1. Transferable Development Right (TDR) is compensation in the form of Floor Price Index (FSI) or Development Rights which shall entitle the owner for construction of built up area. This FSI is issued in a certificate which shall be called as ‘Development Right Certificate’.
2. Development Rights Certificate (DRC) shall be issued by Municipal Commissioner under his signature and endorse thereon in writing in figures and words, the FSI credit in square meters of the built up area to which the owner of lessee us entitled, the place from where it is generated and the rate of that plot as prescribed in the Annual Statement of rates issued by the Registration
department for the concerned year.
3. Simply speaking, TDR means making available certain amount of additional built up area in lieu of the relinquished or surrendered by the owner of the land, so that he can use the extra built up area for himself or transfer it on another in need of the extra built up area for an agreed sum of money. Therefore, TDR is a right recognized by law. Whether is there is transfer of development right or not is question of fact.
4. Since inception of the GST Act, 2017, GST applicability on TDR has always been a debatable topic for years. Various high courts have given rulings on TDR, shaping the legal landscape and establishing precedents that impact urban development and property transactions across the country.
5. Recently, the Hon’ble Telangana High Court in the case of Prahitha Construction Private Limited vs Union of India and ors. [TS-60-HC(TEL)-2024-GST] vide the judgment and order dated 09.02.2024, held that the transfer of development right does not tantamount to sale of land would fall under the purview of “service” and is, therefore, subject to levy of GST.
6. The key challenge in the said writ petition was to confirm the validity of Notification No. 04/2018 – Central Tax dated 30.09.2018 imposing GST on transfer of development right by the land owner under a joint development agreement. It was contended by the petitioner that the transfer of development rights of land by the land owner to the petitioner by way of joint development agreement should be treated as sale of land by the land owner and hence, execution of the said agreement should not be subjected to levy of GST. It was contented that it should be covered under Entry 5 of schedule III to section 7 of the CGST and Telangana Goods & Services Tax Act 2017. The submission of the counsel for the petitioner have been recorded by the Hon’ble Court from para 7 to para 14 of the said judgment. The submissions of the senior standing counsel for the respondent department have been recorded from para 15 to para 23 of the judgment. The findings of the Court, as we see, starts from para 24 of the judgment. The High Court has framed two issues (Question of Law) to be adjudicated by the court. The same are, as under :
A. whether the transfer of development rights is in nature of transfer of immovable property or nature of services which would fall within the scope of GST; and
B. Whether the transfer of developments rights can be safely brought within the preview of an outright sale of land.
7. The findings of the Court can be summarized as under:
i. The Court has quoted the clauses from the joint development agreement in extension. Based on the said clauses of the agreement, the Court concludes that there is no transfer of rights and title in property to the petitioner. The land owner does not part with ownership till a conveyance deed is executed where by the land owner executes a sale deed to transfer the undivided share of land by way of share of the petitioner towards the investment, efforts, cost of construction and expenses incurred by the petitioner in the course of developing of entire property. Thus, the petitioner is offering construction services to the land owner in exchange for transfer of development of rights to the petitioner;
ii. The transfer of development of rights is a service under GST law which the land owner is offering to the developer for a consideration. Thus, transfer of development rights is a service and not an outright of sale of immovable property;
iii. The Hon’ble High Court has referred to clauses 6.1, 6.7, 2.4, 5.3, 6.7 and held that the land owner and developer would eventually entering into conveyance deeds;
iv. The Hon’ble High Court also refers to a clause in the contract which deals with the situation where any default on part of the petitioner in not completing the project in time or not following our condition stipulated, there is a condition of cancelling of contract/ agreement and in such situation the entire rights of the property continue to remain with the land owner. This is led to be conclusion, by the Court. That the ownership right of the property even as on date stands with the land owner not the petitioner;
v. The transfer of the land owner goes directly to purchaser of the constructed property and not in favor of the petitioner, unless and until the land stands transferred in the name of petitioner, transfer of development rights does not result in transfer in ownership rights;
vi. Reliance placed on circular dated 10.02.2012 has been was held not applicable as the same was under the service Tax regime;
vii. Reliance has been placed on the judgement of Hon’ble Supreme Court in the case of Balveer Singh Naini. The decisions select upon by the counsel for the petitioner have been distinguished on the ground the those are judgments rendered in entirely different background on connected and unrelated to issued involved in the present case. [Thus leading clause D of the joint development agreement along with Clause 2.2, 2.3, 2.4, 6.1, 6.7 and 23.4 the High Court had concluded that there is no sale of land or transfer of land by the land owner to the developer].
8. According to us, there are several contentions which had not been canvassed before the Hon’ble High Court. The contentions are summarized as under:
i. It has not been submitted before the Court that there is no transfer of development rights. In other words there is no supply the made by the land owner to the developer. It is a single transaction. Only construction services had been provided by the developer to the land owner and the consideration is paid in the form of TDR which can be on cashed by the developer;
ii. It is not contended that there is no barter. In fact, the argument proceeds on the assumption of the barter and the sole contention raised before the High Court was transfer of development right is sale of land.
iii. It is also not argued that GST had already been paid and therefore, there cannot be a double taxation. Reference may be invited to decisions in the service tax era of Vasantha Green Projects 2019-20-GSTL-568-Tri-Hyd.and Commissioner of CGST & C. Ex [TS-183-CESTAT-2018-ST], Thanes v. Ethics Infra Development Private Limited [TS-599-CESTAT-2021-ST]
iv. It has also not argued that the valuation of such rights had not been question.
v. The above judgment has been delivered in the peculiar facts of the joint development agreement entered between the parties. It has not been contended that in a joint development agreement, there is no supply inter-se. If, we say, it is a true joint development, then the supply is made by (a) The land lord and (b) The developer together to the (c) incoming flat purchaser.
9. Therefore, in our humble view, the said judgment does not foreclose any of these issues which have not been canvas or argue Before the Hon’ble High Court. It is well settled that the judgement is a precedent for what it decides and not what flows therefrom.
10. The judgement seems to be an assessment on facts of the case. It seems to be examining the agreement between the parties at length. It does not, in or view, lay down any ratio or proposition of law in general. It does not deal with the provisions relating to the Transfer of Property Act, 1882. It does not deal with the statutory provisions of the law of land. As such, they said judgement cannot be considered as a precedent for all issues not canvassed and argued before the court. A judgement is, it is well settled, as good as the arguments placed before it.
The Article was authored by Bharat Raichandani, Advocate and Prachi Sharma, Advocate
