Within GST Community TDR commonly known as “Transfer of Development Rights”. Since the service tax era the real estate sector always posing challenges before Govt. while trying to levy tax on it resulting dilemma in the sector even before assessee. The judiciaries also added fuel to the fire by virtue of various judgements. The legacy still exists in GST era. Various clarifications and Notifications issued by Govt masquerades bringing confusions and causes debates on taxability of TDR under GST. On one side of coin under head the Govt is stick on imposing GST on TDR while other side of coin under tale Tax payers are regularly approaching before judiciary claiming that it is not a “supply of services” leviable to GST as ascribed under section 7 r.w.s. 9 of CGST Act and the TDR being “sale of land” are beyond the GST purview in terms of Article 246 and 246A of Constitution hence not exigible under GST.
Recently two judgements on TDS within one day gap became the mecca for professionals. One be of Nagpur Bench of Bombay High Court in the case of “Shrinivasa Realcon Private Limited vs. Dy Commr. Anti-Evasion Branch, CGST & Central Excise Nagpur & Others dt. 08.04.2025 [W.P. No. 7135 of 2024] {for easier reference referred as SRPL case} and another by Bombay HC in the case of Nirmal Lifestyle Developers Pvt Ltd vs. Union of India & Others dt. 09.04.2025 [W.P. No. 11011 of 2025] { for easy reference referred as NLDP case} .
There are two phrases one is “Transferable development rights” and another is “Transfer of Development rights”. Let us first go into the intricacies of these two phrases. Former one is known as “TDR” and later as “DR”.
“TDR” is a certificate issued by Central or State Govt. in consideration of surrender of land without monetary compensation which are transferable in part or whole. As per Para 11.2.1 of Unified Development Control and Promotion Regulations (UDCPR), It is compensation in the form of Floor Space Index [FSI] or Development Rights which shall entitle the owner for construction of built-up area. This FSI credit shall be issued in a certificate which shall be called as Development Right Certificate (DRC). This FSI Credit (In square meters) mentioned in the certificate may be used by owner for himself or transfer it to any other person.
On the other hand “DR” (Transfer of Development Right) refers to the action by which the land owner supply the Development rights to any Builder/ developer etc. so that the later can construct or develop a building, complex, colony etc.
Thus in TDR a Govt. gives certificate to a land owner to either for self use or sale it while in DR the land owner allows the builder/developer to develop the land on his behalf against a consideration.
With the object to outreach on critical discussion, I have presumed that we are all already known about various facets, models of TDR like JDA, Revenue share model and Entry 5B in the Notification No. 11/2017 dt. 29.03.19 and so on.
In the case of SRPL Hon’ble Nagpur Bench of Bombay HC has held that transaction as contemplated in terms of agreement between land owner and developer does not fall within entry 5-B of the Notification as amended hence the order is quashed and set aside. In the case the petitioner has been appointed as a developer by the land owner to construct a multi-storied complex for monetary consideration and two apartments. The petitioner argued that the development agreement does not fall within the mischief of Clause 5-B as the agreement would indicate that it has nothing to do with supply of any TDR, which is defined under Regulation 11.2 of UDCPR for the state. It is paramount that the GST Act does not define the meaning of “Transfer of Development Right”. In the said judgement the HC referred the Clause 11.2.2 and 11.2.1 of Unified Development Control and Promotion Regulations (UDCPR).
The bench of Justice Avinash G. Gharote and Justice Abhay J. Mantri has observed that 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.
The agreement gave development right to the petitioner by utilizing its existing FSI or any increase thereof. Importantly the owner had neither purchased nor been allotted any TDR or FSI on the said land nor for that matter by the petitioner from any person meaning thereby there is no transferable development right as per Scheme of the provisions of the UDCPR. It is therefore apparent that the transaction as contemplated in agreement does not fall within entry 5-B hence the Show cause as well consequent order quashed and set aside.
Let’s now take up the writ petition in which interim relief has been granted by Bombay HC to the petitioner NLDP. In this writ two question raised before HC “Whether development rights under a revenue share arrangement are supply of services, leviable to GST u/s 7 r.w.s. 9” and another one “whether the transaction is a transfer and development rights as sale of land” hence beyond the purview of GST laws. By issuing “RULE” the HC has preliminarily accepted the case as having merit and worthy of a final hearing. Because the RULE acts as a notice or summons for the respondent to show cause why the court should not grant the relief requested in the petition. In its judgement, Bombay HC citing precedents of Gujarat HC in which it was concluded that assignment was actually a transfer of immovable property therefore the assignment by the original lessee to a third party would not fall within Schedule II of CGST Act hence out of GST purview. This clearly indicates the judicial inclination of the Hon’ble Bombay High Court, signifying that, unless otherwise distinguished or conclusively established to the contrary, the transaction in the NLDP case will be treated as analogous to an assignment, and thereby not exigible to GST. Even if it is proved that it is a transfer of immovable property the same is also not taxable under GST law. Hence in both the above situations it will be a win-win situation for the petitioner resulting a big relief to the real-estate industry for a long run conflicts on GST on transfer of development rights.
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