GST LIABILITY ON SALE OF TRANSFER OF DEVELOPMENT RIGHTS

[Mr. M. GOVINDARAJAN]

IN RE: M/S. VILAS CHANDANMAL GANDHI - 2020 (2) TMI 554 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA , the applicant owned a land situated within the limits of Pune Municipal Corporation.  The applicant made an agreement with Amar Builders and Developers to develop the land jointly and share the profits through distribution of sale proceeds after development of land by way of construction of residential/commercial project.  The terms of the agreement are as follows-

• The applicant assigned/transferred the development rights in land to the developer.
• The said assignment/transfer of rights in land was for the purpose of construction of residential/commercial projects in land.
• The developer agreed to pay consideration in form of 45% of the sale proceeds of the developed project.
• The developer had given Rs.3.6 crores to the applicant as security deposit to be refunded within a month after completion of the project on the underlying land.

Since the applicant and the developer realized that vacating the reservation may not be possible they decided to surrender their rights in the land.  On the surrender of the same the Pune Municipality gave them TDR’s/Additional FSI, as consideration for surrendering the joint rights in land to Pune Municipal Corporation in terms of Development Control Regulations. 

The applicant and the developer entered into a supplementary agreement consisting the following-

• The TDR/Additional FSI to be obtained would be shared between the applicant and the developer in the ratio of 73:27.
• The proportionate TDR/Additional FSI would be transferred by the applicant in favor of the developer or the applicant would transfer the proportionate sale proceeds to the developer.

The applicant surrendered the rights and for that the applicant got TDR/Additional FSI as compensation.  Then both the parties wanted to sell a part of TDR/Additional FSI to Vamona Developers Private Limited.  At the time of agreement the applicant did not charge GST but later on the applicant raised GST invoice on Vamona Developers Private Limited to pay GST on the transactions made with it.  Vamona Developers Private Limited informed the applicant that they are not liable to pay GST on the said transactions.

The applicant filed an application before the Maharashtra Authority for Advance Ruling on the following questions-

• Whether GST is leviable on sale of TDR/FSI received as consideration for surrendering their joint rights in land in terms of ‘Development Control Regulations’ and granted in light of the article of agreement dated 18.12.2017 entered between the applicant and Pune Municipal Corporation read with Development Control Regulations?
• If yes, what will be the classification under GST and what will be the rate of GST?

The applicant contended that the present transaction can be said to be a transaction of land and covered under Schedule III of the CGST Act and can neither be treated as supply of goods or supply of services to be taxable under GST.  The applicant further contended that the scope of supply of service is wide enough and it encompasses most of the commercial transactions undertaken during the course of the business and involving consideration such as sale, barter, transfer etc.

The applicant further contended that Notification No.11/2017-Central Tax (Rate), dated 28.06.2017 provides the list of services liable for GST but there is no specific reference to the services of TDR/Additional FSI.

The jurisdictional officer contended that as per Notification No. 05/2019-Central Tax (Rate), dated 29.03.2019, service tax is payable on TDR/FSI under reverse charge basis.  A personal hearing was given to the applicant.  The Authority for Advance Ruling analyzed the various notifications related to TDR/FSI.  The Authority for Advance Ruling held that same are liable to GST @ 18% (CGST - 9% + SGST - 9%). 

Being aggrieved against the said order the applicant filed an appeal before the Maharashtra Appellate Authority for Advance Ruling in IN RE: M/S. VILAS CHANDANMAL GANDHI - 2020 (9) TMI 1145 - APPELLATE AUTHORITY FOR ADVANCE RULING, MAHARASHTRA.  The appellant submitted the following before the Appellate Authority-

• The sale of TDR/FSI cannot be taxed under GST law as the same is in the nature of transaction of sale of land i.e. immovable property, which is covered under Schedule III of the CGST Act.
• The term ‘service’ has to be given popular and common parlance meaning and therefore cannot include the transaction of sale of immovable property.
• The object of the GST law is not to levy GST on immovable properties.
• The sale of TDR/FSI will not be covered under the heading 9972 in the Notification No.11/2017-Central Tax (Rate), dated 28.06.2017.
• The Authority for Advance Ruling has based its judgment merely on the FAQs issued by the Government which does not have legal right.

The Department submitted the following before the Appellate Authority for Advance Ruling-

• In the present case there are two different agreements - one for transfer of land against consideration in form of TDR/FSI.  The second is the sale of the said TDR/FSI to Vamona Developers Private Limited.
• The service supply of TDR/FSI is covered under Sl. No. 16 (iii) of Notification No. 11/2017-Central Tax (Rate), dated 28.06.2017 (Real Estate Services).  Therefore GST on TDR/FSI is payable @ 18% (9% CGST + 9% SGST).  It is also answered in FAQ issued by the Central Government.
• The transaction of TDR/FSI received by the appellant from Pune Municipal Corporation against transfer of his land was not for consideration for taxation before the Authority for Advance Ruling.  The appellant placed before the Authority for Advance Ruling the taxability of subsequent sale of TDR/SFI to Vamona Developers Private Limited.  The Authority for Advance Ruling held that this transaction would attract GST and it is a taxable transaction.
• The said transaction is the supply of transaction and not related to the earlier transaction with Pune Municipal Corporation.  The subsequent transaction with Vamona Developers Private Limited is also not related to land.
• Therefore the Authority for Advance Ruling has correctly held that the impugned transaction is service and liable to GST @ 18% (9% CGST + 9% SGST).

The Appellate Authority for Advance Ruling considered the submissions put forth before it and also in the personal hearing offered to them.  The Appellate Authority did not agree with the argument of the appellant that the term land has been defined to include benefits arising out of the land and TDR/SFI is a benefit arising out of land and therefore falls under Schedule III of the CGST Act.  The Appellate Authority observed that the CGST law does not make a reference to any other law while mentioning ‘Land’ in Schedule III.  Further if the Legislature wants to widen the scope of land to include benefits arising out of land then it could have surely done so.  Schedule III is to speak an exemption notification and exemption notifications have to be strictly interpreted.  The transfer of TDR made for consideration in the course of furtherance of business is supply of service and taxable as per the provisions of the CGST Act. The levy of tax is not on land but it is a tax levied on the benefits arising out of the land, which are in the nature of service.

The Appellate Authority is not agreed to the argument of the appellant that TDR is money.  It observed that just because it is given in lieu of money it does not get the status of money.  Further the Notification 05/2019 issued by the Government clearly stipulated that the said services are liable to GST under reverse charge mechanism.

Therefore the Appellate Authority for Advance Ruling did not find any reason to interfere with the ruling given by the Authority for Advance Ruling.  The Appellate Authority held that the sale of TDR/FSI would be leviable to GST under Heading 9972 @ 18% (9% CGST + 9% SGST) as prescribed under Sl.No. 16 (iii) of Notification No. 11/2017-Central Tax (Rate), dated 28.06.2017.