Land development rights transferred under a Joint Development Agreement for residential projects are subject to GST, as per the decision of the Telangana High Court.
In a significant legal decision, the Telangana High Court has rejected a writ petition filed by a real estate developer challenging the imposition of GST on the transfer of Land Development Rights (TDR) under a Joint Development Agreement (JDA) for residential projects. The court’s ruling upholds the validity of the notification for imposing the tax.
The petitioner, Prahitha Construction Private Limited, approached the High Court with a plea that the transfer of land to the developer by the landowner under a Joint Development Agreement (JDA) should not be subject to GST. The argument was based on the contention that GST on the transfer of development rights by the landowner under a JDA is essentially akin to the sale of land, which is not liable for GST.
Jointventure Agreement
The Joint Development Agreement (JDA) is a legal arrangement allowing landowners and developers to collaborate on land development projects. Presently, two GST options exist: the pre-March 31, 2019 option, with a GST rate of 18% and input tax credit (ITC), and the post-April 1, 2019 option, with a rate of 1.5/7.5% without ITC. Numerous rulings by the Authority for Advance Rulings (AAR) have affirmed the applicability of GST in such cases.
An expert commenting on the High Court judgment highlighted that the court emphasized a crucial distinction: while the transfer of land itself is not treated as a supply under GST, the transfer of the right to develop under a joint development agreement becomes taxable under GST at the time of entering into the agreement. This clarification underscores the differentiation between the sale of land and the transfer of rights for the sale of land.
Pivotal Ruling
The ruling upholds the concept that the exclusion of land sale from the definition of supply, as outlined in Schedule III, is exhaustive. This renders the transfer of development rights taxable unless there is a specific exemption. The judgment affirms the government’s position, and industry stakeholders should take note of this crucial ruling. It provides clarity on tax obligations arising from intricate real estate transactions, ensuring compliance within the evolving GST framework.,He said
The advocate representing the petitioner stated, “While we will have to delve into the details of the order and how the constitutionality aspect has been addressed, the matter will now be taken up by the Supreme Court to determine whether a notification can impose tax on a transaction similar to the sale of land.”