The Supreme Court of India has admitted a petition challenging the imposition of Goods and Services Tax (GST) on the transfer of development rights within joint development agreements (JDA) between real estate developers and landowners. The petition argues that development rights transferred as part of a land transaction should not be subjected to GST, as the sale of land is specifically excluded. Previously, the Telangana High Court had dismissed a similar petition. The developer has now approached the Supreme Court seeking relief and the court has sent notices to the central government seeking their response.
The Supreme Court of India has admitted a petition challenging the imposition of Goods and Services Tax (GST) on the transfer of development rights within joint development agreements (JDA) between real estate developers and landowners. The petition challenged a Telangana High Court verdict which held that JDA is different from an agreement for the sale of land and therefore the rights under this should be taxed under GST.
In this matter, the court has issued notices to the Union government, GST Council and Central Board of Indirect Taxes and Customs (CBIC) to file their responses to the special leave petition filed by a property developer in Telangana. However, the Supreme Court made it clear that in the interim, GST will continue to be applicable on the transfer of development rights or on such joint development agreements.
The issue relates to the 18% GST levy on development rights' value, which will make various projects across key markets like Mumbai, Pune, Bengaluru, Hyderabad and Kolkata unfeasible for all stakeholders, including landowners.
GST on development rights is a key issue as some believe that the Centre does not have the power to levy tax on the sale of land, according to the Constitution.
Previously, in February, the Telangana High Court had dismissed a legal challenge brought by the same developer, who then approached the apex court seeking relief.
The developer's lawyer, Abhishek A Rastogi of Rastogi Chambers, argued that in this case of barter between landowner and developer, the key question is whether the ancillary and incidental development rights attached to the land sale would be subject to GST as the supply of the land is specifically excluded from the purview of the GST.
He further argued that development work contracts are already undisputedly taxed, so taxing development rights would result in double taxation and cascading effect of taxes.
The South India-based developer had filed a writ petition in 2020 following a 2019 GST notification providing a taxation point to impose tax on landowners transferring development rights to developers. The petition stated this effectively taxes land transactions in joint development projects just like in the case of sale of land.
Last year, real estate developers had approached the Ministry of Finance with their concerns over the impact of the GST being levied on rehabilitation apartments being built and given back, free of cost, to existing occupants as part of redevelopment projects.
Joint development and redevelopment projects play a crucial role in most property markets, especially with escalating land prices and declining vacant land availability in major urban centres.
The outcome of this case will have significant ramifications for the Indian real estate sector. Joint development and redevelopment projects are crucial now for urban development but the 18% GST levy threatens the viability of many projects. The court's ruling on whether development rights transferred as part of a land deal constitute a separate taxable supply from the sale of land itself could reshape strategies for property development joint ventures across major Indian cities.
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