Transfer of Development Rights Not ‘Service’: CESTAT Sets Aside Common Order Confirming ₹24 Cr Service Tax Demand on Omaxe-Linked Entities [Read Order]

In a major relief to a group of land-owning companies associated with M/s Omaxe Limited, the Principal Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, has set aside a cumulative service tax demand of ₹24.20 crore along with interest and penalties, holding that the transfer of development rights (TDR) constitutes transfer of immovable property, which is outside the purview of service tax.

The batch of sixteen appeals, including the lead matter filed by M/s Vineera Colonisers Private Limited, arose out of a common adjudication order passed by the Additional Director General (Adjudication), DGGI, confirming the service tax demand under Section 73(1) of the Finance Act, 1994. The Department had alleged that the appellants, all land-owning entities within the Omaxe Group, had transferred development rights to Omaxe Limited in return for monetary consideration, and that such transfer amounted to a taxable service in terms of Section 66E of the Act.

According to the show cause notices, Omaxe Limited, engaged in real estate development, entered into Memoranda ofUnderstanding (MoUs) with each appellant for the acquisition and development of land. Under these agreements, Omaxe funded the purchase of land in the names of the appellants, while the appellants were contractually bound to acquire, hold, and transfer the land exclusively for Omaxe. The MoUs further granted Omaxe extensive rights, including the right to advertise, market, book, sell built-up areas, receive consideration from buyers, and execute conveyance deeds by virtue of a General Power of Attorney issued in its favour.

The Department took the view that by conferring such rights, the appellants had foregone their right to sell or commercially exploit the land, thereby transferring a “bundle of development rights” to Omaxe, which the Department treated as a taxable declared service. On this basis, substantial service tax demands were raised on each of the sixteen companies for various periods spanning 2012 to 2016.

Appearing for the appellants, counsel Shagun Arora argued that the transfer of development rights amounts to transfer of a benefit arising from land and therefore qualifies as immovable property, which stands excluded from the definition of "service" under Section 65B(44).

She relied on a series of judicial precedents, including CESTAT decisions in DLF Commercial Projects Corporation v. CST, Gurugram (2019), Genius Probuild Pvt. Ltd. v. CCE & CGST (2025); that of the Bombay High Court in Sadoday Builders Pvt. Ltd. vs. Jt. Charity Commissioner, Nagpur and ors. (2011), and Chheda Housing Development Corporation vs. Bibijan Shaikh Farid and others (2007) - all of which held that the issue of transfer of development rights does not amount to rendering of services under the head of ‘development rights’.

The Bench comprising Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) agreed with the submissions, noting that the legal position was already settled, and that the transfer of development rights cannot be brought within the ambit of taxable services.

The Tribunal observed that the Department’s attempt to distinguish the earlier decisions on the ground that those cases involved three parties, while the present case involved only two, was irrelevant and did not alter the applicability of the legal principles established by higher courts and coordinate benches.

The Tribunal further observed that the show cause notices themselves acknowledged that Omaxe, and not the appellant companies, was responsible for the development and marketing of the projects. The essence of the arrangement was that the land-owning companies merely held land on behalf of Omaxe, and the so-called transfer of development rights was nothing more than a contractual mechanism for enabling Omaxe to utilize the land for its real estate projects.

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Holding that the transfer of development rights is squarely outside the purview of the Finance Act, the Tribunal set aside the impugned common order in its entirety and allowed all sixteen appeals, granting consequential relief to the appellant

The Bench upheld the principle that benefits arising from land, including development rights, are in the nature of immovable property and cannot be subjected to service tax.

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