Indirect taxes on construction industry has always been a matter of discussion whether it was Service Tax or current regime of GST. Now, the subject matter of discussion is value of land for determination of GST liability on construction activity along with sale of land.

In the landmark judgment Munjal Manishbhai Bhatt vs. Union of India, passed by the Hon’ble High Court of Gujarat on 06.05.2022, it was held that mandatory 1/3rd deduction of Land as ultra vires the provisions as well as the scheme of the GST Acts.

The Applicant has filed a writ application for striking down entry 3(if) of NN 11/2017-CT(R) and similar entry in state notification as well along with para 2 of said notification being ultra vires. The relevant entry of NN 11/2017-CT (R) and para 2 is as under:

3(if) Construction of a complex, building, civil structure or a part thereof, including,—

(i) commercial apartments (shops, offices, godowns, etc.) by a promoter in a REP other than RREP;

(ii) residential apartments in an ongoing project, other than affordable residential apartments, in respect of which the promoter has exercised option to pay central tax on construction of apartments at the rates as specified for this item in the manner prescribed herein,

but excluding supply by way of services specified at items (i), (ia), (ib), (ic), (id) and (ie) above intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier.

Paragraph 2: In case of supply of service specified in column (3), in items (i), (ia), (ib), (ic), (id), (ie) and (if) against serial number 3 of the Table above, involving transfer of land or undivided share of land, as the case may be, the value of such supply shall be equivalent to the total amount charged for such supply less the value of transfer of land or undivided share of land, as the case may be, and the value of such transfer of land or undivided share of land, as the case may be, in such supply shall be deemed to be one third of the total amount charged for such supply.

Explanation: For the purposes of this paragraph and paragraph 2A below, “total amount” means the sum total of,—

(a) consideration charged for aforesaid service; and

(b) amount charged for transfer of land or undivided share of land, as the case may be including by way of lease or sub-lease.

Further, the aforesaid entry was prayed to be struck down being manifestly arbitrary, grossly discriminatory and violating Article 14 as well as ultra-vires Article 246A of the Constitution of India. It was also urged to declare the paragraph 2 would be applicable in case wherein undivided share in land is transferred along with constructed flat without separate consideration being fixed towards sale of land as well as GST cannot be imposed on sale and purchase of land.

It was submitted before the Hon’ble Court that section 9 is a charging section. Further, the scope of supply is defined under section 7 and by virtue of section 7(2), the transactions specified in Schedule III to CGST Act, which includes ‘sale of land’ is excluded from the purview of supply. Referring to the terms/clauses of the booking agreement between the writ applicant and the developer, it was submitted that it is quite evident from the terms that the consideration towards the land is separately fixed.

In response to writ application, the Revenue has submitted that GST Council in its 34th meeting also agreed to apply tax at new rate to be applicable to new projects or ongoing projects. Thereafter, NN 3/2019-CT(Rate) was issued on the recommendations of GST council, which provided for deemed valuation of land as provided in paragraph 2 of the impugned notification. Thus, the contention that determination of value of the supply by subordinate legislation, when the value of land and cost of construction is separately ascertainable, is ultra vires section 15 of the CGST Act does not hold good. Further, the contention that deduction of deemed value of land is beyond the scope of delegation under section 9(1) of the CGST Act has no legal basis at all.

The Hon’ble High Court of Gujarat in the remarkable judgment has held that paragraph 2 of NN 11/2017-CT (R) and similar notification issued in Gujarat Goods and Services Tax Act, which provide for a mandatory fixed rate of deduction of 1/3rd of total consideration towards the value of land is ultra vires the provisions as well as the scheme of GST Act and in violation of Article 14 of the Constitution of India. The High Court has held that for the payment of GST –

(i) The deduction can be claimed of Actual value of Land from total consideration; or

(ii) Value of construction service can be ascertained as per prescribed valuation Rules


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