No TDR, No GST: Bombay HC Quashes Tax Demand On Real Estate Project

Mumbai: In a significant ruling, the Nagpur bench of the Bombay High Court has quashed a Goods and Services Tax (GST) demand issued to real estate developer, ruling that the construction project did not involve any transfer of development rights (TDR) and was therefore not taxable under the relevant GST provision.

A division bench of Justices Avinash Gharote and Abhay Mantri passed the order while hearing a petition by developer  M/s Shrinivasa Realcon Private Ltd. that challenged a show-cause notice dated August 14, 2024, and a final GST order passed on December 10, 2024.

About The Case

The case concerned a development agreement signed on April 7, 2022, under which Shrinivasa Realcon was appointed to construct a residential complex on an 8,000 sq ft plot in Mouza Lendra. The landowner had agreed to pay the developer Rs 7 crore and allot two flats as consideration for the construction.

Developer’s lawyers, senior counsel Akshay Naik and advocate Abhishek Bhoot, argued that the project did not involve any external sale or transfer of development rights or floor space index (FSI). Instead, the construction was carried out using the FSI already available on the plot or through any statutory increase permitted by the planning authority.

The GST department had relied on Entry 5B of the GST notification issued on June 28, 2017, and later amended on March 29, 2019. This entry allows taxation of services that involve the transfer of TDR or FSI. However, the court noted that the GST law does not define what exactly constitutes a ‘transfer of development rights’.

Referring to the Unified Development Control and Promotion Regulations, the court pointed out that TDR refers to FSI granted as compensation by a planning authority, which was not relevant in this case. It also observed that the development agreement did not mention any such transfer of rights. The department’s reliance on Clause 18 of the agreement, which deals with compliance under the Maharashtra Apartment Ownership Act, 1970, was rejected as it had no bearing on the issue of TDR.

The court ultimately concluded that the transaction did not fall under Entry 5B of the GST notification. As a result, it set aside both the show-cause notice and the final tax order, ruling that they could not be sustained.

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