Supreme Court Takes Up Legal Challenge to GST Taxes on Joint Development Deals

The Supreme Court of India has admitted a petition challenging imposition of the GST on the transfer of development rights within joint development agreements between realty developers and landowners. In this matter, the court has issued notices to the Union government, GST Council and Central Board of Indirect Taxes and Customs (CBIC) to file their replies to the special leave petition (SLP) filed by a property developer in Telangana.

The applicability of 18% GST is poised to impact real estate projects across all major property markets nationwide marking a pivotal shift in the cost dynamics of joint developments and redevelopment projects as well.

After Losing Initial Challenge in Telangana High Court, Developer Appeals to Supreme Court Seeking Reversal on GST Tax Dispute.

While representing the developer, founder of legal firm, argued that in this case of barter, the moot point is whether the ancillary and incidental right attached to the sale of land would be subject to the GST as the supply of the land is specifically excluded from the purview of the GST. 

The South India-based developer filed a writ petition back in 2020. This was in response to a GST notification that had been issued the previous year, in 2019. The notification established a point of taxation to impose GST on the transfer of development rights from a landowner to a real estate developer. The petition argued that this was essentially the government's way of trying to tax a transaction that was akin to the outright sale of the land itself.

Last year, real estate developers reached out to the Ministry of Finance with their concerns about the impact of the GST being charged on rehabilitation apartments. These are the apartments that are built and then handed over, free of cost, to existing occupants as part of redevelopment projects.

The projects involving joint development and redevelopment play a crucial role in the functionality of most property markets, especially given the backdrop of escalating land prices and the dwindling availability of vacant land parcels in key urban centres.

The issue relates to the levy of 18% GST on the value of development rights that will make various projects across key markets including Mumbai, Pune, Bengaluru, Hyderabad, and Kolkata unfeasible for all stakeholders including landowners.

The outcome of this case is likely to change the landscape of property development impacting stakeholders and reshaping strategies within the real estate sector.

By LNN (Liyaans News Network)