The Authority for Advance Rulings (AAR), Telangana, has dominated that sale of land wouldn’t draw items and providers tax (GST) until there’s a works contract in the settlement between the vendor and purchaser.
A works contract is actually a contract of service that will additionally contain provide of products in the execution of the settlement.
It is mainly a composite provide of each providers and items, with the service component being dominant in the contract between events.
The authority dominated in a case associated to an settlement between TIF Integrated Industrial Parks (TIFIIP) and the Telangana State Industrial Infrastructure Corporation (TSIIC), stated Sandeep Sehgal, director, tax and regulatory, AKM Global, a tax and consulting agency.
TIFIIP is an organization fashioned by industrialists as required by TSIIC as a particular function car (SPV) representing the member industrialists. It has an goal of offering industrial infrastructure by improvement of land acquired by the company. TSIIC issued a last allotment letter for 377 acres of land for Rs 55.11 crore on Vijayawada Highway to arrange an industrial hall.
A sale settlement was executed between TIFIIP and TSIIC, however a sale deed will be executed upon completion of improvement of inner infrastructure.
Similarly, TIFIIP is authorised, in flip, to promote items of land to particular person industrialists after every of the allottees commences business operation by executing particular person sale deeds.
TIFIIP sought to know from AAR whether or not the sale settlement would draw GST.
AAR dominated that the exercise undertaken by the applicant for building on the immovable property would qualify to be a “works contract” whether it is executed in pursuance of a contract or settlement; there’s switch of property in the execution of works contract from the contractor to the contractee; and there’s a consideration paid by the contractee to the contractor.
AAR stated perusal of the contract entered by the applicant with the TSIIC clearly indicated that the property in land will be transferred to the applicant solely when the TIFIIP completes the event of infrastructure of scheduled land. However, this clause in the settlement seems to have been made to satisfy the bigger goal enumerated in the commercial coverage of the state.
Though there’s a contract for improvement of the land, the opposite situations – switch of property from the applicant to the TSIIC and cost of consideration by TSIIC to the applicant – haven’t been fulfilled.
As such, there wouldn’t be any GST in this deal, it dominated.
However, if the applicant sells the land after growing it by means of erecting a civil construction or a constructing or a fancy, then such provide is liable to tax underneath GST legal guidelines.
Sehgal stated, “Telangana AAR has looked into the substance of the transaction and held that the essential element of a transaction is the sale of land and it will not be subject to GST.”