In the case of M/s Prahitha Constructions Pvt. Ltd. v. Union of India and Others, the Hon’ble Supreme Court heard and issued notice in the SLP filed against Hon’ble Telangana High Court’s judgement of taxability of transfer of development rights.
The Hon’ble Telangana High Court in the case of Prahitha Construction v. Union of India and Others[1] in its order dated 09.02.2024 held that the transfer of the development rights to real estate developers by way of Joint Development Agreement with the landowners, would fall within the purview of taxable service under GST. The Hon’ble High Court has observed that TDR cannot be brought within the purview of Entry 5 of Schedule-III unless is there is a cogent and substantial material to establish that a right, title and ownership being created in favour of developer.
However, the Hon’ble Supreme Court stated that the Impugned Judgement rendered by the Hon’ble High Court is not stayed, and therefore the Petitioner is required to pay the taxes.
W&B Comments: As there is currently no stay on the matter, the levy remains operational, and GST must be paid upon the transfer of development rights. Historically, there has been a debate about the taxability of such transfers, as taxpayers argue that development rights, being derived from land sales, fall within the definition of immovable property. no service tax was levied in the erstwhile regime.
CESTAT Tribunal Chandigarh in DLF Commercial Projects[2] had observed that “the transfer of development rights in the case in hand is termed as immovable property in terms of Section 3(26) of General Clauses Act, 1897 and no service tax is payable as per the exclusion in terms of Section 65B(44) of the Finance Act, 1994.” Nevertheless, taxpayers are currently obligated to pay GST on such transfers until the Hon’ble Supreme Court provides any relief on the issue.
[1] 2024 (2) TMI 902
[2] 2019 (27) GSTL