Para 2.4. of the Agenda stated as follows-Thus, supply of immovable property (land and buildings) has been kept outside the purview of GST. It is felt, that this would
distort the GST particularly when there is no constitutional or legal impediment to levy GST on supply of land and building to GST due to the following reasons:
(i) Stamp duty, which is levied under Article 268, is with reference to documents and is collected by the Centre on documents listed in Entry 91 of the Union List
while by the States on documents listed in Entry 63 of the State List. Therefore, the argument that because legal conveyance of title of land and buildings
attracts stamp duty, they cannot be subjected to GST is facile because stamp duty is levied on documents while GST would be levied on the supply of land
and buildings, whether as goods or services (“aspect theory” upheld by the Supreme Court in a host of judgements). Renting/leasing of land and buildings
are subjected to service tax presently. Documents pertaining to such renting/leasing are subjected to stamp duty.
(ii) Entry 49 of the State List reads thus: - “Taxes on lands and buildings”
It is felt that this entry is not an impediment to levy of GST on supply of lands and buildings because of the “aspect theory” upheld by the Supreme Court: while the stock
of lands and buildings is subjected to tax by the States on the aspect of possessing land and buildings, the supply aspect can be subjected to GST.
(v) Further, though service tax and VAT are charged generally @ 4.5% and 1% of the value of the flat (which includes the value of the undivided share of land) respectively,
there are embedded taxes in the flat. The total tax incidence in respect of flats in nonmetros is more than that in metros. In fact, where the value of land is less, the
incidence of service tax and VAT is more (embedded taxes). GST on supply of land and building will equalize the tax incidence in respect of houses in metros
(vi) Without levying GST on supply of land and building, it would be very difficult to complete the input tax credit chain (ITC) and allow ITC in respect of construction services
and construction material used in creation of immovable property which is further used for carrying out taxable activities. This is highly distortionary. While at the behest
of business and industry, the ITC chain would get liberalized, the tax administration would forever be saddled with non-completion of ITC chain thereby
resulting in disincentives to obtain taxable invoices for availing input tax credit. Non inclusion of land and building in GST results in cascading of taxes.
(viii) Land and building are not on the same footing as alcoholic liquor for human consumption as the latter is constitutionally outside the definition of goods and
services tax (para 2.2 above).