Supreme Court Issues Notices to CBIC on GST Applicability in Real Estate Joint Development Agreements

Published on: May 14, 2024 12:10 IST

Hon’ble Supreme Court has admitted a petition challenging imposition of the Goods & Services Tax (GST) on the transfer of development rights within joint development agreements between realty developers and landowners.

Supreme Court has issued notices to the Union of India, Union Finance Ministry, and Central Board of Indirect Taxes & Customs (CBIC) in response to a Special Leave Petition (SLP) against a Telangana High Court ruling. The SLP seeks clarity on the applicability of Goods and Services Tax (GST) to joint development agreements between developers and landowners.

In the SLP, Petitioner seeking clarity whether GST is applicable to joint development agreements, considering that such agreements involve the sale of land. The petition argues that development rights are inherent to land sales and should not attract GST.

The dispute stems from conflicting interpretations regarding GST on the transfer of development rights. While the Telangana High Court ruled in favor of GST applicability, the petitioner, Prahitha Constructions, challenges this decision, contending that development rights are subsidiary to land conveyance and should not be taxed under GST.

Despite the Supreme Court’s issuance of notices, it clarified that GST will remain applicable on the transfer of development rights or joint development agreements until a final decision is reached. The division bench, comprising Justice Sanjeev Khanna and Justice Dipankar Dutta, heard arguments from both sides, with Abhishek A Rastogi representing the petitioner.

Petitioner rasied the critical question of whether incidental rights to land sales should be subject to GST, emphasizing that land transactions are typically excluded from GST regulations. He warned that additional taxes on land sales could render projects economically unfeasible and exacerbate tax cascading issues.

Supreme Court has fixed the next hearing for September 9, and directed Government to submit it’s reponce on this issue. With no interim stay granted, stakeholders in the real estate sector, including landowners and developers, will continue to be subject to GST on development services until a final verdict is delivered. The outcome of this case is anticipated to provide clarity and set a precedent regarding GST implications in joint development agreements.

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