2024 (2) TMI 902 - HC - GST

Levy of GST - transfer of development rights of land by the land owners to the petitioner by way of a Joint Development Agreement - sale of land by the land owners or not - covered by Entry 5 of Schedule III of Goods and Services Tax Act, 2017 and the Telangana Goods and Services Tax Act, 2017 - constitutional validity of Notification No. 4 of 2018-Central Tax (Rate) (Annexure P1) dated 30.09.2019 imposing GST on transfer of development rights of land by the land owners under a JDA. Whether the transfer of development rights of the immovable property of the landowners can be brought within the scope of GST? - HELD THAT - Reading of the clauses of JDA reproduced in the preceding paragraphs would by itself reflect that the landowners have bundle of rights attached to his immovable property. One of the rights is that of getting the property developed by engaging an agency of his choice, on his terms and in the manner he deems fit - By virtue of the JDA, the petitioner would have the permission/license to enter into the subject property of the landowners for the purpose of undertaking and execution of the development activities on the said property. In terms of the JDA, upon the petitioner developing the entire property, the landowners would be granting a share in the land proportionate to the built-up area for which the petitioner is entitled towards consideration for the development. It is evident that the petitioner is offering construction services to the landowners in exchange for the landowners transferring the development rights to the petitioner. Only on account of the development rights thus the petitioner gets the right to enter into the land to undertake construction over the said property. The transfer of ownership from the landowner goes directly to the purchaser of the constructed property and not in favour of the petitioner unless and until the land stands transferred in the name of the petitioner. The same cannot be brought within the ambit of sale - Transferring of the development rights does not result in transfer of ownership rights. The reliance of the circular dated 10.02.2012 i.e. Circular No. 151/2/2012-ST, may not be of any relevance for the dispute in the present writ petition as the same was issued under service tax regime under which service tax was levied only on those services which figured in the specified list of services and where sale of land by the landowner was held to be non-taxable. This definitely does not also say that the transfer of development rights would also automatically become non-taxable. From plain reading of the JDA, what is reflected is that there are two sets of transactions to be met in its entirety. One is agreement between the landowner and the petitioner and another is the supply of construction services by the petitioner to the landowners and only thereafter sale of constructed area to third party buyers. Both these transactions qualify as supplies made and would attract GST subject to clause (b) of paragraph 5 of Schedule II and both these supplies would fall under Section 7 of the GST Act i.e. construction services further read with Entry 5(b) of Schedule II. Under no circumstances can the aforesaid two supplies can be termed as sale of land under Entry 5 of Schedule- III. Notification No. 4 of 2018 dated 25.01.2018 as amended by Notification No. 23/2019-Central Tax (Rate), dated 30.09.2019 deals with the time of supply of services of transfer of development rights which was otherwise always taxable, since introduction of GST, has now been postponed to a time when the petitioner transfers the possession of the constructed/developed area to the landowner. Taking into consideration the provisions of Article 246A of the Constitution of India and also considering the extraordinary powers which have been conferred upon the GST Council and upon whose recommendation the Government has issued the notification clarifying the aspect of transfer of development rights being attracted to GST/TGST, the challenge to the notification issued by the Government of India can be safely held to be devoid of merits. The grounds and contentions raised by the petitioner in respect of the reliefs sought for is not sustainable and the writ petition sans merit and therefore deserves to be and is accordingly, dismissed.

Summary

Issues Involved:
1. 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?
2. Whether the transfer of development rights can be safely brought within the purview of an outright sale of land?

Summary:

Issue 1: Nature of Transfer of Development Rights
The petitioner argued that the transfer of development rights under a Joint Development Agreement (JDA) should be treated as a sale of land and hence exempt from GST under Entry 5 of Schedule III of the GST Act, 2017. They contended that the JDA results in a substantive transfer of development rights, equating to a sale of land, which should not attract GST.

The respondent-Department countered that the JDA does not constitute an outright sale of land but rather a transfer of development rights, which is a service subject to GST. They emphasized that the ownership, title, and rights remain with the landowner, and the developer is merely executing development activities on behalf of the landowner.

The court examined various clauses of the JDA, noting that the agreement grants the developer permissive possession for development purposes but does not transfer ownership or title of the land. The court concluded that the transfer of development rights is a service under GST law and not an outright sale of immovable property.

Issue 2: Outright Sale of Land
The petitioner argued that the JDA should be viewed as a conveyance resulting in the sale of land, exempt from GST. They cited various Supreme Court judgments to support their contention that the transfer of development rights amounts to a sale of land.

The respondent-Department argued that the JDA does not result in an outright sale of land but rather a service agreement for development. They highlighted that the landowner retains ownership and title, and the developer's rights are limited to development activities.

The court referred to the Supreme Court's judgment in Commissioner of Income Tax v. Balbir Singh Maini, which held that similar agreements do not transfer ownership or title but merely grant development rights. The court concluded that the JDA does not result in an outright sale of land and that the transfer of development rights is subject to GST.

Conclusion:
The court held that the transfer of development rights under the JDA is a service subject to GST and not an outright sale of land. The impugned notification imposing GST on the transfer of development rights was deemed valid and not ultra vires the Constitution of India. The writ petition was dismissed, and the court upheld the applicability of GST on the transfer of development rights under the JDA.