Bombay HC grants interim relief in GST dispute over development rights

Bombay High Court restrains GST authorities from acting on 18 per cent tax demand for development rights, saying TDR may qualify as sale of land exempt from GST

In a significant ruling, the Bombay High Court has granted interim relief to landowners challenging the levy of 18 per cent Goods and Services Tax (GST) on development rights under revenue-sharing agreements. The court’s decision, delivered on April 29, temporarily restrains tax authorities from enforcing a contested order issued on January 27, 2025, and raises critical questions about the classification of such transactions under GST laws.

 

Development rights under a revenue-sharing model refer to agreements where a landowner allows a developer to construct on their land, and instead of receiving a fixed payment or area, the landowner gets a pre-agreed share of the revenue (typically sales proceeds) generated from the developed property.

 

The Central Government, through a notification dated January 25, 2018, and the Maharashtra State Government, via a notification dated February 28, 2018, classified the transfer of development rights (TDR) under revenue-sharing agreements as a taxable "supply of services", to be taxed at a time specified in the notification. These notifications subjected such transactions to an 18 per cent GST levy, treating them as services provided by landowners to developers.

 

The petitioners contested this classification, arguing that TDR constitutes a "sale of land"—explicitly exempt from GST under Schedule III of the GST laws—and that the notifications violate constitutional provisions by imposing taxes beyond legislative authority.

 

A bench comprising Justices B P Colabawalla and Firdosh P Pooniwalla acknowledged the constitutional and legal challenges raised, including alleged violations of Articles 14 (right to equality), 19(1)(g) (freedom to practise trade), and 246A (legislative powers under GST).

 

Representing the petitioners, Abhishek A Rastogi of Rastogi Chambers argued that development rights are inseparable from land ownership and should not be taxed as a separate service. “You can’t split land and its rights just to impose tax,” he said, adding that recent legal amendments should be interpreted in harmony with constitutional principles.

 

“The 2018 notifications violate Articles 14 (right to equality), 19(1)(g) (freedom to practise trade/commerce), 246A (Centre and States’ GST powers), and 265 (taxation only by authority of law) of the Constitution. Levying GST on development rights—arguably a ‘sale of land’ (exempt under GST laws)—exceeds the government’s legislative mandate and unfairly burdens real estate transactions,” Rastogi added.

 

The court directed the respondents, including the Union of India and the tax authorities, to refrain from acting on the January 27, 2025 order until further hearings. Affidavits-in-reply must be filed by the respondents within four weeks from April 29. Petitioners may file an affidavit-in-rejoinder within two weeks after receiving the reply, according to the court order copy seen by Business Standard.