Telangana AAR: Sale of land with civil structures attracts GST

The Telangana Authority of Advance Rulings (AAR) has issued an advance ruling related to the land sale.

As per the ruling, taxpayers must pay GST on land if any civil structures, complexes, or buildings are erected. The AAR passed the ruling in the case of M/s TIF Integrated Industrial Parks Pvt. Ltd. Industrialists set up the company upon the directions of the Telangana State Industrial Infrastructure Corporation Limited (TSIIC). 

The end goal of the TSIIC is to provide the industrial infrastructure through land development that is acquired by the TSIIC and acts as a special purpose vehicle. In May 2018, the advance ruling applicant informed that the TSIIC allotted 377 acres of land on the Vijayawada highway at Rs.55.11 crore for developing the industrial corridor. 

It issued the final allotment letter and executed the sale agreement with the applicant in June 2018. Once the applicant completes the internal infrastructure, the sale deed will be signed with the TSIIC. Further, the applicant has the authorisation to sell developed plots to its industrialist allottees once they begin commercial operations through sale deeds.

There were a couple of questions raised by the applicant before the AAR. Firstly, there was an issue about the taxability of selling developed land plots to allottees out of the TSIIC’s land agreed for sale. These land plots were obtained from the TSIIC for industrial development. The applicant opined that GST exemption is available as the activity falls under Entry 5 of the Schedule III of the CGST Act, 2017. The applicant also quoted provisions of the corresponding amended Telangana Goods and Services Tax Act, 2017.

The second issue was to decide whether or not ‘infrastructure development of land’ qualifies as ‘supply’ under the GST law if the TSIIC provides it. The same is taken up on behalf of allottees, being industrialists. The applicant argued that this does not attract provisions of “supply” under Section 7 of the CGST Act, 2017 and corresponding amended Telangana Goods and Services Tax Act, 2017. Therefore, it will remain outside the scope of the GST law.

The Telangana AAR bench ruled that if the applicant disposes of land after erecting civil structures or buildings or complexes, it is liable to GST under the law. However, such land is sold as it is without developing it. It gets covered under Entry 5 of Schedule III, read with Section 7(2) of the CGST Act, 2017 and is exempt from GST. It further elaborated that if a works contract is also included in the sale agreement between the TSIIC and the applicant, then GST gets attracted. Whereas no other service elements in the contract pertaining to construction activity, no GST is levied.

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