2025 (3) TMI 1443 - AAAR - GST

Developer liable for GST on transfer of development rights despite receiving consideration before CGST Act enactment

In Re: M/s. Maddi Seetha Devi.

The AAAR, Telangana dismissed an appeal concerning GST liability on transfer of development rights (TDR) under a joint development agreement. The ... Receipt of consideration by the developer as per N/N. 04/2018-CT (Rate) dt.25.01.2018 or not - transfer of land or transfer of 'development rights' to the developer by the landowner - Whether the liability to pay GST or service tax as applicable arises on the developer immediately on receipt of development rights or immediately on conveyance of the flats to be constructed by way of an allotment letter? Whether GST is applicable when consideration for the service was received prior to enactment of CGST Act, 2017 in the light of clause (b) of Section 142 (11) of GST Act, 2017? - HELD THAT:- The appellant is of opinion that since the JDA was entered on 01.01.2016 i.e., before introduction of GST, TDR attracts service tax for transfer of land by the appellant to the builder for the purpose of construction (para 14.3 of their appeal). It is observed that Advance Ruling Authority or Appellate Authority are constituted under the CGST/SGST Act, 2017 to provide clarification on matters under GST Act and Rules made thereunder. Section 97 (2) of the Chapter XVII provides for spectrum of issues on which the advance ruling can be sought for under the Act. Neither the Advance Ruling Authority nor this Appellate Authority have any jurisdiction to decide on the taxability under Finance Act, 1994. Therefore, the attempt of the appellant to seek a ruling to the effect that, in the facts of this case, the supply of TDR attracted Service Tax cannot be countenanced. Whether GST is required to be paid when the developer has paid GST on the entire value of construction complex including the cost incurred for construction of flats to the landowner appellant? - HELD THAT:- The appellant has raised a query which is not posed before the Advance Ruling Authority. In terms of Section 101 (1) of CGST Act, 2017, the Appellate Authority can, after giving the parties to the appeal or reference an opportunity of being heard, pass such order as it thinks fit, confirming or modifying the ruling appealed against or referred to. Further, it is not open to the appellant to introduce new grounds in an appeal when admittedly these grounds were not raised before the original authority. Hon'ble Supreme Court has in the case of Commissioner of Cust & C Ex, Goa vs Dempo Engineering Works Ltd. [2015 (4) TMI 961 - SUPREME COURT], held that Tribunal cannot allow an appeal on new grounds when the same were neither raised in reply to the show cause notice nor were argued before the Adjudicating Authority - Thus, when a question is not raised before the Advance Ruling Authority, the Appellate Authority cannot entertain the same in appeal. Conclusion - i) The transfer of development rights is considered as receipt of consideration by the developer. ii) GST liability arises at the time of transfer of possession or rights in the constructed property, not at the time of receipt of development rights. The appeal is dismissed and the impugned ruling of Advance Ruling Authority is upheld. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:1. Whether the transfer of land or 'development rights' to the developer by the landowner is considered as receipt of consideration by the developer under Notification No. 04/2018-CT (Rate) dated 25.01.2018 and related clarifications.2. Whether the liability to pay GST or service tax arises on the developer upon receipt of development rights or upon conveyance of the constructed flats through an allotment letter.3. Whether GST is applicable when consideration for the service was received prior to the enactment of the CGST Act, 2017, in light of clause (b) of Section 142 (11) of the CGST Act, 2017.4. Whether GST is required to be paid when the developer has already paid GST on the entire value of the construction complex, including the cost incurred for constructing flats for the landowner.ISSUE-WISE DETAILED ANALYSIS1. Transfer of Development Rights as Consideration- Relevant Legal Framework and Precedents: The issue revolves around Notification No. 04/2018-CT (Rate) and the clarifications issued post-GST introduction. The notification and clarifications address whether development rights transferred by a landowner to a developer constitute consideration for construction services.- Court's Interpretation and Reasoning: The Advance Ruling Authority determined that the transfer of development rights by the landowner is indeed consideration received by the developer for supplying construction services.- Application of Law to Facts: The court applied the notification and clarifications to conclude that the transfer of development rights is equivalent to receiving consideration.- Conclusions: The court upheld the Advance Ruling Authority's decision that the transfer of development rights is considered as receipt of consideration by the developer.2. Timing of GST Liability- Relevant Legal Framework and Precedents: The timing of GST liability is governed by Section 13 of the CGST Act, 2017, which deals with the point of taxation.- Court's Interpretation and Reasoning: The Advance Ruling Authority concluded that the liability to pay GST arises at the time of transfer of possession or right in the constructed complex or flats, not at the time of receipt of development rights.- Competing Arguments: The appellant argued that the liability should arise at the time of receipt of development rights, based on the point of taxation rules and the absence of an invoice.- Conclusions: The court upheld the Advance Ruling Authority's ruling that GST liability arises at the time of transfer of possession or rights in the constructed property.3. Applicability of GST for Pre-GST Consideration- Relevant Legal Framework and Precedents: The appellant cited clause (b) of Section 142 (11) of the CGST Act, 2017, which addresses the non-applicability of GST on services for which tax was leviable under the Finance Act, 1994.- Court's Interpretation and Reasoning: The court noted that neither the Advance Ruling Authority nor the Appellate Authority has jurisdiction to decide on taxability under the Finance Act, 1994. The appellant's attempt to seek a ruling on service tax applicability was not entertained.- Conclusions: The court dismissed the appellant's argument regarding the non-applicability of GST for pre-GST consideration, as it was beyond the jurisdiction of the Advance Ruling Authority.4. GST on Construction Costs Already Taxed- Court's Interpretation and Reasoning: The appellant raised a new issue regarding whether GST is required on construction costs already taxed, which was not presented to the Advance Ruling Authority.- Competing Arguments: The appellant cited the case of Torrent Power Limited to argue that no further GST should be payable if GST was already paid on construction costs.- Conclusions: The court held that new grounds not raised before the original authority cannot be entertained in an appeal, referencing Supreme Court precedent.SIGNIFICANT HOLDINGS- The court upheld the Advance Ruling Authority's decision that the transfer of development rights is considered as receipt of consideration by the developer.- The court confirmed that GST liability arises at the time of transfer of possession or rights in the constructed property, not at the time of receipt of development rights.- The court dismissed the appellant's argument regarding the non-applicability of GST for pre-GST consideration, as it was beyond the jurisdiction of the Advance Ruling Authority.- The court ruled that new grounds not presented to the Advance Ruling Authority cannot be considered in an appeal.ORDERThe appeal is dismissed, and the ruling of the Advance Ruling Authority is upheld.