Development Rights
Is the transfer of Development Rights (TDR) to the developer under a Joint Development Agreement (JDA) subject to GST?
In the case of M/S Prahitha Construction Pvt Ltd vs Union of India [(2024) 15 Centax 295 (Telangana)], the Hon’ble High Court of Telangana made the following decisions:
FACTS OF THE CASE
1. The developer entered into a JDA with two landowners.
2. The JDA was executed on 28.12.2017, after the implementation of GST.
3. The developer agreed to construct three residential towers along with common amenities and facilities.
ARGUMENTS OF THE PETITIONER
1. The JDA should be treated as a sale of land, falling under Entry 5 of Schedule III of the GST Act, 2017.
2. The execution of the JDA resulted in the substantive transfer of development rights, constituting a sale of land proportionate to the developer's investment.
3. Notification No. 04/2018-CGST, imposing GST on TDR, was deemed unconstitutional.
4. Section 148, under which the notification was issued, did not grant the department the authority to levy GST.
DECISION OF THE COURT
The High Court ruled that TDR does not equate to the sale of land and is subject to GST for the following reasons:
- Notification 04/2018-CGST only addresses the time of supply of TDR and does not specify the levy of GST.
- Upon examination of the JDA, it was determined that ownership of the land was not automatically transferred to the developer upon entering into the agreement.
- The developer only gains the right to the property upon completion of the project.
- Without substantial evidence of right, title, and ownership being transferred to the developer at the time of entering the JDA, it cannot be considered a sale of land.
- Therefore, the Telangana High Court concluded that TDR is not equivalent to the sale of land and is subject to GST.