Bombay HC Strikes Down GST Demand on TDR Used by Real Estate Developer

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