AAR: Transfer of Development Rights by Land-Owner To Promoter Under JDA Taxable On Completion-Date

taxsutra All rights reserved
AAR: Transfer of development rights by land-owner to promoter under JDA

taxable on completion-date
Sep 08, 2021
In the matter of Thiru Neelakanta Realtors Ltd. Liability [TS-470-AAR(TN)-2021-GST]
Conclusion
Tamil Nadu AAR rules on valuation for transfer of development rights (TDRs) under a
Joint Development Agreement (JDA) as per agreement entered into between the Builder/Promotor
(Applicant) and land-owner for developing property in terms of Para 2A of Notification No. 03/2019-CTR
dated March 29, 2019; Apprising that owners have vested the rights to develop the immovable property
owned by them, into a residential apartment, with the Applicant, discards Applicant’s contention that this
para would not be applicable to this transaction as it does not involve TDRs; Notes that applicant,
engaged in the business of providing works contract and construction services entered into a
Joint Development Agreement (JDA) for construction of apartments with Owners whereby it is obliged to
construct 5133 sq. ft. of saleable area in entirety, out of the total area constructed, as also the applicant
will also pay a sum of Rs. 20,00,000 to the owners, in addition to the flats allotted to them; As a
consideration towards construction of the property by the applicant, owners agree to
convey/transfer 953.33 sq.ft. of Undivided Share Of Land (UDS) to the applicant or its nominees; Further
notes that the owners have transferred the UDS and also engaged the applicant to develop the property
into apartments comprising of 3 flats and thus “applicant is vested with the responsibility of developing
the land into apartment for which by the clauses of JDA, the applicant gets a share of UDS in the land and
right to construct an area of 1711 sq. ft.”; In rebuttal to this contention, the Authority perusing Para 2A of
Notification 03/19, the definition of the term ‘development’ as per ‘The Real Estate (Regulation
and Development) Act, 2016, examines what does ‘development rights’ means and studies the JDA;
Observes, “there is a transfer of development rights from the owners to the applicant in as much as the
owners approached the applicant to develop the property….consideration has been the transfer of UDS
of land….the entire work of developing the residential complex has been vested with the developer by
the owners”; By the same token, considers decision of GST Council at its 34th Meeting regarding GST
rate on real-estate sector as well as provision notifying class of persons receiving development rights for
construction against consideration payable in form of construction of commercial or residential
apartments and infers that “the time of levy would be the date of issuance of completion certificate by
the competent authority or the date of first occupation and not the date on which such rights to develop
is transferred or the date on which the agreement to develop is entered into.”; From this perspective, in
present scenario concludes that “applicant though had entered into the JDA with the landowners, who are
unregistered before September 2019, when the clause 2A of the Notification No. 11/2017- C.T. (Rate)
dated 28.06.2017 as amended, was amended to ‘person’ instead of ‘registered person’, the time of
supply in the case at hand falls after such amendment only…..the developer being the taxable person
would be liable to pay the tax on such date of completion”; Furthermore, holds that applicant has to
adopt the value as per Para 2A to Notification and liability to tax arises on date of issuance
of completion certificate for this project or the date of first occupation and relies on answer to Q.26
in FAQ (part-II) dated May 14, 2019 to corroborate its findings; Clarifies that even if the actual cost of
construction of services is known, inferring “there being no choice of adoption of any other value”, holds
that valuation as prescribed in Para 2A is squarely applicable:AAR TN
Decision Summary
The order was passed by Thiru Senthilvelavan B. (Member- Centre) and Smt. T. Padmavathi (Member-
State).
GSTsutra Note
Para 2A inserted vide Notification No. 03/2019-CTR dated March 29, 2019 prescribed that the value of
construction in respect of such apartments shall be deemed to be equal to the total amount charged for
similar apartments in the project from the independent buyers, other than the person transferring
Downloaded by yogesh.gaba@gabaco.in at 09/09/21 09:40am

the development rights/Floor Space Index.

Case Law Information
Appellant/Applicant/Complainant Name
• Thiru Neelakanta Realtors Ltd. Liability
Authority Level & Location

• Authority for Advance Ruling Tamil Nadu
Appeal Number
• 33/ARA/2O21
Date of Pronouncement
• 2021-08-17
Ruling in favour of
• Not Applicable
Judges
• B. Senthilvelavan
• T. Padmavathi, Judicial Member

AUTHORITY FOR ADVANCE RULING, TAMILNADU

DOOR NO.32, INTEGRATED COMMERCIAL TAXES OFFICE COMPLEX
sTH FLOOR, ROOM NO. 5O3, ELEPHANT GATE BRIDGE ROAD,
CHENNAI -600 OO3.
PROCEEDINGS OF THE AUTHORITY FOR ADVANCE RULING U/s.98 OF THE
GOODS AND SERVICES TAX ACT,2OL7.
Members present are:
1. Shri B. Senthilvelavan, LR.S., Additional Commissioner/Member,
Office of the Principal Chief Commissioner of GST & Central Excise, Chennai -34
2. Tmt.T.Padmavathi, Joint Commissioner (ST)/ Member,
Office of the Authority for Advance Ruling, Tamil Nadu, Chennai-6.
ORDER No. 33/ARA/2O21 Dated: 17.O8.2O21'
GSTIN Number, if any / User id 33AAHFTS92OFT26
Legal Name of Applicant THIRU NEELAKANTA REALTORS LIMITED

LIABILITY
Trade Name of the Applicant THIRU NEELAKANTA REALTORS LIMITED

LIABILITY
Registered Address / Address No 17/35,Second Main Road, Gandhi Nagar,

provided while obtaining user id Adyar, Chennai-600090
Details of Application Form GST ARA-01 Application
S1.No.0 1 /202 1 ARA dt.O3.O2.2O2I
Concerned Officer Centre: Chennai South Commissionerate
State:
Nature of activity(s) (proposed /

present) in respect of which advance
ruling sought for
A Category Works Contract
B Description (in brief) The applicant is engaged in the business of
providing works contract and construction
services.
Issue/s on which advance ruling i. Applicability of a notification issued under
required the provisions of this Act
ii. Determination of time and value of supply
of goods or services
Page 1 of 20

Question(s) on which advance ruling 1. Whether paragraph 2A of Notification No.

is reouired 03/2oIg-Central Tax (Rate) dated 29tr'March,
2079, is applicable to those agreements
entered on or before 29tt' September 2019
with unregistered persons?
2.lf the answer to question (1) is affirmative,
whether Notification no O312O1,9-Central Tax
(Rate) dated 29ft March, 2OI9 is applicable,
when the actual cost of construction of
services are known?
3. If the answer to the question (1) or (2) is
negative, which valuation rule is applicable
for identifying the value of supply for
construction services rendered?
4. What will be the value of supply, in case,
Applicant adopts Rule 30 of CGST Rule,
2017?
5. What will be the value of supply, in case,
Applicant adopts Rule 31, instead of Rule 30
of CGST Rule, 2017 in terms of proviso to
Rule 31 of CGST Rules?
6. Whether paragraph 2A of Notification no
03/20 19-Central Tax (Rate) dated 29th
March, 2079, is ultravires Section 15(5) of
CGST Act, 2OI7 and hence is inapplicable
until there is prescription of rules in terms of
Section 15(5) read with Section 2(87) of CGST
Act.2017?
Note: Any appeal against the Advance Ruling order shall be filed
before the Tamil Nadu State Appellate Authority for Advance Ruling,
Chennai under Sub-section (1) of Section lOO of CGST ACT/TNGST Act
2OL7 within 3O days from the date on which the ruling sought to be
appealed against is communicated.
At the outset, we would like to make it clear that the provisions of both
the Central Goods and Service Tax Act and the Tamil Nadu Goods and
Service Tax Act are the same except for certain provisions. Therefore,
unless a mention is specifically made to such dissimilar provisions, a
reference to the Central Goods and Service Tax Act would also mean a
reference to the same provisions under the Tamil Nadu Goods and
Service Tax Act.
Page 2 of 20

M/s Neelakanta Realtors LLP, 17/35, Second Main Road, Gandhi Nagar,
Adyar, Chennai-600090 (hereinafter called the Applicant') is registered under the
GST Vide GSTIN 33AAHFTB92OFIZ6. They have sought Advance Ruling on the
following questions:
1. Whether paragraph 2A of Notification No. 03l2o19-Central Tax
(Rate)dated 29ft March, 2OI9, is applicable to those agreements entered on
or before 29tt'September 2079 with unregistered persons?
2. If the answer to question (1) is affirmative, whether Notification no
03/2olg-Central Tax (Rate) dated 29th March, 2OI9 is applicable, when the
actual cost of construction of services are known?
3. If the answer to the question (1) or (2) is negative, which valuation rule is
applicable for identifying the value of supply for construction services
rendered?
4. What will be the value of supply, in case, Applicant adopts Rule 30 of
CGST Rule, 2017?
5. What will be the value of supply, in case, Applicant adopts Rule 31,
instead of Rule 30 of CGST Rule. 2017 in terms of proviso to Rule 31 of
CGST Rules?
6. Whether paragraph 2A of Notification no 03/2019-Central Tax (Rate) dated
29th March, 2019, is ultravires Section 15(5) of CGST Act,2OI7 and hence is
inapplicable until there is prescription of rules in terms of Section 15(5) read
with Section 2(B7l of CGST Act,2017,
The Applicant has submitted the copy of application in Form GST ARA - O1 and
also submitted a copy of Challan evidencing payment of application fees of
Rs.5,000/- each under sub-rule (1) of Rule 104 of CGST rules 2017 and SGST
Rules 2077.
2.1 The applicant has stated that they are incorporated under the Limited
Liability Partnership Act, 2008 and they are engaged in the business of providing
works contract and construction services. They had entered into a Joint
development agreement ("JDA" for short) with K. Alamelu and N. Rama
( Hereinafter referred as "owners") who are the owners of the property measuring
2860 sq.ft situated at, 2nd cross street, Shastri Nagar, Adyar, Chennai - 600020
for construction of apartments. The applicant has stated that the owners
approached them for developing the property and entered into an agreement for
this purpose on 17th day of April 2OI9. They have furnished copy of the JDA,
Page 3 of 20

containing the details of property, other terms and conditions between the
owners and the Applicant. Some of the key terms of the JDA, that are significant
for the questions raised in the application are reproduced for reference below:
entirety;
area measuring 3422 sq.ft,

representing two flats will be allotted to the owners(each flat comprising
1711 sq. ft of constructed area);
Rs. 20,OO,0OO to the owners, in

addition to the flats allotted to them:
Ba-lance 1711 sq.ft of saleable area representing one flat will be allotted
to the Applicant or its nominees;
Applicant, owners agree to convey / transfer 953.33 sq.ft of undivided

share of land to the Applicant or its nominees;
purchasers;
from the appropriate authorities for carrying out the construction;
only by the Applicant and that the owners are not obligated to contribute
any sum of money including costs incurred for obtaining necessary
approvals from authorities;
conveying undivided shares are registered
The applicant has stated that as on date, pending minor works, the construction
work for the owner's portion is substantially completed in all aspects. The
transaction will be complete in all aspects, in terms of the JDA, once the key is
handed over to the landowners.
2.2 On interpretation of law, the applicant has submitted that, Paragraph 2A in

Notification no /2Ol9-Central Tax (Rate) is applicable only when a registered
03
person transfers development right. They have further stated that paragraph 2A
Page 4 of 20

was arnended vide Notification No. 2O/2O19- Central Tax (Rate) dated 30tt'
September, 2OI9, wherein, the word 'registered' mentioned in Notification no
O3/2}Ig-Central Tax was omitted.: it is evident from the above that, for the
period commencing from 29th March 2019 until 29tt'September, 2019, paragraph
24. was applicable only to a registered person transferring development rights;
however, with effect from 30th September, 2OI9, paragraph 2.{ was applicable to
any person transferring the said development rights. The applicant is of the view
that, Notification no.O3/2OI9- Central Tax (Rate) dated 30th March, 2OI9,
prescribing a notional value of construction service is not applicable to the
Applicant's case since the actual cost of construction is very much available.
They have also stated that Notification no O3/2Ol9-Central Tax (Rate) dated
29ft March 2019 is not applicable until rules are prescribed in terms of Section
15(5) of CGST Act 2OI7. They have submitted that, there is no power for the
government to notify the value of supply under Section 15(5) of CGST Act, 2017.
Value of supply can be prescribed only via rules. Further for exercising powers
conferred u/s 15(5), government must do the following
a. Government has to first notify the nature / class of supplies for which
rule has to be prescribed; and
b. For the above notified service, value has to be determined in the manner
as prescribed by the rules
However, Notification no O3/2019-Central Tax (Rate) prescribes both the

nature and manner of determination of value of construction service, which
is clearly beyond the powers conferred by Section 15(5) of CGST Act,2OI7.
Further, there are no rules prescribed in respect of construction services
provided in lieu of development rights. Considering the above submissions,
the Applicant has submitted that, Notification no O3/2O19- Centrai Tax
(Rate) is ultra vires Section 15(5) of CGST Act, 2017 and consequently
Applicant has to resort to valuation rules.
2.3 In view of the facts, the applicant has stated that Notification no O3/2O19-
Central Tax (Rate) is inapplicable to the instant case and the Value of supply for
the services provided by them have to be the cost of construction plus 1-Ooh or
actual cost of construction in terms of Rule 30 or 31 of CGST Rules. 2Ol7 as the
case may be.
Page 5 of 20

3.1 Due to the prevailing pandemic situation and in order not to delay the
proceedings, the applicant was addressed through the email address mentioned
in their application to seek their willingness to participate in the digital hearing
vide email dated IO.O2.2O27. The authorized representative appeared for the
hearing virtually on 19.O2.2021. On admissibility of questions it was informed that
Q.No.6 raised by them is not admissible and the saine was accepted. They
reiterated the submissions made in their application and also stated that the
construction service has been availed by them against UDS and not for TDR, FSI
and on this account the Notification No.03/2019 is not applicable to their case. The
AR undertook to furnish the Joint Development Agreement, paperbook (referred by
him), construction agreement with owners/others and the method of valuation
proposed by them with workings and proof.
4,7 In furtherance to the hearing held on I9.O2.2O21, the applicant submitted

the copy of agreement dt. I7.O4.2OI9 entered into between them and the land
owners Mrs Alamelu & Mrs Rama Swaminathan, for provision of construction
in lieu of UDS along with excerpts of relevant notifications, provisions of
services
law and the case law they relied upon. They further submitted the following
documents on 25.03.2021.
the proposed valuation to be adopted by the applicant
copy of actual cost incurred for construction service rendered by

them.
4.2 In their additional submissions the applicant has inter-alia stated as

follows;
03/2019
i. A person must transfer development right or FSI to a promoter;

ii. For transferring such development rights or FSI, land owner must
receive consideration in the form of constructed apartment;
Page 6 of 20

iii. For the construction services so rendered, value of supply shall be

total amount charged for similar apartments in the project from the
independent buyers;
iv. Based upon the value arrived in (iii) above, value of land can be
deducted as per paragraph 2;
v. In terms of paragraph2, value of land is presumed to be 1/3rd of
the total amount charged for such supply
A perusal of the agreement entered between them and the land owner
clearly indicates that, in consideration of the landowners agreeing to
convey proportionate share of UDS in favour of those who buy flats from
them (from out of Applicant's share of flats), specified number of flats
would be handed over by Applicant to the landowners.
Notification no O3/2O19 would become applicable if, and only if,
construction services are provided by the promoter to a land owner in lieu
of transfer of development rights. However, it is clearly evident from the
perusal of the agreement that, construction services are provided by
Applicant to the land owner(s) in lieu of the transfer of UDS by the land
owners.
Incidentally, for executing its obligation, the Applicant gets permission
from the land owner to enter the land and develop the sarne in the form of
constructed apartments. It is obvious that, without land owners
permitting the Applicant to enter the land and develop the property,
Applicant's obligation cannot be fulfilled. Merely because the land owners
permit the developers to enter the land, it cannot be construed that, land
owners have transferred development rights against consideration in the
form of the constructed apartments.
It is also important to note that, both parties to the agreement have to
fulfil / perform list of other obligations as specified in the agreement.
Each and every obligation / activity to be performed by the either parties
cannot be dissected and construed as rendition of separate service by
either parties. In other words, it is the substance and object for which
the parties enter into a contract, which is relevant in determining the
nature of service provided by either parties.
The applicant has relied upon the following case laws to substantiate
their contentions
i. M/s. Super Poly Fabrics Ltd Vs Commissioner Of Central Excise,
PageT of2O

Punjab
ii. Assam Small Scale Ind. Dev. Corp. v M/s J.D. Pharmaceutica,ls and
Another. 2005 (10) TMI 494-Supreme Court
4.3 Registry issued a letter dt. 72.O4.21 requiring the applicant to submit proof
of valuation and certified copy of valuation which were required to be submitted.
Applicant vide their letter dt.I4.O7.21 submitted a certified copy of valuation, CA
Certificate to substantiate veracity of cost workings and proof of valuation. They
also submitted that the delay in submission of documents was due to lock down
restrictions.
4.4 The applicant was addressed vide letter dt.28.O7.21 offering them another
Personal hearing in view of the change in the constitution of the bench due to
change in the state authority for Advance ruling. Accordingly another PH was fixed
on 10.08.21, wherein the authorized representative of the applicant,
Shri.J.Srinivasal, Tax consultant, appeared and reiterated their submissions.
Further he emphasized that the development rights have been transferred before
29tr'september 2O79 and as the owners are not registered, Notification no.3/2OI9
dt. 29.03.2019 is not applicable to their case. Decision of the Hon'ble Supreme
Court in the case of M/s. Wipro Ltd was referred wherein it has been pronounced
that whenever actual value is not ascertainable, notional value will not be
applicable; that the consideration is non-money and therefore sectionl5 (1) is not
applicable and valuation rules are to be applied; that Rule3O of the GST Rules is
applicable and as per the proviso, the service providers have been given the option
to follow Rule31 instead of Rule3O. They requested for a ruling on the value to be
adonted.
5.1 The Central Jurisdictional authority reported that there are no pending
proceedings on the issue raised by the applicant in their Advance Ruling
application.
5.2. The State jurisdictional authority has not furnished any comments and it is
construed that there are no proceedings pending on the issue raised by the
applicant.
6. We have carefully examined the statement of facts, supporting documents

filed by the Applicant, all the additional submissions made during the hearing and
Page 8 of 20

thereafter and the submissions of the Jurisdictional authorities. The applicant has
stated that they are incorporated under the Limited Liability Partnership Act, 2008
and they are engaged in the business of providing works contract and construction
services. They had entered into a Joint development agreement with K. Alamelu and
N. Rama who are the owners of the property measuring 2860 sq.ft situated at, 2nd
cross street, Shastri Nagar, Adyar, Chennai - 600020. The applicant has stated that
the owners approached them for developing the property and entered into an
agreement for this purpose on ITth day of April 2019. They are before this forum
for obtaining a ruling regarding the aspect valuation of the transaction and have
filed the application for the following questions: -
1. Whether paragraph 2Aof Notification No. 03/2019-Central Tax (Rate) dated

29ti'March,2OI9, is applicable to those agreements entered on or before
29th September 2OI9 with unregistered persons?
2. If the ernswer to question (1) is affirmative, whether Notification no
03l2O19-Central Tax (Rate) dated 2gthMarch, 2Ol9 is applicable, when the
actual cost of construction of services are known?
3. If the ernswer to the question (1) or (2) is negative, which valuation rule is
applicable for identitying the value of supply for construction services
rendered?
4. What will be the value of supply, in case, Applicant adopts Rule 30 of
CGST Rule. 2017?
5. What will be the value of supply, in case, Applicant adopts Rule 31,
instead of Rule 30 of CGST Rule, 2017 in terms of proviso to Rule 31 of
CGST Rules?
6. Whether paragraph 2A of Notification no 03 /2OI9-CentraI Tax (Rate) dated
29th March, 2079, is ultravires Section 15(5) of CGST Act, 2077 and hence is
inapplicable until there is prescription of rules in terms of Section 15(5) read
with Section 2(87) of CGST Act, 2OI7.
Of the above questions, Q.No.6 is not applicable under Section9T(2) of the CGST
Act, which has already been communicated to the applicant in the first Personal
hearing held on I9.O2.2O21 and accepted by the applicant. Hence the ruling in
respect of Questions 1 to 5 being sought on the applicability of notification issued
under the provisions of the CGST Act, 2OI7 and also on determination of time and
value of supply of goods or services or both is found admissible under the
provisions of the CGST Act, 2OI7.
Page 9 of 20

7.1 The Applicant is obligated to construct 5133 sq ft of saleable area in

entirety, out of the total area constructed; area measuring3422 sq.ft, representing
two flats will be allotted to the owners (each flat comprising 1711 sq. ft of
constructed area). The Applicant will also pay a sum of Rs. 20,00,000/- to the
owners, in addition to the flats allotted to them. Balance 1711 sq.ft of saleable
area representing one flat will be allotted to the Applicant or its nominees. As a
consideration towards construction of the property by the Applicant, owners agree
to convey transfer 953.33 sq.ft of undivided share of land ('UDS' for short) to the
/
Applicant or its nominees. Applicant may market its share to prospective
purchasers. Applicant is duty bound to obtain all the necessary statutory
approvals from the appropriate authorities for carrying out the construction. All
the costs in relation to the construction of the property shall be borne only by the
Applicant and that the owners are not obligated to contribute any sum of money
including costs incurred for obtaining necessary approvals from authorities.
Owners will continue to be title holders of the land until the sale deed conveylng
undivided shares are registered. From these facts stated by the Applicant, it is
seen that the owners have transferred the UDS and also engaged the Applicant to
develop the property into apartments comprising of 3 flats. The applicant has been
vested with the responsibility of obtaining necessary approvals and paying
necessary statutory fees and also bearing all cost incurred for such construction /
development. Further the owners have entered into a Joint Development
Agreement with the applicant. Thus it is seen that in the instant case, vide the
JDA, the applicant is vested with the responsibility of developing the land into
apartment for which by the clauses of JDA, the applicant gets a share of UDS in
the land and right to construct an area of 1711 sq.ft.
7.2 Applicant has stated that there should be transfer of development rights or
FSI to a promoter and for transferring such rights/FSl, land owner must receive
consideration in the form of constructed apartment. They have submitted that in
this case, in consideration to the landowners agreeing to convey proportionate
share of UDS in favour of those who buy flats from the applicant, specified
number of flats will be handed over to the land owners by the applicant. They also
have stated that the object and purport of the transaction was never to transfer
any development rights in lieu of construction services to be rendered by them.
Page 10 of 20

Hence they contend that the construction services are provided in lieu of the UDS
of land transferred and no transfer of development rights is involved as stipulated
in the notification no.3/19 cited supra. Further they state that such transactions
will fall in the purview of para 2A of the said notification if and only if there is
transfer of development rights.
7.3 The term development right has not been defined in the GST Law or the
notification issued in this regard. However as per The Real Estate (Regulation
and Development| Act, 2O16, Development is defined under Section 2(s) as
follows:
(s) "deuelopment" with its grammatical uariations and cognate expressiorts,

means carrging out the deuelopment of immouable property, engineeing or
other operations in, on, ouer or under the land or the making of ang material
change in ang immouable propertg or land and includes re-deuelopment;"
It is a general practice for the landowner to transfer development rights in the land
to the promoter. In lieu of such rights, along with the proportionate share in the
land, the developer provides money and/ or a fixed quantity of flats to the land
owner or share in the revenue from sale of the flats or combination of three. For
the construction services provided by the developer to the lardowner, the
landowner would not make any monetary payment to the developer, but only grant
development rights concomitant to the land coupled with the agreement to
transfer the proportionate land. The promoter would then be entitled to develop a
complex or an agreed number of flats on such land and be entitled to sell his
proportionate undivided share of land, remaining the proceeds from such sale.
Thus, Development Right (DR) refers to the rights that permit promoters to modify
or improve their property within the limitations of the law. These rights add value
to a property as they represent the development potential of the property. In case
of joint development agreement, the landowner transfers proportionate land
coupled with Development Right (DR) for construction. Generally, these two rights
cannot be separated and intention of the landowner is to transfer proportionate
FSIfor a consideration in the form of constructed flats/units., which has been
done in the instant case. The owners have transferred the UDS of land along with
the development rights as consideration for the construction. In this respect, Joint
Development Agreement dt. 17.O7 .2019 entered into between the land owners and
Page 11 of 20

the Applicant has to be analysed. The following is the extract of points agreed
upon:
" JOINT DEVELOPMENT AGREEMENT
E. The Ouners approached the DEVELOPER who has sufficient construction

expeience, knotuledge and expertise to deuelop the Schedule A propertg a
desired by the ou)ners in to a Residential Building complex (hereinafter
referred to as THE SAID BUILDING) and the DEVELOPER has agreed to
deaelop the schedule A propertg.
.P. Afier detailed study and planning, the DEVELOPER has agreed to
construct 5133 sq.fi of saleable area in the Schedule A property consisting of
stilt Jloor plus three floors, consisting of one flat per floor. All the approaals
cost and deuelopment cost shall be borne bg the deaeloper
NOW TITIS JOIMT DEVELOPMEMT AGREEMENT WITNESSETH AS

F{)LLOWS:-
2. The Deueloper herebg agrees that it usill at its outn cost and exoense
utill obtain approual for constntction from CMDA and Corporation of
Chennai and constntct the said building.......
6. In lieu of the DEVELOPER hauing agreed to constntct and allot flats as

mentioned aboue to the OWNER$ the OWNERS agree to conaegrtransfer
953.33 Sq.ft undiuided share of land in the Schedule A propettg to tLrc
DEVELOPER or their nominee/ s bg executing and registeing a power of
attorneg in fauour of the DEVELOPER or its nominee simultaneouslg upon
DEVELOPER obtaining approual from statutory authorities
B. The OWNERS shall atpoint of time be liable to contribute ang

no
monegs for or toutards tlrc constnrction of the building or ang part
thereof. The OWNERS shall also not be liable to pag any further money s to
the DEVELOPER on account of ang escalation in the cost of construction of the
Building.
9.Alt the cost incurred in obtaining necessary sanctions. oertnits and

approaals for the construction of ttrc neut buildiry shall be bo fu
the DEVELOPER. All expenses such as Architect fees, scruting fees, legal
Page t2 of 2O

charges, deuelopment charges, deposits, uector charges etc., shall be borne

bg ttrc DEVELOPER.
dutg, Registrdtion Fees

18. The Stamp
to the transfer of the Saleo}le undivided interest to the DEVELOPER
or its nominees sho'll be borne ba the DEVLOPER or its nominees."
Thus from the above conditions of the JDA, it is observed that there is a transfer of
development rights from the owners to the applicant in as much as the owners
approached the applicant to develop the property and the applicant agreed to it. The
consideration has been the transfer of UDS of land. Further the cost of construction
and a-11 statutory fees have been agreed to be borne by the developer completely and
also the stamp fee and registration fee are to be paid by the developer. The
developer has agreed upon to obtain all necessary approvals and permissions for
construction of the new building. Thus the entire work of developing the residentia-l
complex has been vested with the developer by the owners.
7.4 Pata 2A of the Notification provides the value to be taxed where a person
transfers development rights or FSI to a promoter against consideration and does
not limit itself to the transfer of development rights alone to be the taxable event as
stated by the applicant. Here in the instant case, the owners have vested the rights
to develop the immovable property owned by them, into a residential apartment,
with the applicant. So the contention of the applicant that this para would not be
applicable to this transaction as it does not involve transfer of development rights is
not sustainable.
8.1 The legal provisions as applicable is to be analyzed for clarity.

(i) Para 2A was inserted on 29.O3.2OI9 to the existing Notification
no.ll/2OI7-CT(Rate) dt.28.06.2OI7 which is as follows: -
"(iv) after paragraph 2, t!;'e following paragraph shall be inserted, namely, -
"2A. Where a registered person transfers development right or FSI (including
additional FSI) to a promoter against consideration, wholly or partly, in the
form of construction of apartments, the value of construction service in
respect of such apartments shall be deemed to be equal to the Total Amount
charged for similar apartments in the project from the independent buyers,
other than the person transferring the development right or FSI (including
additional FSI), nearest to the date on which such development right or FSI
Page 13 of 20

(including additional FSI) is transferred to the promoter, less the value of

transfer of land, if any, as prescribed in paragraph 2 above.".
(ii) Para2A was inserted vide notification no.3/2O19-CT (Rate) dt.

29.O3.2O19 and this notification has added Section 148 of the CGST Act in
the Preamble of the Notification No. 1I/2OI7-C.T.(Rate) dated 28.06.2017
along with Section 9(3),9(a), 11(1),15(5), 16(1) of the CGST Act. Section 148
of the Act is as below:-
" 148. The Gouernment may, on the recommendations of the Council,

and subject to such conditions and safeguards as mag be prescibed,
notifA certain classes of registered persons. and the special procedures
to be folloued bA such persons including those uith regard to
registration, furnishing of return, pagment of tax and administration of
such persons".
From the above, it is seen that Section 148 allows the Government, on the
recommendations of the GST Council, to notify a certain class of registered persons
and to prescribe special procedures with regard to payment of tax and
administration of such persons.
8.2 GST councilin its 34tt' Meeting decided as under:

"Decisions taken bg the GST Co iI in
T9thMarch. 2O79 reaarding GST rate on real estdte sector
Treatment of TDR FSI and Lang term lease for projects commencina
after O7.O4.2079
7. Ttrc follotuing treatment shall applg to TDR/ FSI and Long term lease for
projects commencing afi.er O 1. 04. 2 O 1 9.
7.1 Supptg of TDR, FSI, long term lease (premium) of land by a landowner to a
deueloper shatl be exempted subject to the condition that the constructed Jlats
are sold before issuance of completion certificate and tax is paid on them.
Exemption of TDR, FSI, long term lease (premium) shall be utithdrautn in case
of flats sold afier zssue of completion certifi"cate, but such uithdrautal shall be
limited to 7o/o of ualue in case of affordable houses and 5% of ualue in case of
other than affordable houses. This uill achieue a fair degree of taxation paity
between under construction and readg to moue property.
Page 14 of 20

7.2 The liabilitg to pay tax on TDR, FSI, long term lease (premium) shall be
shified fromland ouner to builder under the reuerse charge mechanism (RCM).
7.3 The date on uhich builder shall be liable to pag tax on fDB FS/, Iong term
lease(premium) of land under RCM in respect of flats sold afier completion
certificate is being shified to date of issue of completion certiftcate.
7.4 The liabilitgt of builder to oag tax on constntction of houses giuen

to land ouner in a JDA is ako being shifted to the date of completion."
Payment of Tax encompasses value to be adopted for payment of such tax

(measure) and time of payment of such tax (point of taxation). Vide Para 2A, the
value to be adopted for construction service in respect of apartment handed over to
the landowners against the development right received from such land owners are
prescribed and the Time of Supply is notified vide Notification No. 06 /2o79-Central
Tax (Rate), which is extracted below:
"Notification No. O6'^n79-Central Tax (Rate) dt. 29th March. 2O79
G.5.R....(E).- In exercise of the pouers conferred bg section 148 of the Central

Goods and Seruices Tax Act, 2017 (12 of 2017), , the Central Gouernment, on
the recommendations of the Council, herebg notifi"es ttrc follouing classes of
registered perso/Ls, namely : -
(i) a promoter wLn receiues deuelopment rights or Floor Space Index (FSI)
(including additional FSI) on or afier 1st Apil, 2019 for construction of a project
against consideration pagable or paid bg him, whollg or partly, in the form of
construction seruice of commercial or residential apartments in the project or tn
ang other fonn including in cash;
as the registered persons in uthose case the liability to pay central tex on,
(a) the consideration paid bg him tn the fonn of construction seruice of

commercial or residential apartments tn the project, for supplg of deuelopment
rights or FSI (including additional FSI);
(b) t|'Le monetary consideration paid bg him, for supplg of deuelopment ights or
FSI (including additional FSI) relatable to construction of residential apartments
in project;
Page 15 of 20

(d) the supply of constnrction seruice bg him against consideration in the form of
deuelopment igltts or FSI (including additional FSI), -
shnll arise on the date of issuance of completion certificate for the project, tuhere
required, bg the competent authoitg or on its first occupation, tuhicheuer is
earlier."
Above provisions notifies the class of persons i.e., the promoters who receive
development rights for construction against consideration payable in the form of
construction of commercial or residential apartments or in any other form including
cash and the value to be adopted for such construction services and the 'time of
Supply' for pa5rment of tax on such construction services rendered.
8.3 The very basis for the charge of tax in any taxing statute is taxable event, i.e.,
the point of time when tax will be imposed. The tax becomes payable when liability
to pay tax arises and liability to pay tax arises by the happening of the taxable
event. The taxable event under GST Act is supply of goods or services or both. In
the instant case, the taxable event is the completion of construction of the building,
though the applicant states that the developer has received the development rights
on 17.04.2019 and the same date should be the date on which the levy is liable to
be imposed. However from the above excerpts, it is now clear that the time of ler,y
would be the date of issuance of completion certificate by the competent authority
or the date of first occupation and not the date on which such rights to develop is
transferred or the date on which the agreement to develop is entered into. In the
case at hand, from the submissions of the applicant, it is evident that the applicant
though had entered into the JDA with the landowners, who are unregistered before
September 2019, when the clause 2A of the Notification No. ll/2O77-C.T (Rate)
dated 28.06.2017 as amended, was arnended to 'person' instead of 'registered
person', the time of supply in the case at hand falls a-fter such amendment only.
Here the date of completion is yet to arrive and so the developer being the taxable
person would be liable to pay the tax on such date of completion.
8.4 In the instant case, the applicant who is registered has received the
development rights and the consideration being the UDS of l7l1 sq.ft has been
allotted to him. The applicant is rendering services of construction of residential
apartment and has also paid monetaqz consideration to the landowners as provided
in clause (a) and (b) of Notification No.O6/2019 above. The value and rate to be
Page 15 of 20

applied is that available at the Time of Supply. In the instant case, the 'Time of
Supply' falls after the amendment in the Para 2A making the method of va-luation to
be adopted for the construction service extended to the land owners both registered
or unregistered against the development rights and therefore, the applicant has to
adopt the va-lue as per Para 2A to the Notification and the liability to tax arises on
the date of issuance of completion certificate for this project or the date of first
occupation. The value to be adopted for construction services provided to land
owner, when such land owner is not registered is provided in FAQ (part-Il) dated
14th May 2OI9, the relevant portion is extracted as under:
"FAQs (Part II) Dated the 14th May,2OI9 on real estate issued by the CBIC vide F.
No. 354/32/2019-TRU vide Point no.26 clarifies as follows:
sl. Question Answer
No.
26. How to determine value of Va-lue of construction services provided by the

construction scrviccs oromoter to land owner in such cases shall be
provided by the promoter determined based on the total amount charged
to land owner in lieu of bu the promoter for similar apartments in the
transfer of development proiect from independent buuers, other than the
rights, when land owner is land ouner. nearest to the date on which such
not reqistered? deuelopment iqht etc. ls trsrLskted trg-lhe
promoter, less the value of transfer of land, if
any, as prescribed in paragraph 2 of Notification
No. 11/2017-CT(R) dated 28.06.2OI7."
From the above, it is very clear that the Value of construction services provided by a
promoter to land owner being a non-registered person shall be determined based on
the total amount charged by the promoter for similar apartments in the project from
independent buyers, other than the land owner, nearest to the date on which such
development right etc. is transferred to the promoter, less the value of transfer of
land, if erny, as prescribed in paragraph 2 of Notification No. 77/2O17-CT(R) dated
28.06.2077.
9. The second question of the application is whether the notification

no.O3l2O79 cited supra is applicable, when the actual cost of construction of
services is known. In this regard, applicant submits that in lieu of owners parting
ownership of land, they provide construction services and therefore the amount on
Page t7 of 2O

which tax is liable to be paid is the total cost incurred for construction of the
apartment for the landowners. They contended that Para 2A notionally assumes the
value of construction services to be the total amount charged for similar apartments
charged on the independent buyer, whereas the actua-l cost of construction is
available for the apartments built for the land owners. They have relied on the
judgment of the Hon'ble Supreme Court in the case of Wipro Ltd Vs. Assistant
Collector of Customs& Others [2015 (4) TMI 643], wherein it has been held that
provisions of deemed valuation will apply only in case where the actual cost is not
ascertainable/ available. They also submit that these provisions of GST have been
borrowed from the provisions of customs laws and hence the said judgment of the
Apex Court becomes applicable to the case in hand. Hence they wish to obtain
ruling as to whether Notification no.3/2OI9 prescribing a notional value of
construction will be applicable when the actual cost of construction is available
with them. In this case, it has been brought out clearly that the provisions of Para
24 has been included in Notification No. 1I/2OI7-C.T.(Rate) dated 28.06.2017 as
per the provisions of Section 15(5) of the CGST Act, which is as under:
(5) Notwithstanding angthing contained in sub-section (1) or sub-section (4), the

ualue of such supplies as mag be notified by the Gouernment on the
recommendations of ttrc Council shall be determined in such manner as maA
be prescibed.
In the instant case, the date of levy being the date of issuance of completion
certificate, Para 2A becomes applicable to them and so the value should be
calculated only as prescribed in the said para. The said para prescribes that the
value of construction in respect of such apartments shall be deemed to be equal to
the Total amount charged for similar apartments in the project from the
independent buyers, other than the person transferring the development
rights/FSl. From the wording of this para, it is seen that the only value which can
be adopted is as prescribed, there being no choice of adoption of any other value. As
the law has provided for such valuation, the contention that para 2A is not
applicable when the actual cost of construction is available does not hold water as
we cannot go beyond the law pronounced. Hence the valuation as prescribed in the
said para 2,{ becomes squarely applicable in the present case.
10. From the above, it is clear that Para 2A of the Notification no.3/ 19 is applicable
to the transaction between the applicant and the owners of the land and the
valuation shall be done as stipulated therein. Applicant has preferred questions 3 to
Page 18 of 20

5 in case the answer to question (1) and (2) is negative. Now that the answer to
questions (1) and (2) being affirmative, the questions 3 to 5 become redundant and
hence are not required to be answered. In respect of question no.6, the sarne being
in the nature of discussing the legality of the provisions of law, it was found
inadmissible under Section9T (2) of the CGST,2O17 , which fact was communicated
to the applicant during the Personal Hearing held on I9.O2.2O21 and the applicant
agreed on the sarne being inadmissible. Hence the same also is not answered
herein.
11. In view of the above. we rule as under:
RULING
1. Paragraph 2A the Notification no.3/2019-Central Tax (Rate) dt.29.03.2019 is

applicable to the agreement entered into between the applicant and the owners
of the land in as much as the levy is imposable on the date of completion of the
construction as per Notification No. 06l2OI9 -Central Tax (Rate) dated
29.O3.2019.
2. Notification no.3/2019-Central Tax (Rate) dt.29.O3.2019 is applicable to this

transaction even if the actual cost of construction is available.
- / /)
//. /
\e\\i+P^q
rj \n/ /tL_. lL^-_/
'
\X\ /7/"P /7
Tmt. T.Padmavathi Shri B. Senthilvelavan
(Member SGST) (Member CGST)
To
Thiru Neelakanta Realtors Limited Liability Partnership
No 17/35,Second Main Road, Gandhi Nagar, Adyar,
Chennai-600090 / /BY RPAD//
tr
Copy Submitted to:
\+-,
1. The Principal Chief Commissioner of GST & Central Excise, ' i\t)
Page 19 of 20

2. The Additional Chief Secretary/Commissioner of Commercial Taxes,

II Floor, Ezlnrlagam, Chepauk, Chennai-6oo 005.
Copy to:
3. The Commissioner of GST &Central Excise, Chennai South Commissionerate,

MHU Complex , No. 692, Anna Salai, Nandanam, Chennai 600 035.
4. The Assistant Commissioner (ST), Adayar Assessment Circle,

Integrated Commercial Taxes & Registration Department,
South Tower, Room No. 244,2"d Floor, Government Farm Building,
Nandanam. Chennai. 600 035.
5.Master File/ Spare-2
.rt ..
Page 20 of 20

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AAR: Transfer of Development Rights by Land-Owner To Promoter Under JDA Taxable On Completion-Date

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AAR: Transfer of development rights by land-owner to promoter under JDA

Sep 08, 2021

In the matter of Thiru Neelakanta Realtors Ltd. Liability [TS-470-AAR(TN)-2021-GST]

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the development rights/Floor Space Index.

Authority Level & Location

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AUTHORITY FOR ADVANCE RULING, TAMILNADU

ORDER No. 33/ARA/2O21 Dated: 17.O8.2O21'

GSTIN Number, if any / User id 33AAHFTS92OFT26

Legal Name of Applicant THIRU NEELAKANTA REALTORS LIMITED

Trade Name of the Applicant THIRU NEELAKANTA REALTORS LIMITED

Registered Address / Address No 17/35,Second Main Road, Gandhi Nagar,

Nature of activity(s) (proposed /

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Question(s) on which advance ruling 1. Whether paragraph 2A of Notification No.

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area measuring 3422 sq.ft,

Rs. 20,OO,0OO to the owners, in

Applicant, owners agree to convey / transfer 953.33 sq.ft of undivided

from the appropriate authorities for carrying out the construction;

conveying undivided shares are registered

2.2 On interpretation of law, the applicant has submitted that, Paragraph 2A in

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However, Notification no O3/2019-Central Tax (Rate) prescribes both the

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4,7 In furtherance to the hearing held on I9.O2.2O21, the applicant submitted

the proposed valuation to be adopted by the applicant

copy of actual cost incurred for construction service rendered by

4.2 In their additional submissions the applicant has inter-alia stated as

i. A person must transfer development right or FSI to a promoter;

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iii. For the construction services so rendered, value of supply shall be

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6. We have carefully examined the statement of facts, supporting documents

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1. Whether paragraph 2Aof Notification No. 03/2019-Central Tax (Rate) dated

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7.1 The Applicant is obligated to construct 5133 sq ft of saleable area in

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(s) "deuelopment" with its grammatical uariations and cognate expressiorts,

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" JOINT DEVELOPMENT AGREEMENT

E. The Ouners approached the DEVELOPER who has sufficient construction

NOW TITIS JOIMT DEVELOPMEMT AGREEMENT WITNESSETH AS

6. In lieu of the DEVELOPER hauing agreed to constntct and allot flats as

B. The OWNERS shall atpoint of time be liable to contribute ang

9.Alt the cost incurred in obtaining necessary sanctions. oertnits and

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charges, deuelopment charges, deposits, uector charges etc., shall be borne

dutg, Registrdtion Fees

8.1 The legal provisions as applicable is to be analyzed for clarity.

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(including additional FSI) is transferred to the promoter, less the value of

(ii) Para2A was inserted vide notification no.3/2O19-CT (Rate) dt.

" 148. The Gouernment may, on the recommendations of the Council,

8.2 GST councilin its 34tt' Meeting decided as under:

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7.4 The liabilitgt of builder to oag tax on constntction of houses giuen

Payment of Tax encompasses value to be adopted for payment of such tax

"Notification No. O6'^n79-Central Tax (Rate) dt. 29th March. 2O79