Supply or Land Transaction? Bombay HC Stays GST Demand on Development Rights in Revenue-Sharing Deals [Read Order]

In a recent proceeding, the Bombay High Court stayed the GST demand raised on the transfer of development rights under a revenue-sharing agreement.

The key question before the court is whether such development rights constitute a taxable “supply of services” under the CGST Act or are to be treated as a “sale of land,” which is immune from GST. The court has admitted the writ petition and is set to decide the issue in due course.

The petitioner, Nirmal Lifestyle Developers Pvt. Ltd., entered into a development agreement with L&T Asian Realty Project LLP. Under this agreement, development rights were granted in exchange for a share in the revenue generated. The GST authorities subsequently issued an Order-in-Original dated 02.01.2025, followed by a demand in Form DRC-07 dated 14.01.2025, claiming tax liability on the transaction.

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Challenging this, the petitioner sought a declaration that such rights are not taxable under GST as they amount to a transfer of immovable property, which falls outside the scope of “supply” under Sections 7 and 9 of the CGST Act and is excluded under Schedule III.

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During the hearing, the petitioner’s counsel argued that there was either no transfer at all or, if there was, it involved immovable property and was not taxable under GST. Reliance was placed on a Gujarat High Court decision that held the assignment of lease rights did not fall within Schedule II of the CGST Act and was therefore not exigible to GST. The petitioner argued that the same reasoning applied in their case.

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The counsel for the GST department is expected to argue that the revenue-sharing nature of the agreement implies consideration for services rendered, thereby making the transaction taxable under GST law. The department’s detailed position will be presented in its affidavit in reply, which the court has directed to be filed within two weeks.

A division bench of Justices B. P. Colabawalla and Firdosh P. Pooniwalla observed that the case raised arguable questions of law and facts and found a prima facie case for granting interim relief. The court stayed further proceedings related to the impugned GST demand and directed both parties to complete the exchange of affidavits in the coming weeks.

To Read the full text of the Order CLICK HERE

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