Bombay HC (Nagpur Bench): No GST Payable on Transfer of Land Development Rights/FSI

The Nagpur Bench of the Bombay High Court stated that no Goods and Services Tax (GST) is applicable on services provided through the transfer of land development rights or Floor Space Index (FSI).

It was noted by the bench of Justice Avinash G. Gharote and Justice Abhay J. Mantri that the TDR / FSI as contemplated by entry 5B, could not be pertinent to the rights which a developer originates from the owner under the agreement of development for constructing the building for the owners, instead of the owner consenting to allow the developer to transfer specific built up units for consideration to be appropriated via the developer.

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The petitioner challenged the notice requiring them to pay the tax amount determined based on the transaction outlined in the sale agreement. According to this agreement, the petitioner has been designated as the developer by the landowner to develop a parcel of land measuring 8,000 square feet in Mouza Lendra into a multi-storied complex. The monetary consideration for this development is Rs. 7 crores and two apartments.

It also challenged the second Show Cause Notice (SCN), which claimed GST on the transaction based on clause (5-B) of the notification dated June 28, 2017. This claim was revised under the subsequent notification issued on March 29, 2019.

The applicant contended that the transaction outlined in the Agreement of Development dated January 7, 2022, does not fall under the provisions of clause (5-B) related to the applicability of GST. This clause specifically pertains to services supplied by a person through the transfer of development rights or Floor Space Index (FSI) for the construction of a project by a promoter.

Upon an initial review of the agreement dated January 7, 2022, it seems that the document does not involve the supply of any Transfer of Development Rights (TDR), as defined in Regulation 11.2 of the Unified Development Control and Promotion Regulations for the State. Furthermore, the GST Act does not provide a definition for Transfer of Development Rights (TDR).

The department argued that Entry 5B in the notification dated March 29, 2019, related to clause 18 of the development agreement, involves a transfer. Therefore, Entry 5B applies, allowing the respondents to impose GST on the transaction.

While permitting the petition, the Bombay High Court carried that the transaction as outlined as per the agreement on 07.4.2022 does not comes within entry 5B of the notification on 28.6.2017 as it stand revised under the Notification on 29.3.2019 concerning which neither the SCN nor the forthcoming order can be kept and are hereby quashed and set aside.