The Maharashtra Appellate Authority of Advance Ruling (AAAR) affirmed the AAR’s ruling and held that 18% GST is leviable on sale of Transferable Development Rights (TDR) or Floor Space Index (FSI) received as consideration for surrendering the joint rights.
The Applicant, Mr. Vilas Chandanmal Gandhi, was an owner of the land situated within the limits of PMC and wanted to develop the land jointly in collaboration with M/s. Amar Builders and Developers share the profits through distribution of sale proceeds after development of the land by way of construction of residential/ commercial projects.
In terms of the agreement entered into, between the applicant and the developer the applicant assigned/ transferred the development rights in land to the Developer; the said assignment/ transfer of rights in land was for the purpose of construction of residential/ commercial project on the land, the Developer agreed to pay consideration in the form of 45% of the sale proceeds of the developed project, and the developer had given Rs. 3,60,00,000 to the Applicant as security deposit to be refunded within a month after completion of the project on the underlying land.
The applicant surrendered the rights in the said land in favour of the PMC against which PMC awarded TDR’s/ Additional FSI as compensation vide issue of Development Right Certificates (DRC’s).
The applicant sought the advance ruling on the issue whether GST is leviable on sale of TDR/ FSI received as consideration for surrendering the joint rights in land in terms of Development Control Regulations and granted in light of the article of agreement dated 18 December 2017 entered between the Applicant and PMC read with Development Control Regulations and if yes, what will be classification under GST and what will be applicable rate of GST.
The AAR ruled that 18% GST is leviable on sale of TDR or FSI received as consideration for surrendering the joint rights.
The applicant challenged the AAR’s order on the ground that TDR or FSI cannot be taxed under GST law as it is in the nature of immovable property/land which is covered under Schedule III of CGST Act, 2017 which elaborates on the activities or transaction which shall be treated as neither as supply of goods nor supply of service.
The AAAR consisting of Sanjeev Kumar and Rajesh Kumar Sharma while rejecting the contention of the applicant upheld the AAR’s ruling and said that TDR or FSI would be leviable in GST under heading 9972 at the rate of 18% GST as prescribed under Notification No. 11/2017- Central Tax (Rate), dated June 28, 2017.
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