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2025 (4) TMI 931 - HC - GSTChallenge to notice by which the petitioner has been asked to pay the amount of tax as ascertained upon the transaction as contemplated by the agreement of sale - scope and ambit of clause (5-B) so as to attract G.S.T. - HELD THAT - The TDR / FSI as contemplated by entry 5B cannot be related to the rights which a developer derives from the owner under the agreement of development for constructing the building for the owners in lieu of the owner agreeing to permit the developer to transfer certain built up units for consideration to be appropriated by the developer. In the instant case the agreement dated 07.4.2022 (page 27) is an agreement of development entered into between the petitioner and the land owner in terms of which the petitioner has been granted right to develop the property in question by utilizing its present FSI or any increases thereof. Conclusion - The transaction as contemplated in terms of the agreement dated 07.4.2022 does not fall within entry 5B of the Notification dated 28.6.2017 as it stand amended by the Notification dated 29.3.2019 in view of which neither the show cause notice dated 14.08.2023 nor the consequent order dated 10.12.2024 (page 137) can be sustained and are hereby quashed and set aside. Petition allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court were:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Applicability of Entry 5B of the Notification dated 28.6.2017 (as amended) to the transaction under the Agreement of Development dated 7.1.2022 Relevant legal framework and precedents: Entry 5B of the Notification dated 28.6.2017, as amended by the Notification dated 29.3.2019, specifies that services supplied by any person by way of transfer of development rights or Floor Space Index (FSI), including additional FSI, for construction of a project by a promoter are taxable under GST. The Unified Development Control and Promotion Regulations for the State of Maharashtra, particularly clause 11.2.1 and 11.2.2, define Transferable Development Rights (TDR) as compensation in the form of FSI or development rights entitling the owner to construct built-up area subject to regulatory provisions. Court's interpretation and reasoning: The Court carefully examined the language of entry 5B and the regulatory definition of TDR. It held that entry 5B pertains specifically to the transfer of TDR or FSI as defined under the Unified Development Control and Promotion Regulations. The Court noted that the GST Act does not itself define TDR, but the regulatory framework provides a clear meaning, which involves the transfer of development rights as a form of compensation enabling construction rights. Key evidence and findings: The Agreement of Development dated 7.1.2022 was scrutinized. The petitioner was appointed as a developer by the landowner to develop Plot No.2 measuring 8000 sq. ft., with consideration comprising Rs. 7 crores and two apartments. The agreement granted the petitioner the right to develop the property using the existing FSI or any increase thereof. Importantly, neither the petitioner nor the owner purchased any TDR or FSI from any third party or entity. Application of law to facts: Since the transaction did not involve any transfer or purchase of TDR/FSI from another person but only the exercise of development rights inherent in the land itself, the Court found that the transaction did not fall within the ambit of entry 5B. The rights granted to the petitioner were not transferable development rights as contemplated by the relevant regulations but were development rights inherent in the landowner's property. Treatment of competing arguments: The respondents argued that clause 18 of the agreement, which requires execution of a deed of declaration under Section 2 of the Maharashtra Apartment Ownership Act, 1970, and the execution of apartment deeds in favor of buyers nominated by the developer, indicated a transfer attracting GST under entry 5B. The Court rejected this contention, holding that clause 18 pertained to procedural formalities for apartment ownership and did not signify transfer of TDR or FSI as per the GST Notification or regulatory definitions. Conclusions: The Court concluded that the transaction did not constitute a transfer of development rights or FSI as defined under entry 5B of the Notification. Therefore, the GST demand based on entry 5B was not sustainable. Issue 2: Validity of the show cause notice dated 14.8.2024 and consequent order dated 10.12.2024 demanding GST on the transaction Relevant legal framework and precedents: The show cause notice and order were issued pursuant to the GST provisions and the Notification dated 28.6.2017 (as amended). The legal validity of such notices depends on whether the underlying transaction is taxable under the relevant GST provisions. Court's interpretation and reasoning: Given the Court's finding that the transaction did not attract GST under entry 5B, the issuance of the show cause notice and the consequent order demanding GST were without legal basis. The Court emphasized that the notices must be grounded on a transaction that falls within the taxable ambit as defined by the law and notifications. Key evidence and findings: The Court relied on the agreement terms, the nature of the rights transferred, and the absence of any purchase or transfer of TDR/FSI from third parties. Application of law to facts: Since the transaction was not taxable under entry 5B, the GST demand notices were unsustainable. Treatment of competing arguments: The respondents' attempt to link clause 18 of the agreement to the applicability of entry 5B was found insufficient to sustain the GST demand. Conclusions: The Court quashed and set aside the show cause notice dated 14.8.2024 and the order dated 10.12.2024. 3. SIGNIFICANT HOLDINGS The Court held:
Core principles established include:
Final determinations were that the show cause notice dated 14.8.2024 and the consequential order dated 10.12.2024 demanding GST on the transaction under the Agreement of Development dated 7.1.2022 were quashed and set aside, and the petition was allowed without costs.
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