HC strikes down GST demand on TDR used by real estate developer
The division bench of justices Avinash Gharote and Abhay Mantri delivered the ruling while allowing a petition filed by Shrinivasa Realcon, which challenged a show-cause notice issued on August 14, 2024, and a consequent GST order dated December 10, 2024. The demand pertained to a development agreement executed on April 7, 2022, for constructing a residential complex on an 8,000 sq ft plot at mouza Lendra. The developer was appointed by the landowner for a consideration of Rs7 crore and two flats.
Senior counsel Akshay Naik, assisted by Abhishek Bhoot, argued that the project did not involve any transfer or purchase of development rights or floor space index (FSI) from external sources. Instead, the construction was based solely on the existing FSI or any statutory increase.
Entry 5B of the GST notification dated June 28, 2017, amended on March 29, 2019, allows taxation of services involving the transfer of TDR or FSI for construction purposes. However, the court noted the GST law does not define a 'transfer of development right'. It referred to Clause 11.2 of the Unified Development Control and Promotion Regulations, which outlines TDR as compensation in FSI granted by a planning authority, not applicable in the present case.
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The bench concluded that the development agreement lacked any reference to the transfer of such rights and rejected the department's reliance on Clause 18 of the contract, which merely required compliance under the Maharashtra Apartment Ownership Act, 1970.
Declaring the transaction outside the purview of Entry 5B, the court quashed both the show-cause notice and the final order. "The transaction contemplated does not fall within Entry 5B of the notification of June 28, 2017, as amended by another notification of March 29, 2019. Neither the show-cause notice nor the consequent order can be sustained," the judges stated in their order, thereby setting them aside.
Key takeaways from HC verdict:
- There was no actual trading of transfer of development rights (TDR) in the agreement
- Entry 5B of GST notification could not be invoked in case
- GST Act does not define 'transfer of development rights'
- Developer used existing FSI or statutory increase, not external TDR
- Clause 18 of agreement was not proof of transfer
- Set aside both show-cause notice and final tax order
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