Realtors Move Court against GST on Transfer of Development Rights : 29-06-2018

Is the goods and services tax applicable on mere transfer of land development rights by owner to a real estate developer? Some builders have dragged the GST Council, central and Maharashtra governments, to court for including such transactions under the GST framework.
Real estate developers have filed a writ petition in the Bombay High Court challenging a recent notification that made the transfer of development rights from the land owner to the developer taxable.
Joint development agreements or JDAs are a common feature in the real estate sector wherein the land owner transfers the land to the real estate developer and gets apartments, a certain amount of revenue or a combination of both in return. As per a January notification, GST was payable by both land owner and the developer.
Industry trackers say such transactions were exempt under the previous tax regime. “The service tax regime recognised transfer of land and construction as two distinct activities under a JDA. However, the GST notification seeks to levy tax on land owners,” said Rashmi Deshpande, associate partner, with law firm Khaitan & Co and lawyer for the developers.
Deshpande added that the notification goes against the essence of GST framework that excludes sale of land and building from its ambit. Tax experts say that in most instances GST would become a cost as it would be tough to get credit of such transactions. The fear is this could put cost pressures on the real estate developers.
The government claims that in most cases landowners get apartments in the real estate project after completion and that is nothing but consideration for the transfer of land rights. GST therefore is applicable on that.
The Bombay High Court has issued notices to the Union of India, state of Maharashtra and GST Council and the next date of hearing is fixed on July 9, 2018. “Due to levy of GST on procurement of land it became difficult for us to finalise the consideration with land owners. Given the scenario we had to approach the High Court,” said Sujoy Gupta, CMD, Shweta Infrastructure & Housing.
Industry experts say that the issue assumes significance in the backdrop of rising trend of most landlords and builders entering into joint development agreements rather than outright land deals. While builders prefer joint development agreements as it supports their capital-light business strategy, landowners are usually in this for higher revenue potential than just one-time consideration.
Source : PTI
error: Content is protected !!