2025 (5) TMI 633 - HC - GST

Challenge to order and summary of order - challenge to N/N. 09/2023 dated 31.03.2023 as contained in Annexure-P8 and the N/N. 56 of 2023 dated 28.12.2003 - extension of time limit specified under sub-section (10) of Section 73 of the CGST Act for issuance of order under sub-section (9) of Section 73 of the GST Act for recovery of tax not paid or short paid or input tax credit wrongly availed or utilized upto 31st March 2024 for the Financial Year 2018-19 - main contention of petitioner is that the impugned order has been passed without consideration of the provisions of the Act the rules made thereunder and also notification fixing the liability only in respect of the development agreement on or after 01.04.2019 - violation of principles of natural justice - mistake of fact apparent on the record or not. HELD THAT - The petitioner does not get any right on the said property until the completion of the project. After the project is completed and completion certificate is issued the petitioner gets a right to sell the area of the property which is called Developers Area . There are no substantial material to establish that with execution of the development agreement the petitioner got ownership in the land. It is held that the transfer of development rights as it stands is amenable to GST and cannot be brought within the purview of sale of land subject to clause (b) of Paragraph 5 of Schedule II sale of building (as per Entry 5 of Schedule-III of the GST Act). The petitioner has not controverted the submission of the State that vide notification no.11/2017 dated 28.06.2017 construction of a complex civil structure etc. intended for sale to a buyer was made exigible to GST except where the entire consideration has been received after issuance of completion certificate or after its first occupancy whichever is earlier. In this case it has been specifically pleaded by the State-respondent that the consideration had been received by the petitioner in the form of transfer of development rights which happened long before the issuance of completion certificate or first occupancy. This Court agrees that in this case the petitioner cannot claim that it had received the consideration after the issuance of completion certificate or first occupancy. The State-respondents are correct in contending that the construction of a complex civil structure etc. intended for sale to a buyer was made exigible to GST except where the entire consideration has been received after issuance of completion certificate or after its first occupancy whichever is earlier. There would be no ambiguity in the above-mentioned notifications. Conclusion - There is no ambiguity with regard to liability of the petitioner on account of GST on RCM basis on the constructions services rendered by him in lieu of the developments rights under the Development Agreement dated 27.11.2014. There are no reason to entertain the present writ application - application dismissed.

Summary

Issues Presented and Considered

1. Whether the impugned assessment order dated 30.11.2023 passed under Section 73(9) of the Bihar Goods and Services Tax Act (GST Act) is valid and within the prescribed time limit under Section 73(10) of the GST Act.

2. Whether the challenge to Notification No. 09/2023 dated 31.03.2023 and Notification No. 56/2023 dated 28.12.2023, which extend the time limit for issuance of assessment orders under Section 73(9) of the GST Act, is maintainable and relevant to the present case.

3. Whether the transaction involving execution of a development agreement registered prior to the commencement of GST laws (01.07.2017) amounts to a supply liable to GST, specifically addressing the question of whether the land was transferred to the developer pre-GST and hence outside the purview of GST.

4. Whether the petitioner's liability to pay GST arises under the Reverse Charge Mechanism (RCM) on construction services rendered under the development agreement, and whether such liability was introduced only prospectively from 01.04.2019 by Notification No. 04/2019.

5. The applicability and interpretation of relevant notifications under the CGST Act, including Notification No. 11/2017, Notification No. 4/2018, and Notification No. 4/2019, in relation to the supply of construction services and transfer of development rights.

6. The legal effect of the development agreement and whether the execution and registration of the agreement amounts to transfer of ownership or merely grants license for construction.

7. The applicability of the Supreme Court's judgment in Commissioner of Income Tax vs. Balbir Singh Maini and other precedents in determining the nature of the transaction and taxability.

Issue-wise Detailed Analysis

1. Validity and Timeliness of the Assessment Order

Legal Framework and Precedents: Section 73(9) of the Bihar GST Act empowers the tax authorities to issue an order for recovery of tax not paid or short paid. Section 73(10) prescribes a time limit of three years from the due date of filing the annual return for issuance of such order.

Court's Interpretation and Reasoning: The Court noted that the due date for filing the annual return for FY 2018-19 was 31.12.2020. The impugned order dated 30.11.2023 was passed within three years from this date, thus falling within the statutory time limit.

Key Evidence and Findings: The assessment order was dated 30.11.2023, which is before the expiry of the three-year limitation period ending 31.12.2023.

Application of Law to Facts: The Court rejected the petitioner's contention that the order was time-barred.

Treatment of Competing Arguments: The petitioner argued the order was beyond time, while the State countered that the order was within the three-year period. The Court found the State's submission more persuasive.

Conclusion: The assessment order is valid and passed within the prescribed time limit.

2. Challenge to Notifications No. 09/2023 and No. 56/2023 Extending Time Limits

Legal Framework: Section 168A of the CGST Act empowers the government to extend time limits for issuance of assessment orders in certain circumstances, including force majeure.

Court's Interpretation and Reasoning: The petitioner challenged the validity of the notifications on the ground that no force majeure existed. However, the Court observed that the impugned assessment order was passed within the original three-year period, and thus the extension notifications had no bearing on the present case.

Key Evidence and Findings: The Supreme Court was seized of a similar challenge in a different case relating to FY 2019-20. The present case pertains to FY 2018-19, and the assessment was completed within the original time frame.

Application of Law to Facts: Since the assessment order was timely, the extension notifications were irrelevant.

Treatment of Competing Arguments: The petitioner sought to rely on the notifications' invalidity, while the State argued their irrelevance. The Court agreed with the State.

Conclusion: The challenge to the notifications is misconceived and irrelevant.

3. Taxability of the Transaction under the Development Agreement Executed Pre-GST

Legal Framework and Precedents: The GST Act and allied notifications govern taxability of construction services and transfer of development rights. The Supreme Court's decision in Commissioner of Income Tax vs. Balbir Singh Maini examined whether execution of a Joint Development Agreement (JDA) constitutes a transfer of ownership or merely possession/license.

Court's Interpretation and Reasoning: The Court analyzed the registered development agreement dated 27.11.2014, noting that the landowner granted a license to the developer to construct on the land and that ownership of the land remained with the owner until project completion.

The Court relied on the Supreme Court's observation in Balbir Singh Maini that mere possession under a development agreement does not amount to transfer of ownership. The Court found that the petitioner did not acquire ownership rights in the land upon execution of the development agreement.

Key Evidence and Findings: The development agreement's clauses demonstrated that the owner retained ownership of the land and the developer was entitled only to the developer's area post-construction. The completion certificate was issued on 20.12.2018, and the petitioner's rights crystallized only thereafter.

Application of Law to Facts: The transaction was not a transfer of land but a supply of construction services rendered by the petitioner to the landowner.

Treatment of Competing Arguments: The petitioner argued that the land was transferred pre-GST and hence outside GST ambit. The State contended that the supply of construction services was taxable and the petitioner's argument was a mischaracterization.

Conclusion: The development agreement did not effect transfer of land ownership pre-GST; the transaction is taxable as construction services under GST.

4. Liability to Pay GST under Reverse Charge Mechanism and Effect of Notification No. 04/2019

Legal Framework: Notification No. 11/2017 dated 28.06.2017 made construction services taxable except where entire consideration is received after issuance of completion certificate or first occupation. Notification No. 4/2018 clarified time of supply and liability for transfer of development rights and construction services. Notification No. 04/2019 introduced provisions relating to supply of development rights on or after 01.04.2019.

Court's Interpretation and Reasoning: The Court found that the petitioner was taxed under SAC Code 9954 (construction services), not under SAC Code 9972 (transfer of development rights). The liability to pay tax on construction services existed since Notification No. 11/2017, and Notification No. 04/2019 did not introduce retrospective liability.

The Court also noted that the consideration was received in the form of development rights before issuance of completion certificate, thus attracting GST under the Reverse Charge Mechanism.

Key Evidence and Findings: The petitioner admitted the applicability of Notification No. 11/2017. The State produced the relevant notifications and explained the taxability framework.

Application of Law to Facts: The petitioner's liability to pay GST on construction services arose as per the notifications effective from 2017, not only from 2019.

Treatment of Competing Arguments: The petitioner argued prospective applicability from 2019; the State countered with earlier notifications and the nature of supply.

Conclusion: The petitioner's liability to pay GST under RCM on construction services is valid and not limited to post-2019 transactions.

5. Interpretation of Notifications and Legal Provisions

Legal Framework: The Court extensively examined Notification No. 11/2017, Notification No. 4/2018, and Notification No. 04/2019, alongside Schedule II and Schedule III of the CGST Act.

Court's Interpretation and Reasoning: The Court held that construction services intended for sale to a buyer are taxable, except when the entire consideration is received after issuance of completion certificate or first occupation. It emphasized that the supply of construction services and transfer of development rights are distinct but interrelated supplies, both attracting GST.

The Court rejected the petitioner's submission that the supply of development rights was exempt before 2019, highlighting that the supply of construction services was taxable from 2017.

Key Evidence and Findings: The notifications were reproduced and analyzed in detail, showing the legislative intent and taxability framework.

Application of Law to Facts: The petitioner's construction services fall squarely within the taxable category as per the notifications and the GST Act.

Treatment of Competing Arguments: The petitioner's reliance on the timing and nature of notifications was rejected in favor of the State's interpretation.

Conclusion: The notifications and provisions clearly impose GST liability on construction services rendered by the petitioner.

6. Legal Effect of the Development Agreement

Legal Framework and Precedents: The Court referred to the maxim "noscitur a sociis" and the Supreme Court's ruling in Super Poly Fabriks Ltd. vs Commissioner of Central Excise, emphasizing that documents must be read as a whole to ascertain the true nature of the transaction.

Court's Interpretation and Reasoning: The Court held that the development agreement granted the developer a license to construct and a right to the developer's share of constructed area but did not transfer ownership of the land itself. The ownership remained with the landowner until project completion.

Key Evidence and Findings: Clauses 4.1, 4.2, 5, and 6 of the development agreement explicitly delineate the rights and ownership of the owner and developer.

Application of Law to Facts: The Court concluded that the petitioner's claim to ownership of the land upon execution of the agreement was misconceived.

Treatment of Competing Arguments: The petitioner's argument based on ownership transfer was rejected.

Conclusion: The development agreement does not amount to transfer of land ownership pre-GST; it creates a contractual framework for construction services.

7. Applicability of Precedents, Including Balbir Singh Maini

Legal Framework: The Supreme Court in Balbir Singh Maini analyzed the tax implications of a JDA and held that possession under such an agreement does not amount to transfer of ownership for tax purposes.

Court's Interpretation and Reasoning: The Court distinguished the present case from Balbir Singh Maini, noting that the petitioner did not acquire ownership rights pre-GST and the transaction involved supply of construction services taxable under GST.

Key Evidence and Findings: The Court referred to the facts and findings in Balbir Singh Maini and found them not supportive of the petitioner's case.

Application of Law to Facts: The precedent was applied to reject the petitioner's claim of ownership transfer and non-taxability.

Treatment of Competing Arguments: The petitioner relied on the precedent to support its claim; the Court found the precedent distinguishable and not applicable.

Conclusion: The precedent does not aid the petitioner; the transaction is taxable under GST.

Significant Holdings

"The impugned order has been passed within a period of three years from the last due date of filing of the return for the Financial Year 2018-19."

"The challenge to the Notification No. 09 of 2023 and Notification No. 56 of 2023 in the present writ application is misconceived and the same is found irrelevant and superfluous."

"The execution and registration of the development agreement does not amount to transfer of ownership in the land to the developer. The developer acquires rights only upon completion of the project and issuance of the completion certificate."

"The supply of construction services by the petitioner to the land owner is taxable under the GST Act, and the liability to pay GST under Reverse Charge Mechanism arises when consideration is received prior to issuance of completion certificate or first occupation."

"Notification No. 11/2017 dated 28.06.2017 made construction services taxable except where entire consideration is received after issuance of completion certificate or first occupation, and this notification governs the taxability of the petitioner's services."

"The liability to pay tax on supply of development rights was not introduced only from 01.04.2019 by Notification No. 04/2019; the supply of construction services was taxable from 2017."

"The petitioner's contention that the impugned order is beyond time limit is rejected; the order is within the three-year period as per Section 73(10) of the GST Act."

"The components which enter into the concept of a tax are well known: the taxable event, the person liable, the rate, and the measure or value. All these components are clearly ascertainable in the present case."