge and pay GST in advance i.e. even prior to the date of issuance of CC/first occupation [with due intimation to the department about the same] to eliminate the issue of accumulation of ITC in the hands of Landowner.

6. Now like Author’s suggestion, the Government has made an amendment vide N.NO. 3/2019-CT(R) dt. 02.06.2021 that the Developer can pay GST on the construction service provided to Landowners at any time on or before issuance of CC/OC.

  1. In Author’s view, it is mere a clarificatory amendment to remove the technical ambiguity of literal interpretation of Notification No. 06/2019 -Central Tax (Rate) dated 29.03.2019.

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Utilization of ITC by Landowner for payment of tax liability on Residential Apartments

8. Entry No. 3 of tax rate Notification No. 11/2017-CT(R) have a condition in case of residential apartments that tax has to be paid through Cash only. Considering the technical language of the Notification, someone may literally interpret that although Landowner can avail the credit of GST charged by Developer but he is required to pay output tax on the sale of such residential Flats through Cash only.

9. Although in the Author’s view, earlier also this was not the intent of the Government as it has specifically allowed the credit to Landowner. Now, through an explanation inserted vide N.No 2/2021-CT(R) dt. 02.06.2021, the Government has clarified this aspect that Landowner can utilize the ITC of tax charged by Developer to pay its outward tax liability on such residential apartments. The explanation inserted is quoted below:

“the landowner-promoter shall be eligible to utilize the credit of tax charged to him by the developer promoter for payment of tax on apartments supplied by the landowner promoter in such project.”

Read the copy in pdf:

Joint Development Agreement (JDA): Landowner’s Share – ITC And Time of Supply.

 

Profile photo of Adv. Pawan Arora Adv. Pawan Arora

Adv. Pawan Arora, Partner at Athena Law Associates Experience of Advisory and Litigation of GST, VAT, and Service Tax to more than 25 Reputed Real Estate and Infrastructure Construction Companies. 10 Years of relentless and steady experience of Advisory and Litigation in GST and other Indirect Taxes and handled matters of clients from diverse industries and field of specialization is Indirect Taxes.

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