The APPELLATE AUTHORITY FOR ADVANCE RULING, TELANGANA in the case of M/S. Maddi Seetha Devi vide Order no. AAAR. COM/12/2022, Order-in-Appeal No. AAAR/03/2025 dated 20.02.2025, upheld the ruling of the AAR, confirming that the transfer of development rights by the landowner constitutes consideration for construction services rendered by the developer. Further, the GST liability arises at the time of transfer of possession or rights in the constructed property, not at the time of receiving development rights. Also, ruled that new grounds cannot be raised at the appellate stage if they were not part of the original application.
Facts of the Case: The appellant, Maddi Seetha Devi, had entered into a Joint Development Agreement (JDA) with a developer on 01.01.2016. As part of the arrangement, the appellant transferred development rights (TDR) to the developer in exchange for a share of constructed flats.
Since the development rights were transferred in 2016 and consideration (in kind—flats) was agreed then, service tax (not GST) should apply under the Point of Taxation Rules (POTR) of the Finance Act, 1994. The appellant contended that the supply of TDR occurred prior to the GST regime and hence attracted service tax, not GST. Further, contended that GST is already paid by the developer on the entire construction cost, including the portion built for the landowner. Therefore, there should be no additional GST liability on the portion of construction done for the landowner.
The Appellant then sought advance ruling, wherein the Authority for Advance Rulings, Telangana ruled that TDR is treated as consideration to the developer. Further, GST liability arises only at the time of transfer of possession or rights in the constructed flats — not at the time of receiving TDR.
The case was brought before the Appellate Authority for Advance Ruling (AAAR) to challenge the ruling of the Advance Ruling Authority (AAR)
Issues: Whether GST is applicable when the consideration (i.e., development rights) for the service was received prior to the enactment of the CGST Act, 2017, in view of Section 142(11)(b). Whether GST is payable by the landowner when the developer has already paid GST on the total value of the construction, including the landowner’s share of flats.
Observations and Rulings of AAAR:
The AAAR observed that the contention of appellant that the supply of TDR occurred prior to the GST regime and hence attracted service tax, not GST. The AAAR rejected this contention stating that the Advance Ruling and Appellate Authorities constituted under the CGST Act, 2017 lacks jurisdiction to determine tax liability under the pre-GST regime, including the applicability of Service Tax under the Finance Act, 1994. It clarified that its authority extends solely to matters under the CGST/SGST Acts. Consequently, the request to treat the TDR as taxable under Service Tax before July 1, 2017, was not accepted.
Further, The AAAR observed that the appellant attempted to raise a new ground, arguing that GST should not be charged if the developer already paid GST on the entire construction cost, including the portion allotted to the landowner. The AAAR held that this issue was not raised before the Advance Ruling Authority and thus could not be entertained at the appellate stage. Citing the Supreme Court’s ruling in Commissioner of Customs & Central Excise, Goa vs Dempo Engineering Works Ltd., the AAAR reiterated that new grounds cannot be introduced for the first time in appeal.
