Development agreement and FSI rights: no GST under Entry 5B absent actual transfer of development rights or FSI.

A development agreement allowing a developer to construct using existing or enhanced FSI did not amount to a taxable transfer of development rights or FSI under Entry 5B of the GST notification. The provision was read as covering actual transfer of TDR or FSI in the regulatory sense, capable of entitling construction under the applicable development control regime. Because the agreement only granted a right to develop the property and did not involve purchase or transfer of TDR or FSI from any person, the show cause notice and consequential GST demand were unsustainable. The impugned demand proceedings were quashed.

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Issues: Whether the development agreement for construction of a project fell within Entry 5B of the GST notification relating to transfer of development rights or FSI, and whether the show cause notice and consequential order levying GST were sustainable.

Analysis: Entry 5B applies to services supplied by way of transfer of development rights or Floor Space Index, including additional FSI, for construction of a project by a promoter. The expression was construed as referring to transferable development rights and FSI in the regulatory sense, namely compensation in the form of development rights or FSI capable of entitling construction of built-up area under the applicable development control regulations. The agreement in question was only a development agreement between the landowner and the developer, under which the developer was granted the right to develop the property by utilising existing or increased FSI. It did not involve purchase or transfer of TDR or FSI from any person. The clause relied upon by the revenue only concerned execution of apartment deeds under the Maharashtra Apartment Ownership Act, 1970 and did not convert the arrangement into a transfer of development rights.

Conclusion: The transaction did not fall within Entry 5B, and the show cause notice and consequential order levying GST were unsustainable.

Final Conclusion: The petition was allowed and the impugned demand proceedings were quashed.

Ratio Decidendi: A mere development agreement permitting a developer to construct on the land with existing or enhanced FSI does not amount to a taxable transfer of development rights or FSI under the relevant GST entry unless there is an actual transfer or acquisition of TDR or FSI.

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