In the case M/s Shrinivasa Realcon Pvt. Ltd. vs. Deputy Commissioner, Anti-Evasion Branch, CGST & Central Excise, Nagpur & Others (Writ Petition No. 7135 of 2024), the Bombay High Court (Nagpur Bench) delivered a significant judgment on April 8, 2025, concerning the applicability of Goods and Services Tax (GST) on development agreements.
Background
M/s Shrinivasa Realcon Pvt. Ltd. entered into a development agreement on January 7, 2022, with a landowner to construct a multi-storied complex on an 8,000 sq. ft. plot in Mouza Lendra, Nagpur. The Central GST authorities issued a show-cause notice dated August 14, 2023, and a subsequent demand order dated December 10, 2024, asserting that the transaction involved a supply of Transferable Development Rights (TDR) or Floor Space Index (FSI) under Entry 5B of Notification No. 13/2017 (CGST Rate), thereby attracting GST under the Reverse Charge Mechanism (RCM)
Court’s Findings
The Court quashed the show-cause notice and the subsequent demand order, ruling in favor of M/s Shrinivasa Realcon Pvt. Ltd. It held that the development rights under such agreements are not taxable under the Reverse Charge Mechanism as they do not qualify as TDR/FSI transfers under the specified notification
Judgment
That no GST is payable on services supplied by any person by way of transfer of land development rights or Floor Space Index (FSI). It was observed that the TDR / FSI as contemplated by entry 5B, cannot be related, to the rights which a developer derives from the owner under the agreement of development for constructing the building for the owners, in lieu of the owner agreeing to permit the developer to transfer certain built up units for consideration to be appropriated by the developer.
Implications
This judgment clarifies that not all development agreements between landowners and developers constitute a supply of TDR or FSI under GST law. It underscores the necessity for tax authorities to distinguish between actual transfers of development rights and mere development arrangements to determine GST applicability accurately.
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