Telangana HC upholds GST on transfer of development rights under Joint Development Agreements as constitutionally valid taxable supply

The Telangana HC dismissed a writ petition challenging the constitutional validity of GST Notification No. 4 of 2018 imposing GST on transfer of development rights under Joint Development Agreements. The court held that transfer of development rights involves two distinct taxable supplies: construction services by the developer and subsequent sale to third parties. The court distinguished this from sale of land under Schedule III exemption, ruling that development rights transfer constitutes taxable supply under GST Act provisions. The notification was upheld as constitutionally valid under Article 246A powers.

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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 GSTRs.
2. Whether the transfer of development rights can be safely brought within the purview of an outright sale of landRs.

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.

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