NEW DELHI: The issue of goods and services tax (GST) on services related to redevelopment projects by cooperative societies is on the agenda of the GST Council meeting on October 7.
Sources say the issue is unlikely to be discussed in the meeting. As per highly placed sources, the Group of Ministers (GoM) formed in 2019 to address real estate issues has not yet submitted its report to the Council. The issue is expected to be deferred once again, as it has been in the past.
“High chances are there that the issue of imposing GST on services related to redevelopment projects by cooperative societies will not be taken up in the meeting on Saturday, as the GoM hasn’t yet submitted its report to the Council,” a highly placed source told this newspaper. The issue has been contentious as experts say the GST can’t be levied on transfer on development rights. As per them, Schedule 3 of the CGST Act says land and buildings are neither goods nor services, hence going by this rule, transfer of development rights should not be made subject to GST.
“The moot point before the court is whether transfer of development rights is akin to sale of land and hence should be excluded from the purview of GST. The issue is whether a notification could prescribe the point of taxation to tax something that is not taxable as per the statutory framework”, said Abhishek A Rastogi, founder of Rastogi Chambers, who is arguing matters on this issue before high courts. “The effect in most of the joint development agreements is that the part of the land gets transferred from the land owner to the developer and hence the basic objective is the barter of transfer of land with under construction services”, added Rastogi.
Service tax has been paid at the time of transfer of property, hence at the time of supply of redeveloped flats for free, no GST should be levied, argue experts. Pritam Mahure, GST expert, quoted Vasantha Green case (Vasantha Green Projects vs. CCT), where the Hyderabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that service tax can’t be imposed on the consideration received from land owners in the form of land rights. This decision was made as the cost of acquiring land had already been subject to service tax from prospective buyers.