Summary: The Bombay High Court in the case of Shrinivasa Realcon Private Ltd. Vs Deputy Commissioner Anti-Evasion Branch, CGST & Central Excise Nagpur (Writ Petition No. 7135 of 2024) ruled that development rights under a development agreement are not taxable under reverse charge mechanism (RCM) as per Entry 5B of Notification No. 13/2017 (CGST Rate). The petitioner, M/s Shrinivasa Realcon Private Ltd., received a show-cause notice demanding GST on the transaction, classifying it as Transferable Development Rights (TDR) and requiring payment under RCM. However, the court clarified that Entry 5B pertains specifically to services involving the transfer of TDR or Floor Space Index (FSI), as defined in Maharashtra’s Unified Development Control and Promotion Regulations. It determined that the rights granted to the developer through the development agreement, enabling them to construct buildings and transfer certain built-up units for consideration, do not equate to TDR as outlined in the notification. Consequently, the show-cause notice and subsequent order were deemed unsustainable and were quashed. This judgment provides clarity on the tax treatment of development agreements and distinguishes them from TDR transactions for GST purposes.
Fact of the case Show cause notice is issued to the petitioner for Payment of tax under RCM for transaction entered by the petitioner with owner of land. Tax is demanded as per the classification of service as TDR and GST on same is to be paid under Reverse charge as per Entry 5B of the Notification No. 13/2017 of CGST rate (as amended)
Court findings and conclusion:-
Entry 5B, relates to services which can be said to be supplied by any person by way of transfer of development rights or Floor Space Index (FSI) [including additional FSI] for construction of a project by a promoter. The expression “transfer of development rights” read in conjunction with ‘FSI’ as indicated in entry 5B, would only relate to a TDR (Transferable Development Rights) as per the regulations for grant of TDR in the Unified Development Control and Promotion Regulations for the State of Maharashtra.
Therefore, the TDR / FSI as contemplated by entry 5B, cannot be related, to the rights which a developer derives from the owner under the agreement of development for constructing the building for the owners, in lieu of the owner agreeing to permit the developer to transfer certain built up units for consideration to be appropriated by the developer.
Order by the court:-
the transaction as per the agreement and matter of Notice, does not fall within entry 5B of the Notification dated 28.6.2017, as it stand amended by the Notification dated 29.3.2019, in view of which, neither the show cause notice nor the consequent order can be sustained and are hereby quashed and set aside.
Author Bio
