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Real estate developers challenge the 18% GST on development rights transfer in Joint Development Agreements (JDAs). Telangana High Court's ruling prompts a Supreme Court appeal, with no stay on the tax mandate. Developers argue that JDAs do not constitute land sales and should not be taxed. The legal debate focuses on whether land development qualifies as a taxable service. The industry is divided, with some highlighting GST's service application, while others emphasise the non-sale nature of JDAs. Pending a Supreme Court verdict, the implications for the real estate sector are significant.
Real estate developers in India are in a heated legal battle over the imposition of an 18% Goods and Services Tax (GST) on the transfer of development rights within Joint Development Agreements (JDAs) with landowners. The dispute has escalated to the highest court in the land, with developers contesting that JDAs do not constitute a sale of land, and thus, the transfer of these rights should not be taxable. Advertisement
In a recent development, a developer has filed an appeal in the Supreme Court challenging a ruling by the Telangana High Court that JDAs should indeed be subject to GST. The Supreme Court has responded by issuing a notice to the Centre for its input and has scheduled a hearing for September 9. However, as no stay has been granted on the High Court's order, landowners and developers are currently obligated to continue paying taxes on these transactions until a final verdict is reached.
At the heart of the matter lies the definition of a Joint Development Agreement, where a landowner collaborates with a real estate developer to undertake a project on the landowner's property. While developers argue that since no land is sold in JDAs, GST should not be applicable, tax experts opine that development rights are merely incidental to land sales and thus subject to taxation.
Sanjay Dutt, Managing Director of Tata Realty & Infrastructure, contends that GST should only be levied if land is sold to a third party, emphasising that JDAs do not involve such transactions. Dhaval Ajmera, Director of Ajmera Realty & Infra India, echoes this sentiment, stating that since no services are provided in JDAs, GST should not be charged.
However, Abhishek A. Rastogi, founder of Rastogi Chambers, representing a developer in the Supreme Court, argues that the crux of the issue revolves around whether the incidental right to the sale of land should be subject to GST. Rastogi warns that imposing additional taxes on land sales would render projects economically unviable and lead to tax cascading.
On the opposing side, Shareen Gupta, Partner at ISA Advocates and Solicitors, acknowledges the complexity of the issue, noting that while the legislation does not explicitly tax such transactions, one could argue that land development should be treated as a service subject to GST, akin to construction and leasing.
As the legal battle unfolds, stakeholders in the real estate sector await the Supreme Court's decision, which could have significant implications for the taxation of development rights transfer in Joint Development Agreements across the country.
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