The Telangana High Court decided on Friday that the Goods and Services Tax will be applicable to the transfer of development rights by landowners under a Joint Development Agreement.
In the previous hearings, the revenue argued before the bench that although there is no GST on land, rights arising from land, including TDR, are subject to GST.
However, the petitioner argued that development rights are inherently linked and inseparable from the sale of land, suggesting there is no TDR independent of the land transfer.
The petitioner contended that relying on the Income Tax Act would not be helpful, emphasising that under GST, the crucial aspect is 'when' the transfer occurs, not 'whether' as in the Income Tax Act.
The petitioner's counsel urged the bench to recognise that the transfer of TDR is not a 'Service' and does not fall under 'Supply'.
Exploring statutory interpretation and the use of schedules in legislation, the petitioner argued that schedules are tools for assisting in the levy of tax on a transaction. The court had previously reserved its judgement.
The applicability of GST on the transfer of development rights has been a persistent issue since the introduction of GST, according to Parag Mehta, partner at NA Shah Associates LLP.
Stakeholders argue that as the sale of land is exempt from GST, development rights being inherent to land should also be exempt, he said.
This ruling will have substantial implications for builders and developers. Further with no Input Tax credit available to builders and developers, the GST on development rights for residential projects will be a cost to them.Parag Mehta, Partner, N. A. Shah Associates LLP
RS Associates represented the petitioner, while the revenue was represented by Gadi Praveen Kumar, Deputy Solicitor General of India.