AUGUST 04, 2023

By Dr Sanjay Kalra, LLM., Ph.D.(GST Law), Advocate, KPS Legal

LEVY of GST on TDR has always been a debatable topic among stakeholders, since inception of the GST Act, 2017. For understanding the subject matter, first we should understand the difference between the two terms 'Transferable Development Rights' and 'Transfer of Development Rights'. These two terms should not be used loosely while determining the taxability of TDR under GST Act, 2017.

Transferable Development Rights (TDR) :

'Transferable Development Rights'  (TDR) means certificates issued in respect of category of land acquired for public purposes either by the Central or State Government in consideration of surrender of land by the owner without monetary compensation, which are transferable in part or whole [Para 2.1.46 of Consolidated FDI Policy Circular dated 28-8-2017]. Similarly, 'TDR' is also defined in  Section 6(2) of FEMA. Thus, TDR is a right given by authority to construct/develop land upto a certain permissible Floor Space Index (FSI) within permissible limits of Development Control Regulations. TDR is an award which entitles the owner of the land in the form of a Development Rights Certificate (DRC) which he may use for himself or transfer it to any other person.

Transfer of 'Development Rights' (DR):

Transfer of 'Development Rights' means supply of 'Development Rights', by Owner of the land to a Developer / Builder / Construction Company, for constructing a complex, building or civil structure. Here, the said owner avails the 'Construction Service' from such Developer / Builder against a consideration, wholly or partly, in form of the said constructed complex, building or civil structure by getting possession thereof from such Developer / Builder.

TDR is different from Transfer of 'Development Rights'   - In TDR, Government (local authority) gives an instrument to land owner (for surrender of his right) to either use it or sell it. In Transfer of Development Rights, the owner of land allows promoter to develop the land on behalf of the landowner against a consideration.

Taxability of 'TDR' in a GST Regime

TDR would be taxable if it amounts to supply of "service" or supply of "Goods" under the GST Act, 2017. To decide the issue, let us refer to the definition of goods and services as provided in the Constitution of India as well as under the CGST Act, 2017- Article 366(1 2) and 366 (26A) of the Constitution of India define "goods' and 'services'.

Whether TDR is 'Goods'

As per Article 366(12) of the Constitution of India, "goods" includes all materials, commodities. Section 2(52) of the CGST Act, 2017 defines "goods" means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply. Let us understand definitions of the following relevant terms:

1. 'Movable Property' : The Tax Enactments do not define 'Movable Property'. Even the General Clauses Act says that that movable property means property of every kind, except immovable property.

2. 'Immovable Property' : The term ‘immovable property’ has not been defined under GST law. The General Clauses Act, 1897 defines "immovable property" as to include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth. Section 2(6) of the Registration Act, 1908 defines “immovable property” to include land, buildings, hereditary allowances, rights to ways, lights, ferries, fisheries or any other benefit to arise out of land, and things attached to the earth or permanently fastened to anything which is attached to the earth, but not standing timber, growing crops nor grass.

3. 'Land' : Section 3(4) of the Bombay Land Revenue Code, 1879 defines "Land" as under:

"Land" includes benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth a ri d also shares in or charges on the revenue or rent of village or other defined portions of territory.

4. 'Benefits to arise out of land' :The Apex court also held that 'land' includes rights in or over land and benefits to arise out of land [Safiya Bee vs Mohd. Vajahath Hussain - (2011) 2 SCC 94; Pradeep Oil Corporation vs Municipal Corporation of Delhi - (2011) 5 SCC 270]. The Hon'ble Supreme Court in various judgements held that the benefits arising out of land is an interest in immovable property [Anand Behera v. State of Orissa (1955) 2 SCR919; Shantabai V. State of Bombay AIR 1958 SC532; Bibi Sayeeda v. State of Bihar (1996) 9 SCC 516].

TDR being an immovable property is not covered under 'Goods' : From the above definitions and the law clarified by various Courts, it comes out that TDR is the benefit arising out of land and so the same is an immovable property. This view is further strengthened by the fact that a purchase of TDR is registered with the sub-registrar as applicable to an immovable property. Hence, the TDR being an immovable property is not covered under the definition of goods.

Whether TDR is neither 'Goods' nor 'Services' : Schedule III to the CGST Act, 2017 contains a negative list, enlisting activities which shall neither be treated as supply of goods nor supply of services. Paragraph 5 of Schedule III covers 'sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building'. In this context, please note that the Apex Court held that Land Development Right is a Right to carry out development or to develop the land or building or both [Girnar Traders vs State of Maharashtra - (2011) 3 SCC 1)]. Also in another case, the Apex Court held that Land Development Right is thus a benefit out of land included within the word 'land' [S.N. Chandrasekhar vs State of Karnataka - (2006) 3SCC 208; Dena Bank vs B.B.P.Parekh & Co. - (2000) 5 SCC694].

From the above, it is crystal clear that TDR is a benefit arising out of land and transfer of TDR gives the recipient an irrevocable and permanent development right on such land. TDR may be covered under 'sale of land' in Entry No. 5 of schedule III of the CGST Act. Therefore, TDR is neither 'supply of goods' nor 'supply of services'.

Taxability of 'Transfer of 'Development Rights' (DR):

As explained above, the owner of a land avails the 'Construction Service' from a Developer / Builder by transferring 'Development Rights' to such Developer / Builder against a consideration, wholly or partly, in form of the said constructed complex, building or civil structure by getting possession thereof from such Developer / Builder. Such transfer of Development Rights (DR) is a supply of service taxable under entry at SI. No. 16 (iii) ( Heading 9972)under Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 bearing description "Real estate services other than (i) and (ii) above", and accordingly, would attract GST at the rate of 1 8% (9% CGST + 9% SGST). Notification No.4/2018-CentralTax(Rate) dated 25.01.2018 has notified that a registered person who supplies development rights to a developer shall be a Taxable Person. The Notification No. 5/2019 -C.T. (Rate). dated 29.03.2019 has been issued amending Notification No. 13/2017 -C.T. (Rate), dated 28.06.2017 whereby service by way of transfer of development rights/Additional FSI by any person to the promoter were made taxable under reverse charge.

Conclusion :

'Transferable Development Rights' certificates (TDR) issued by the Government for the land acquired is an immovable property. The sale of TDR being covered by Schedule III is not taxable under CGST Act, 2017. However, transfer of 'Development Rights' being a 'Construction Service' under Heading 9972 is taxable as a supply of service under the GST Act, 2017.

[The views expressed are strictly personal.]