The applicability of service tax and GST on joint development agreements has been a contentious issue for many years. The Joint Development Agreement (JDA) is an arrangement between landowners and developers, where the landowner contributes the land and the developer provides the expertise and finance to develop the property. The profits from the project are then shared between the two parties.
The question that arises here is whether service tax or GST should be applicable on this transaction. The answer to this question is not straightforward, as it depends on the nature of the JDA. If the JDA is classified as a composite supply, then the GST rate applicable would be the highest rate of tax applicable to any of the goods or services involved in the transaction. If it qualifies as a mixed supply, then the GST would be applicable as per the individual rates of the goods or services involved.
In most cases, the JDA is considered to be a composite supply and attracts a GST of 18%. However, if the landowner provides development rights to the developer, then it is treated as a separate supply and attracts a GST of 18% on the development rights.
When it comes to service tax, the applicability of service tax on JDAs was established by the Central Board of Excise and Customs (CBEC) in 2016. As per the CBEC, service tax is applicable on JDAs only if the developer undertakes construction or development activities on behalf of the landowner. In such cases, the developer is providing a service to the landowner, and service tax of 15% is applicable on the value of the services provided.
In conclusion, the applicability of service tax and GST on joint development agreements depends on the nature of the agreement. If it is a composite supply, then GST is applicable at the highest rate of tax, while service tax is applicable only if the developer is providing construction or development services. It is essential to understand the intricacies of the agreement to determine the taxes applicable and ensure compliance with the relevant rules and regulations.