Development Rights are leviable to GST – Telangana High Court

Development Rights are leviable to GST – Telangana High Court
M/s. Prahitha Constructions Private Limited, WP No. 5493 of 2020
A. Limited contentions of the Petitioner
1. Transfer of Development Rights of land by the land owners to the petitioner by way of a
Joint Development Agreement (‘JDA’) should be treated as sale of land by the land
owners.
2. Notification No. 4/2018-CT(R) defining the time of supply of Development Rights is
ultra vires the Constitution of India.
3. No Tax Rate is provided for Development Rights.
B. Issues taken up for deliberation by the Hon’ble Telangana High Court
4. The issues deliberated upon and decided in the Writ Petition are:
a) Whether the transfer of Development Rights is in the nature of transfer of immovable
property or the nature of services would fall within the scope of GST?
b) Whether the transfer of Development Rights can be safely brought within the
purview of an outright sale of land?
C. Views expressed by the Hon’ble Telangana High Court
5. Transferring of the Development Rights does not result in transfer of ownership rights.
The transfer of Development Rights is a service and not an outright sale of immovable
property.
6. The contention that the JDA eventually results in sale of land to the Developer is incorrect
and misleading. It is only by way of a separate conveyance deed, that too, after the
completion of the development activity the undivided share of land to the extent the
petitioner is entitled, could be transferred and not solely by virtue of the JDA.

7. That the sale of land/transfer of land or undivided share of land would get executed only
after issuance of completion certificate of the project. This itself would give a clear
indication that the services rendered by the petitioner in execution of JDA were supplied
prior to the issuance of completion certificate and would thus be amenable to GST.
8. Thus, the execution of the JDA between two parties by itself would not amount to result
in transfer of ownership. The transfer of Development Rights is hence a service under
GST Law which the landowner is offering to the developer and that too for a
consideration.
D. Author’s View
9. It is pertinent to note that as far as the concept of Development Right as evolved under
Service Tax & GST is concerned, it is commonly understood as a right to construct and
develop the structure and other infrastructure over a piece of land.
10. The Developers & Landowners must understand that there is no express exclusion
for non-taxability of the so-called Development Rights under the GST Regime.
11. A land has various rights attached to it. Some rights are right to occupy, right to use, right
of easement, right to lease, right to develop, right to sale, right to transfer, right to possess
etc. In common parlance, whenever a transaction of transfer of land is made, all rights
which are bundled with land are also sold including Development Rights. However, mere
transfer of Development Rights which is one of the rights that arises out of land are not
considered to be sale of land, in common parlance.
12. All these rights independently also, are defined as immovable property separately under
the General Clauses Act. Development Rights are independently recognized as
immovable property but it cannot be equated with sale of land which is a separately
identifiable immovable property. Therefore, arguing on the limited ground that
Transfer of Development Rights should be treated as sale of land by the land owners
has not put much force in the matter.
13. The view of the Hon’ble High Court to the extent that Development Rights are not
immovable property requires reconsideration and further deliberation, as it is already settled in various judicial pronouncements that Development Rights are
immovable property.
14. There are other multiple aspects which are additionally required to be presented & argued
before the Courts to get relief from the following incorrect understanding developed by
the Department/Government thata. The Landowner only transfers Development Rights to the Developer and;
b. The entire consideration received by the Landowner is only towards transfer of
Development Rights.