Supreme Court admits Petition Challenges GST on joint development pacts, Impacting Real Estate Projects Nationwide
By: Admin
May 13, 2024
Categories: GST Recent News
4 Min Read
The Supreme Court of India has accepted a petition challenging the imposition of Goods & Services Tax (GST) on the transfer of development rights within joint development agreements between real estate developers and landowners. Notices have been issued to the Union government, GST Council, and Central Board of Indirect Taxes and Customs (CBIC) to respond to the special leave petition (SLP) filed by a property developer in Telangana. The application of 18% GST is expected to affect real estate projects nationwide, altering the cost dynamics of joint developments and redevelopment projects. Previously, in February, the Telangana High Court rejected a legal challenge by the same developer, who subsequently appealed to the apex court for relief.
The developer’s Advocate argued that in this barter transaction, the key question is whether the ancillary rights attached to the sale of land should be subject to GST, as the sale of land itself is excluded from GST. Additionally, they contended that since the second leg of the barter transaction, in the form of works contract services, is already subject to GST, imposing GST on development rights would result in double taxation. The South India-based developer initiated a writ petition in 2020 following a GST notification in 2019, which introduced a point of taxation for taxing the transfer of development rights from the landowner to the real estate developer. The petition argued that this effectively taxed a transaction similar to the sale of land.
Concerns over the impact of GST on rehabilitation apartments, provided free of cost to existing occupants as part of redevelopment projects, were raised by real estate developers last year when they approached the Ministry of Finance. Joint development and redevelopment projects are vital to most property markets, particularly amidst rising land prices and limited availability of vacant land in key urban centers. The crux of the issue lies in the imposition of 18% GST on the value of development rights, rendering projects in major markets such as Mumbai, Pune, Bengaluru, Hyderabad, and Kolkata unfeasible for stakeholders, including landowners. The outcome of this case could significantly alter property development practices, affecting stakeholders and reshaping strategies within the real estate sector.