In a significant judgment for Maharashtra’s real estate sector, the Nagpur bench of the Bombay High Court has ruled in favour of Shrinivasa Realcon, striking down a GST demand issued by the tax authorities. The court held that the real estate developer was not liable for GST on the Transferable Development Rights (TDR) under the agreement in question, as no taxable transfer of development rights occurred.

The case involved a development agreement executed on April 7, 2022, between Shrinivasa Realcon and a landowner for constructing a residential complex on an 8,000 sq ft plot in Mouza Lendra. The agreement, worth Rs 7 crore and two flats, was challenged by the developer after receiving a GST show-cause notice on August 14, 2024, and a final GST order dated December 10, 2024.

Key Arguments and Court Ruling

The court noted that the project did not involve the transfer or purchase of TDR or Floor Space Index (FSI) from external sources. Instead, the construction was based solely on the existing FSI or any statutory increase. Senior counsel for the developer, Akshay Naik, argued that the provisions of Entry 5B under the GST notification did not apply to this case as there was no external transfer of TDR or FSI.

Key Highlights of the Ruling:

• No Transfer of TDR or FSI: The court found that the agreement did not involve any taxable transfer of TDR, thus excluding it from the scope of GST.

• GST Notification Clarified: Entry 5B of the GST notification, which deals with the taxation of services involving the transfer of TDR or FSI, was deemed inapplicable in this case. The court observed that the GST law does not define the term "transfer of development rights" and ruled that the developer’s use of existing FSI did not constitute a taxable transfer.

• Legal Precedent on TDR: The court referred to Clause 11.2 of the Unified Development Control and Promotion Regulations, which outlines TDR as compensation granted by a planning authority, a condition that did not apply in this case.

• Quashing of Orders: The bench quashed both the show-cause notice and the final order, emphasising that neither could be sustained based on the facts presented.

Implications for the Real Estate Sector

This ruling offers clarity on the taxability of TDR transactions and provides relief to developers involved in projects that do not involve external transfers of development rights. The decision is expected to have significant implications for developers and taxpayers in Maharashtra, as it clarifies the scope of GST applicability in development agreements.

The ruling also reinforces the importance of precise documentation in real estate transactions, especially concerning the definition and usage of TDR and FSI under the GST framework.

Conclusion

The Bombay High Court’s decision is a major victory for developers, providing much-needed clarity on the application of GST to development agreements involving TDR and FSI. By striking down the GST demand, the court has reinforced that only transactions involving an actual transfer of development rights are subject to GST, setting a precedent for future real estate projects.