Gujarat High Court holds mandatory deeming fiction of 1/3rd deduction for value of land in under-construction real estate transactions under GST as ultra vires and unconstitutional, ‘reads down’ holding it to be optional
Under GST in India, for purchase of under-construction real estate, GST is leviable on the entire contract value minus the value of land – however, there is a mandatory deeming fiction presuming 1/3rd of the total amount charged as attributable towards sale of land, irrespective of the actual value of land. We have always maintained that this deeming fiction is unconstitutional; the constitutional validity of this deeming fiction has been challenged in multiple High Courts including 3 such petitions in Bombay High Court by us at Khaitan & Co Indirect tax team. The Gujarat High Court (HC) has come out with the first judgment in this regard yesterday – in favor of the taxpayers.
In this edition of “Ergo”, my colleague partner Rahul Dhanuka and I have, in little more than 2 pages (for your quick reference), outlined the key observations/ conclusions from this judgment and more importantly, key points of review and analysis not only for players/ stakeholders/ investors in the real estate space but also entities/persons who have recently purchased/about to purchase under-construction real estate. Hope you will find this useful.
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