Part-94-Snapshot to “How and why Land and Building was included in Schedule III in GST”

5th GST Council Meeting-Agenda 2A of the Meeting
5th GST Council Meeting-Why it was advocated to bring land and building under the GST Net as part of Agenda
7th GST Council Meeting- Tax on Sale of Land and Building deferred for a year
11th GST Council Meeting-Reason behind inclusion of Land and Building in Schedule III

S.No

Case

Held

1

5
th GST Council
Meeting-Agenda 2A

Para 2.2 of the Agenda stated as follows: Under the GST regime, it is proposed to subject supply of goods or services to GST. Goods have been defined under the
Constitution to include “all materials, commodities and articles”. Likewise, services have been defined under the Constitution “as anything other than goods”. Goods and
services tax have been defined in the Constitution to mean “any tax on supply of goods, or services or both except taxes on the supply of the alcoholic liquor for human
consumption”. Supply has been defined in the model GST law in the broadest possible sense and includes sale

2

5
th GST Council
Meeting-Why it was
advocated to bring land
and building under the
GST Net

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.
(iii) ..
(iv) ..
(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
and non-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.
(vii) …
(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).

3

7
th GST Council
Meeting- Tax on Sale
of Land and Building
deferred for a year

GST Council in its 7th Meeting Concluded as follows-In view of the Discussion above for Agenda item 2A, the Council decided not to introduce GST on land and building
at this stage and agreed that this issue could be revisited after a year or so the implementation of GST.

4

11
th GST Council
Meeting-Reason
behind inclusion of
Land and Building in
Schedule III

Para 6.11-The Deputy Chief Minister of Delhi referred to his letter dated 4 March, 2017 addressed to the Hon'ble Chairperson and copies sent to all the Hon'ble Members
pointing out that designating the sale of land and sale of buildings (subject to certain exceptions), neither as supply of goods nor a supply of services (in Schedule
III of the draft CGST Law) would lead to a break in the input tax credit chain and it would be a very big missed opportunity to curb the flow of black money..
Para 6.12-The Secretary observed that as per the decision in the 7th Meeting of the Council, this issue was to be reconsidered after one year of implementation of GST
and if there was an agreement at that time to bring sale of land and building under GST, it would require amendment to Schedule Ill. He therefore suggested that
presently sale of land and building could be exempted through a notification instead of incorporating it in the law. CCT, Karnataka stated that if a decision was
taken to bring sale of land and building in GST, then several amendments would be required in the law such as Section 16 dealing with eligibility and conditions
for taking input tax credit. He therefore suggested that the entry regarding sale of land and building should not be removed from Schedule III. The Hon'ble
Chairperson stated that this issue could be taken up for decision after one year of implementation of GST. The Hon'ble Minister from Uttar Pradesh suggested to retain the
decision taken in the 7th Meeting of the Council. The Hon'ble Minister from Andhra Pradesh stated that they would further study the proposal made by the Hon'ble Deputy
Chief Minister of Delhi. The Council decided to retain the decision taken in the in Meeting of the Council (held on 22-23 December, 2016).