Transfer of development rights under taxable JDA on the value of similar apartments offered to independent buyers
On Millisecond. Thiru Neelakanta Realtors Ltd [ORDER No. 33/ARA/2021 dated August 17, 2021], Millisecond. Thiru Neelakanta Realtors Ltd (“the applicant”) has requested clarification on two main issues. The first question refers to the applicability of paragraph 2A of Notification No. 03/2019-Central Rate (Rate) of March 29, 2019. (“Notification No. 03/2019”) on agreements entered into with persons not registered before September 29, 2019, while the second topic deals with the applicability of said notification, that is, Notification No. 03/2019 on valuation when the real cost of construction of the services. The Applicant in relation to the above questions has requested further clarification on which valuation rule would be applied in the predominant case to identify the value of the supply and the consequence, if Rule 30 or Rule 31 of the Central tax rules on goods and services 2017. (“the CGST Rules“) must be adopted by the applicant.
The applicant entered into a joint development agreement (“JDA”) with K. Alamelu and N. Rama (“the owners”), who being the owners of the property that the Applicant approached to develop and build a property in exchange for transferring an undivided portion of the land (“YOU”) to the Applicant, who can further market their participation to potential buyers. Therefore, the Applicant has submitted paragraph 2A of Notification No. 03/2019 that prescribes a notional value of the construction service that is not applicable to his case, since the real cost of the construction is very available.
Paragraph 2A of Notification No. 03/2019 establishes the value to be taxed when a person transfers development rights or Floor Space Index (“FSI”) to a promoter against consideration and is not limited to the transfer of development rights solely to be the taxable event as expressed by the Applicant. This Notification No. 11/2017-CT (Rate) dated June 28, 2017 was modified in the challenged Notification No. 03/2019 to replace the words “registered person” with “persons”.
The honorable Tamil Nadu Advance Resolution Authority (“TNAAR“) After analyzing the provisions of paragraph 2A, it held that in the present case, the owners have invested the rights to develop the real property of their property, in a residential apartment with the applicant in this way, supporting the applicant’s argument that the paragraph 2 will not be applicable and therefore unsustainable.
It also observed that in the present case, the taxable event would be the completion of the construction of the building even though the Applicant states that the developer has received the development rights on April 17, 2019 and the same date must be the date on that the lien is liable to be imposed.
Noted that the date of the fee is the date of issuance of the completion certificate. Paragraph 2A becomes applicable to the Applicant and, therefore, the value must be calculated only as prescribed in said paragraph. Said paragraph prescribes that the value of the construction with respect to said apartments shall be considered equal to the total amount charged by similar apartments in the project from the independent buyers, other than the person who transfers the development rights. From the wording of this paragraph it follows that the only value that can be adopted is the prescribed one, not being able to opt for the adoption of any other value. As the law has provided for such a valuation, the argument that paragraph 2A does not apply when the actual cost of construction is available is invalid as we cannot go beyond the pronounced law.
Stopped, the supply time falls after the amendment in paragraph 2A that makes the valuation method adopted for the construction service extended to registered or unregistered owners instead of development rights. Therefore, the Applicant must adopt the value according to paragraph 2A of the Notice.
In addition, it noted that since paragraph 2A of Notification No. 03/2019 is applicable to the transaction and the TNAAR has answered affirmatively to it, the questions relating to Rule 30 and Rule 31 of the CGST rules they become redundant and require no response.
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