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The Nagpur bench of the Bombay High Court recently overturned a GST demand placed on Shrinivasa Realcon, in a landmark ruling that will have an effect on Maharashtra's real estate market. The court determined that the development agreement in question did not involve a taxable transfer of development rights (TDR), as the construction utilized existing Floor Space Index (FSI) without acquiring additional rights. This ruling provides clarity on the applicability of GST to development agreements lacking explicit TDR transactions.
The Bombay High Court's Nagpur bench has overturned a GST demand against city developer Shrinivasa Realcon, marking a significant turning point for Maharashtra's real estate market. The court found that the development agreement, executed in April 2022 for constructing a residential complex on an 8,000 sq ft plot in Mouza Lendra, did not entail a taxable transfer of development rights. The developer was appointed by the landowner for a consideration of INR 7 crore and two flats. Advertisement
Senior counsel Akshay Naik, assisted by Abhishek Bhoot, contended that the project did not involve any transfer or purchase of development rights or FSI from external sources. Instead, the construction was based solely on the existing FSI or any statutory increase. The court noted that 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 GST law does not define a 'transfer of development right'. The court 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.
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.
By clarifying that GST is not applicable in the absence of explicit TDR transfers, the judgment provides a precedent for developers operating within existing FSI parameters. It also highlights the judiciary's role in interpreting tax laws in the context of evolving real estate practices.
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