Transfer of Land Development Rights taxable as Supply of ‘Service’ – GST AAAR Maharashtra
by ReinHeads Team | Oct 16, 2020
AAAR Maharashtra * – Transfer of Land Development Rights taxable as Supply of ‘Service’
| Facts |
- Vilas Chandanmal Gandhi (‘the Appellant’) owns a land situated within the limits of Pune Municipal Corporation (‘the PMC’). The Appellant entered into an agreement with a Developer, whereby the development rights in the land are transferred to the Developer for the purpose of construction of residential/ commercial project (so as to enjoy the rights in the land jointly)
- The land was subject to reservation in light of the Draft Development Plan of PMC. Since removal/vacation of reservation was not possible on the land, the Appellant entered into an agreement with the PMC to transfer the land (by surrendering the joint rights in land) to the PMC
- In consideration of the same, the PMC awarded Transferable Development Rights (‘TDR’)/ Floor Space Index (‘FSI’) to the Appellant which would be further shared between the Appellant and the Developer
- The Appellant entered into another agreement with Vamona Developers to sell their TDR/FSI awarded to them by the PMC
- The Appellant filed Advance Ruling application before the Maharashtra Authority for Advance Ruling (‘the AAR’) on applicability of GST on the transaction of sale of TDR/ FSI to the Vamona Developer, wherein it was held that GST shall be leviable @18% as it falls under Heading 9972 (i.e., Real Estate services)
- Being aggrieved by the aforesaid order, the Appellant have filed the present appeal with the Maharashtra Appellate Authority for Advance Ruling (‘the AAAR’)
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| Issues before the AAAR |
- Whether GST is leviable on sale of TDR/ FSI ?
- If yes, what will be the classification and applicable rate of GST?
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| Discussion and Findings of the AAAR |
The AAAR affirmed the order of the AAR to the effect that sale of TDR/ FSI would qualify as supply of ‘service’ leviable to GST under Heading 9972 @18% on the following key basis:
- The question whether TDR in itself is ‘Land and Building’ or an ‘Immovable property other than Land & Building’ was interpreted by Hon’ble ITAT in case of Income-tax Officer v. Shri Prem Rattan Gupta wherein it was held that that TDR is not land rather ‘a right arising out of land’ and hence it is an immovable property
- Clause 5 of Schedule III to the CGST Act, 2017 (‘the GST Act’) mentions only land’ and ‘building’. Neither the GST Act nor the schedules define ‘land” or choose to do that. In that case there is no need to qualify the term ‘land’ by ascribing any meaning to it or defining it by borrowing definitions from other laws. The GST Act does not make a reference to any other law while mentioning ‘land’ in Schedule III and if it had wanted to widen the scope of ‘land’ to include ‘benefits arising out of land’ it could have very well done so
- Based on the definitions under the GST Act, TDR is an immovable property and hence not covered under the definition of goods. But the transfer of development right is covered under the definition of ‘service’ since the same is very wide and covers anything other than goods. Levy of a tax is not on land but levy of tax is on the benefits arising out of the land, which are in the nature of service
- There is no section under the GST Act which explicitly prohibits the taxation of TDR. Schedule III to the GST Act only mentions ‘land’ to be outside the ambit of GST and not ‘benefits” arising out of land
- TDR is given in lieu of money and just because it is given in lieu of money does not get it the status of ‘money’
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*Appellate Advance Ruling No. MAH/AAAR/RS-SK/25/2020-21 dated 26 August 2020 (the Appellate Authority for Advance Ruling, Maharashtra)
