The Patna High Court in the case of Shashi Ranjan Constructions Private Limited vs. Union of India vide Civil Writ Jurisdiction Case No.6700 of 2024 dated 05.05.2025, held that GST is applicable under the Reverse Charge Mechanism (RCM) on the transfer of development rights (TDR) from a landowner to a builder under a Joint Development Agreement (JDA), provided the transfer occurs before the issuance of a completion certificate (CC). The Court dismisses a writ petition challenging the applicability of GST on construction services rendered in exchange for development rights under a Development Agreement.
Facts of the case: In the present case, the builder and landowner signed a JDA where the builder got 57% of the house units and the landowner 43%. But the tax dispute started with the 43% part which the landowner received from the builder. The builder said that he should not pay GST on the 43% part on reverse charge mechanism (RCM) basis since no money was exchanged. The builder said that this JDA between them was a simple non-monetary consideration towards allotment of houses. The Petitioner argues that since the development agreement was executed in November 2014, the land stood transferred pre-GST, and the supply of construction services to the landowner is not taxable under GST. Reliance placed upon judgment in CIT v. Balbir Singh Maini (2018) 12 SCC 354 and Supreme Court’s decision in Govind Saran Ganga Saran (1985 AIR 1041)
The department contended that this transaction would attract GST and that too under RCM basis and the builder has to pay this. Further, contended that the tax was not on development rights (SAC 9972), but on construction services (SAC 9954) rendered by the builder to the landowner under the Development Agreement. This supply is taxable under Notification No. 11/2017-CT(Rate), not under Notification 4/2019-CT(Rate). Even if the flats are handed over after issuance of the completion certificate, tax liability arises on the construction services already rendered in exchange for development rights. There is no exemption for such barter/consideration, as it qualifies as a “supply of service” under Section 7 read with Schedule II, para 5(b).
Held that: The Court found no evidence of ownership transfer in land to the developer through the 2014 development agreement. The agreement only gave a license to develop the land. The The Court clarified that the petitioner was not taxed for supply of TDR (SAC 9972), but rather for construction services (SAC 9954). The Court finds no ambiguity in the relevant GST notifications, particularly those that impose GST on construction of complexes or civil structures meant for sale, except when the entire consideration is received after completion or first occupancy, whichever is earlier. This is consistent with Entry No. 5(b) of Schedule II of the CGST Act, which deems such construction for sale as a supply of service, and Notification No. 11/2017-CT (Rate), which prescribes the GST rate on such services.
The Court referred the Supreme Court decision in Govind Saran Ganga Saran, which petitioner relied upon, and stated that SC case lays down the four essential components of a valid tax levy i.e. taxable event, Person liable to pay, Rate of tax, Measure of tax. The Court here said that “In our opinion, all the essential components of tax which have been noticed by Supreme Court are present in this case.”
The Court affirmed that GST is applicable on such construction services received by the landowner, in line with Notification No. 13/2017-CT (Rate) and Notification No. 4/2018-CT (Rate) (as amended), read with circulars like Circular No. 151/07/2021-GST dated 17.06.2021.
The Court concluded that the petitioner’s liability under RCM is legally sustainable; there is no ambiguity or unconstitutionality in the tax levy. The writ petition does not raise any other substantial ground. Accordingly, the writ was dismissed,
