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The Bombay High Court has granted interim relief to landowners challenging the imposition of GST on the transfer of development rights under joint development agreements (JDAs). The petitioners argue that such transfers constitute a sale of land-exempt from GST-rather than a taxable supply of services. The court has restrained authorities from enforcing tax demands until further hearings, noting that the case raises significant questions about taxability, timing, and liability. The outcome could reshape GST treatment of JDAs, offering potential clarity and relief to landowners and developers. Authorities have been directed to respond within four weeks as the case proceeds.
A group of landowners who had petitioned the Bombay High Court to contest the Goods and Services Tax (GST)'s imposition on the transfer of development rights under joint development agreements (JDAs) were granted temporary relief earlier this week. The petitioners argued that such transfers should be considered as the sale of land, which is outside the scope of GST, rather than a supply of services subject to tax. Advertisement
The court issued notices to the authorities and restrained them from enforcing the disputed tax demands until further hearings. This interim relief prevents any immediate action on the impugned tax demands, providing temporary relief to the petitioners.
The dispute centers on whether the transfer of development rights by landowners, typically in exchange for a share in the developed property or revenue, constitutes a 'supply' of services liable to GST or a 'sale of land' which falls outside the scope of GST under the constitutional framework and the GST law.
Representing the landowners, Advocate Abhishek A. Rastogi argued that the transfer of development rights is an intrinsic part of land ownership and cannot be treated as a distinct service for GST purposes. He emphasized that development rights, being inseparable from the land, should not be artificially severed and taxed as services. Rastogi further highlighted that legislative amendments and clarifications introduced from April 1, 2019, should be interpreted in line with constitutional guarantees and the basic scheme of the GST law.
The division bench, after hearing initial submissions from both sides, observed that the petition raises important questions regarding the taxability, point of taxation, and the person liable to pay tax. Consequently, the court issued a Rule and granted interim relief by restraining the tax authorities from enforcing the disputed order until further hearing. The respondents have been directed to file their affidavit-in-reply within four weeks.
This case has the potential to significantly impact the real estate sector's understanding of GST applicability on JDAs. A favorable ruling for the petitioners could lead to a re-evaluation of how development rights are classified and taxed under the GST regime, potentially providing clarity and relief to landowners and developers involved in such agreements.
Although the case is still pending, the court's action emphasizes the necessity of precise rules regarding development rights' taxability. A resolution in favor of the petitioners could set a precedent, influencing future taxation policies and practices in real estate development across India.
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