• Notification Date: 12-06-2023
• Notification No: N/A

Gujarat High Court: GST Payable Only on Construction Cost

In what is deemed a major relief to home buyers, The Gujarat High Court has ruled that GST would not be applicable for the cost of land.  

The bench comprising Justice J.B. Pardiwala and Justice Nisha M. Thakore observed that in the sales of villas, flats and commercial properties, the real land value (undivided share) should be exempted from GST. The bench added that GST would be applicable only for construction costs. 

According to a website that reports on legal issues, the applicant signed an agreement with Navratna Organisers & Developers Pvt. Ltd. to buy a plot of land. The agreement included the construction of a bungalow as well. 

The writ applicant was asked to pay the Goods and Services Tax (GST). However, the writ applicant contended that he was liable to pay GST (2017) for the construction of the bungalow since it would constitute a supply of construction services under the GST Acts. 

However, the respondent informed the writ applicant that he was liable to pay tax at 18% GST under the GST Acts for land as well as the construction of a bungalow after deducting 1/3rd of the value towards the land. 

The petitioner alluded to Section 9 (1) of the GST Act. He has said the sale of land is neither a supply of goods nor a service. 

The petitioner further contended that sale of any land, regardless of whether it was developed, would not be subject to tax under the GST Acts.  

The website published the court’s statement: “The impugned paragraph 2 of Notification No. 11/2017-Central Tax (Rate) dated June 28, 2017, and the parallel State tax notification are read down to the effect that the deeming fiction of 1/3rd will not be mandatory in nature. It will only be available at the option of the taxable person in cases where the actual value of land or an undivided share in land is not ascertainable.” 

The court said that since the writ applicant paid the tax in protest, it ruled that the amount be refunded.