India: Determining value of land as part of construction contract for GST purposes

Gujarat High Court decision

GST purposes

The Gujarat High Court held that with regard to a contract for the purchase of land and the construction of a residence on that land, a deemed one-third deduction from the total amount of consideration under the contract for the value of land was contrary to the goods and services tax (GST) legislation.

The High Court found that the one-third deemed deduction was not required in instances when the value of land was clearly ascertainable or when the value of the construction service can be derived through application of existing valuation rules.

The case is: Munjaal Manishbhai Bhatt v. Union of India


The taxpayer entered into an agreement with a developer for the purchase of land and for the construction of a residence on that land. The parties agreed to separate consideration for the sale of the land and for the residence construction. Under the agreement, the taxpayer was to pay all taxes (including GST). The taxpayer asserted GST was payable only with regard to the amount of consideration paid for the construction services whereas the developer asserted GST was payable on the full consideration for the land as well as for the construction, after deducting one-third of the contract value relating to the land.

The High Court held that the required application of the deeming fraction of one-third of the total contract’s value toward the land’s value was contrary to the provisions of the GST law when the value of the land was ascertainable.

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