Madras High Court held that methodology of deeming fiction set out under notification 11/2017-Central Tax (Rate) dated 28.06.2017 (70:30 formula) attributable to construction services and cost of land will not apply in cases where the assessee is in a position to supply the actual amount of the consideration received towards construction services and land cost.
CASE LAW: M/s. Avigna Properties Pvt. Ltd
Background:
M/s. Avigna Properties Pvt. Ltd. is a company engaged in the supply of construction services and works contracts related to immovable property. They launched a residential township project called ‘Avigna Properties’ in Mahindra World City. Show-cause notices were issued to the company for the period between 2017 and March 2019, addressing various points raised by the assessing authority.
The Department’s Contention:
One of the major points of contention was the alleged short payment of output tax concerning the supply of construction services. The assessing authority referred to Notification 11/2017-Central Tax (Rate) dated 28.06.2017, which stated that in cases involving the transfer of property in land or undivided interest in land, the value of the supply services and goods should be calculated by deducting the value of land or undivided share of land, treated as development charges.
The department argued that there was a short payment of output tax on the supply of construction services. They claimed that the levy of GST on the sale value of land, based on a proportionate formula of 70:30, was illegal. They contended that the stamp duty act prescribed a levy on the sale value as per the guidelines set by the registration department. According to them, the registration department was authorized to collect stamp duty on the sale value of land. Therefore, they deemed the proposed GST levy as illegal and a double imposition, considering the payment of stamp duty.
Assessee’s Submission:
M/s. Avigna Properties Pvt. Ltd. argued that the levy of GST on the sale value of land, using a proportionate formula, was unlawful. They stated that they had mentioned the actual sale consideration of land and paid the necessary stamp duty as per the provisions of the stamp duty act.
High Court Decision:
The court examined the case and concluded that the Notification dated 28.06.2017 would only be applicable when the assessee could not provide a clear bifurcation of the construction costs and land costs. The court noted that the deeming fiction established by the Notification did not apply when the assessee could furnish the actual consideration received for construction services and land cost.
The court acknowledged that M/s. Avigna Properties Pvt. Ltd. had consistently maintained that they possessed the necessary evidence to support their claim. However, the officer handling the case did not request these specific particulars, choosing instead to rely solely on the deeming fiction formula provided in the Notification.
The court emphasized that it should not assume that the deeming fiction formula is the sole method of assessment in such cases.
Conclusion:
The M/s. Avigna Properties Pvt. Ltd. case provides valuable insights into the application of GST on construction services and land sales. It establishes that the deeming fiction formula under the Notification can be set aside if the assessee can provide actual evidence.
Also, in MUNJAAL MANISHBHAI BHATT Versus UNION OF INDIA (Gujarat High Court) 1/3rd deduction for land value under GST is optional and can be permitted at the option of a taxable person, particularly in cases where the value of land or undivided share of land is not ascertainable.
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