The Telangana Appellate Authority of Advance Ruling (AAAR) has held that the Goods and Service Tax (GST) liability on developers arises at possession transfer and not on receipt of development rights.
The bench of Sandeep Prakash and S.A.M Rizvi while upholding the AAR’s ruling has observed that Transfer of development rights by the landowner to the developer is consideration received by such developer for GST and prior thereto towards the supply of construction service. The liability to pay GST by the developer- promoter shall arise at the time of transfer of possession or right in the constructed complex or constructed flats and not at the time of receipt of development rights.
The appellant, Maddi Seetha Devi, is an individual (landowner) holding a parcel of land to the extent of 20 acres at Hyderabad and has entered in to Development Agreement with M / s PHL, a builder (developer-Promoter) and entrusted her land to M/s PHL by way of Joint Development Agreement (JDA) in the year 2016.
As per agreement, M/s PHL will hand over 27% of the developed property ( includes 27% of car parking spaces, common areas along with 27% of all other amenities and benefits) to the appellant. The appellant is also a registered tax payer.
The appellant sought the advance ruling on the issues Whether transfer of land or transfer of ‘development rights’ to the developer by the landowner is to be considered as receipt of consideration by the developer as per Notification No.04/2018-CT (Rate dt.25.01.2018 and as per the clarifications issued after introduction of GST and prior thereto towards the construction of flats in the residential complex to be taken up by the developer for the landowner.
Yet another issue raised was whether the liability to pay GST or service tax as applicable arises on the developer immediately on receipt of development rights or immediately on conveyance of the flats to be constructed by way of an allotment letter?
The appellant is of opinion that since the JDA was entered on 01.01.2016 i.e., before introduction of GST, TDR attracts service tax for transfer of land by the appellant to the builder for the purpose of construction.
It was observed that Advance Ruling Authority or Appellate Authority are constituted under the CGST/SGST Act, 2017 to provide clarification on matters under GST Act and Rules made thereunder. Section 97(2) of the Chapter XVII provides for spectrum of issues on which the advance ruling can be sought for under the Act.
“Neither the Advance Ruling Authority nor this Appellate Authority have any jurisdiction to decide on the taxability under Finance Act, 1994. Therefore, the attempt of the appellant to seek a ruling to the effect that, in the facts of this case, the supply of TDR attracted Service Tax cannot be countenanced,” the AAAR said.
The AAAR dismissed the appeal and upheld the ruling of the Advance Ruling Authority.
Ruling Details
Appellant Name: Maddi Seetha Devi
Date: 20/02/2025
