GST on DRC

[Ashika Agarwal]

Is GST applicable on sale of Development Right Certificate?

[Amit Agrawal]

With the understanding that you are referring about 'transfer of development rights', it is taxable under GST.

This is because there is difference between immovable property - as defied in general clauses act - & Land as referred in Serial no. 5 of Schedule - III.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Ashika Agarwal]

Sir,

I want to know GST Application on transfer of the below mention certificate:

TDR certificate/ Development Rights Certificate (DRC) is a certificate issued by the competent authority to an owner or a lessee of the land on surrender of the gross ‘area’ of the land which is required for public purpose.

This certificate allows the land owner an additional built-up area in return of the area for which he has relinquished his rights. It also enables him to either develop the given area by himself or transfer/ trade in the market wherein the holder of DRC can sell the same to local builder or any other person for a consideration.

[Amit Agrawal]

If land-owner (whose land is acquired by Govt for public purposes against Development Right Certificate) sells / transfers such certificate for a consideration (say, to a builder), then, GST is applicable on such supply.

I am not sure I understood reasons behind your doubts / concerns.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Padmanathan KV]

As per the current position under GST Law, it is taxable.

[Shilpi Jain]

This is rights on immovable property which is also an immovable property. GST being a tax on only goods and services this transaction should not be liable to GST.

However, this position would be disputed by the department and not to pay GST on this would require a challenge in the Courts.

If the person who is buying the TDR is a promoter then this would be liable in the hands of the person buying this TDR under RCM and would not be liable in the hands of the person selling the TDR

[Sadanand Bulbule]

Dear querist

Development Rights Certificate [DRC] is issued by the Statutory Development Authorities of the State Governments in lieu of relinquishing or acquisition of private land for public utility under the State Town & Country Planning Act. It can be used by the owner of the property so relinquished or else by another developer owning the land for additional area as per the formula prescribed on payment of consideration to the original owner of the property. This is akin to the sale of land, which is neither a supply of goods nor a supply of service vide Entry No. 5 of the III Schedule to the GST Act.

Normal TDR  contracted under JV between the land owner and the developer  for construction of civil structure for sharing of either agreed portion of constructed area or sharing of agreed amount of revenue is altogether different from DRC issued in lieu of relinquishing or acquisition of private land for public utility by the Statutory Development Authority.Thus there is no connection between DRC and the TDR.

[Sadanand Bulbule]

Dear querist

Please note that the Hon'ble Bombay High Court in its division bench judgement dated 15/02/2017 rendered in the  case of Chheda Housing Development Vs.Bibijan Shaikh Farid and Ors[2007 (2) TMI 664 - BOMBAY HIGH COURT] has held as under:

15. The question is whether on account of the term in the clause which permits acquisition of slum TDR the Appellants in so far as the additional F.S.I. is concerned, are not entitled for an injunction to that extent. An immovable property under the General Clauses Act, 1897 under Section 3(26) has been defined as under:

(26). "immovable property" shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth." If, therefore, any benefit arises out of the land, then it is immovable property. Considering Section 10 of the Specific Relief Act, such a benefit can be specifically enforced unless the respondents establish that compensation in money would be an adequate relief.

Can FSI/TDR be said to be a benefit arising from the land. Before answering that issue we may refer to some judgments for that purpose. In Sikandar and Ors. v. Bahadur and Ors. - 1905 (1) TMI 1 - ALLAHABAD HIGH COURT, a Division Bench of the Allahabad High Court held that right to collect market dues upon a given piece of land is a benefit arising out of land within the meaning of Section 3 of the Indian Registration Act, 1877. A lease, therefore, of such right for a period of more than one year must be made by registered instrument. A Division Bench of the Oudh High Court in Ram Jiawan and Anr. v. Hanuman Prasad and Ors. 1940 (8) TMI 34 - OUDH HIGH COURT also held, that bazar dues, constitute a benefit arising out of the land and therefore a lease of bazar dues is a lease of immovable property. A similar view has been taken by another Division Bench of the Allahabad High Court in Smt. Dropadi Devi v. Ram Das and Ors. - 1973 (12) TMI 97 - ALLAHABAD HIGH COURT on a consideration of Section 3(26) of General Clauses Act. From these judgments what appears is that a benefit arising from the land is immovable property. FSI/TDR being a benefit arising from the land, consequently must be held to be immovable property and an Agreement for use of TDR consequently can be specifically enforced, unless it is established that compensation in money would be an adequate relief.

[Sadanand Bulbule]

Corrigendum:

Please read the judgement dated 15/02/2007 instead of  2017. Apology.

[Sadanand Bulbule]

Dear querist

Section 2[2] of the Karnataka Town & Country Planning Act, 1961 defines Land as under:

"Land" includes benefits arising out of land and things attached to the earth or permanently fastened to anything attached to the earth.

This is in consonance with the judicial rulings referred at Sl No. 7 above.

[KASTURI SETHI]

Dear Querist,

My views are as under :-

The activity of issuance of DRC is covered under Residual Entry under SAC 9991 and GST is leviable @ 18%. This is aligned with  the opinion of Sh. Sadanand Bulbule, Sir extracted as under :

"Thus there is no connection between DRC and the TDR"

[Sadanand Bulbule]

Dear querist

In terms of serial number 39 of Notification No.11/2017-Central Tax [Rate] dated 28/06/2017 which contains the list of taxable services under the GST Act, under the heading of SAC 99, the opening line reads as under:

 "supply of service other than services by way of grant of development rights----------". It means  services supplied for the purpose of grant of development rights is specifically excluded from the ambit of taxable services. 

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir,  I think the word, 'sale' is not appropriate here. The querist might be interested in knowing the applicability of GST on the 'issuance' of certificate and not in 'sale' thereof. If it is so, RCM is applicable vide Notification No.13/17-CT dated 28.6.17 (serial no.5). The emphasis is on EXCLUSION clause (1),(2) (i)(ii)(iii). GST will be paid by the business entity.

The query being very old, has lost its importance now.

[Sadanand Bulbule]

Dear all

While thanking all the experts for their own opinions, I wish to add here that, since the department has begun to adjudicate the issue of DRC to foist tax, I am posting my understanding of the subject on hand for the information of all the visitors.

It is only when the opinions differ, more clarity fountains rather than sticking to one only. Thus no opinion is right or wrong and we cannot judge it on this forum. The whole idea is to enlighten the stakeholders with plausible explanation. As such the subject issue has regained importance than ever and therefore I reopened it. That's all.

 

AI Summary

GST applicability on development rights: divergent views on whether transfer of DRC is taxable or treated as immovable property.
The taxability of Development Rights Certificates turns on their legal characterisation: if a DRC/TDR is a benefit arising out of land it is treated as immovable property and falls outside GST supply coverage; conversely, if characterized as a service or transferable development entitlement it may be taxable, with consequences under the reverse charge mechanism and specific notification exclusions determining who bears GST liability.