No GST Liability under Entry 5B for Development Agreements Without TDR/FSI Transfer: Bombay HC [Read Order]

In a recent decision, the Bombay High Court held that GST is not leviable under Entry 5B of the GST Notification on development agreements that do not involve a transfer of Transferable Development Rights (TDR) or Floor Space Index (FSI).

Shrinivasa Realcon Private Ltd. filed a writ petition challenging a show cause notice dated 14.08.2024 and a demand notice dated 24.07.2024 issued by the Deputy Commissioner, Anti-Evasion Branch, CGST & Central Excise, Nagpur. The petitioner was appointed as a developer through an agreement dated 07.01.2022 to construct a multi-storied complex on the landowner’s property in Mouza Lendra.

In return, the developer was entitled to receive Rs. 7 crores and two flats from the constructed building. The GST department argued that this arrangement amounted to a taxable supply under Entry 5B of the Notification dated 28.06.2017, as amended on 29.03.2019, which levies GST on services involving the transfer of development rights or FSI for construction by a promoter.

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The petitioner’s counsel argued that the development agreement did not entail any purchase or transfer of TDR or FSI from a third party and was a straightforward agreement to develop the property using the existing rights of the landowner. They further pointed out that the GST Act does not define TDR and that the clause cited by the department, Clause 18 of the agreement, merely relates to procedural formalities under the Maharashtra Apartment Ownership Act, 1970, not a transfer of development rights.

The GST department’s counsel argued that Clause 18 of the agreement implied a transfer and that Entry 5B was applicable. They argued that the act of permitting the developer to construct and retain part of the building constituted a supply of service by way of development rights.

The bench comprising Justice Avinash G. Gharote and Justice Abhay J. Mantri observed that Entry 5B only applies when there is a transfer of TDR or FSI as defined under the Unified Development Control and Promotion Regulations.

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The court found no such transfer in the present case, as the rights granted to the petitioner were limited to development on the landowner's existing FSI and did not involve any third-party TDR/FSI. The court clarified that development rights deriving directly from the landowner, without external acquisition or transfer of statutory development rights, are not covered under Entry 5B.

The court found that such development agreements, wherein the developer is merely granted rights to construct on the owner’s land and receives part of the constructed property as consideration, do not fall within the ambit of taxable services under the said notification.

The court ruled that the transaction fell outside the scope of Entry 5B of the GST Notification. The show cause notice dated 14.08.2024 and the consequent order dated 10.12.2024 were quashed and set aside. The writ petition was allowed, with no order as to costs.

To Read the full text of the Order CLICK HERE

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