One Third deduction towards value of land in construction contracts for residential units, held ultra vires the GST Acts and is read down as optional in cases where actual value not ascertainable - Gujarat High Court

In a recent judgment1, the Gujarat High Court ('the HC') has held that the Entry 3(if) of Notification No. 11/2017-Central Tax (Rate) as well as Entry 3(if) of Notification No. 11/2017 – State Tax (Rate) along with paragraph no. 2 of both the notifications, mandatorily requiring to include value of land in the value of construction contracts and then allowing deduction of 1/3rd value towards land out of the total contract value, is ultra vires the provisions of Central Goods and Services Act, 2017 read with Gujarat State Goods and Services Act, 2017 ('the GST Acts'). However, without striking down the same from the law, the HC 'read down' the provision to hold that such an abatement would be available at the option of an assessee in those cases where the value of land or undivided share of land in the construction contracts is not ascertainable.

Facts of the case

Petitioner Munjaal Manishbhai Bhatt entered into an agreement with Navratna Organisers and Developers Pvt. Ltd. ('Landowner/Developer') for purchase of a plot of land and construction of bungalow on said plot by the landowner. Separate considerations were agreed upon by the parties for (i) sale of land and (ii) construction of a bungalow on the land and were clearly ascertainable from the agreements. The Developer, however, charged GST in terms of Entry 3(if) of Notification No.11/2017-Central Tax (Rate) dated 28th June 2017 read along with paragraph 2 ('impugned notification'), on the entire value of the construction contracts, including the value of land after allowing deduction of 1/3rd of value towards the value of land. The petitioner challenged the demand before the Gujarat HC on the following grounds:

  1. As per Entry 5 of Schedule III of the CGST Act / GSGST Act, sale of land is not subject to levy of GST.
  2. In the case of petitioner, value of land purchased is clearly ascertainable from the agreements.
  3. Including the value of land, in terms of the Notification, amounts to charging GST on the sale of land, which is ultra vires the provisions of GST Acts.
  4. Providing a deeming fiction of 1/3rd abatement, in all cases, even where the actual value of land is ascertainable, is arbitrary, grossly discriminatory and is violative of Article 14 of the Constitution of India.


After considering the arguments of both sides the HC held as under:

  1. The mandatory deeming fiction provided in the notifications is ultra vires the provisions and scheme of the GST Acts, and where value of land is clearly ascertainable, tax has to be imposed only on the value of construction of building.
  2. Further, application of the impugned notification is discriminatory, arbitrary, and violative of Article 14 of the Constitution as it is applied irrespective of the size of the plot of land and the activity of construction being carried out. No distinction is made between a flat and a bungalow in the impugned notification.
  3. Without striking down the entry of the notification, the HC further held that deduction of 1/3rd value under the impugned notification can be permitted at the option of a taxable person in cases where value of land or value of undivided share in land is unascertainable.


The decision is a big relief to the home buyers as it will lead to reduction of prices of properties considerably where the value of land transferred is available or value of undivided share of land can be ascertained in terms of valuation rules. The buyers can approach the builders or real estate developers to work out the price difference and the builders or real estate developers can also consider to file a refund claim in respect of GST that has already been paid on such extra consideration.

While doing so, care should be taken of the fact that in all likelihood, the Government may challenge the said ruling before the Supreme Court of India and the outcome of such a litigation will have to watched out for.


1. Munjaal Manishbhai v. Union of India, R/Special Civil Application No. 1350 of 2021

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