Bombay High Court gives GST relief to homeowners: No GST on re-development by homeowners through builder under these terms

In a relief for homeowners or landowners, the Bombay High Court on April 8, 2025, ruled that no Goods and Services Tax (GST) can be levied on re-development of a land by a homeowner/ landowner through a builder in specific cases where the development rights are not sold. In legal terms, the high court interpreted the law and made a distinction between the standalone transfer of Transfer of Development Rights (TDR) or Floor Space Index (FSI) and the transfer of development rights under a joint development agreement (JDA) between a builder and homeowner.

To give you a brief how JDAs work, think of a homebuyer/landowner who has a plot of land. To monetise this land, the homeowner/landowner sells the land’s development rights to a builder in exchange for money or apartments and then also pays the builder for construction work of a multi-storied apartment on the said plot of land.

So essentially you are making two transactions:

• Selling redevelopment rights to builder
• Buying construction services from builder

So as per the prevailing law, when you sell your development rights in a plot to a builder, the GST on this transaction is paid by the builder on Reverse Charge Mechanism (RCM) basis, which of course is priced in the transaction. And the money which you pay to the builder for construction work is also chargeable to GST, but this GST is paid by you (homeowner/landowner). This is how there are two incidences of GST payment -- one for selling development rights (on RCM basis) and another for construction services (forward charge GST). Both the GSTs are ultimately paid by the homeowner/landowner, the only difference is the mode of collection (RCM, normal).

However, in this case being talked about in this article, the homeowner paid the builder Rs 7 crore and gave 2 apartments in exchange for construction work of a multi-storied apartment on the plot. The development rights were not sold and hence no GST was paid. This is where the tax officials had a problem and demanded that GST must be paid by the builder on an RCM basis after taking it from the homeowner/landowner. Hence the reason why the builder got a GST tax demand notice after which he filed a case in court.

This led to a remarkable decision by the Bombay High Court, which after hearing this case interpreted entry 5B of Central Tax notification and ruled that no GST was needed to be paid in this case by anybody be it builder or homeowner/landowner. The reason for this is because it was held that the homeowner/landowner merely used the construction service of the builder and the development rights had not been actually sold/transferred to the builder.

Read below to know more about what the legal impact of this interpretation of entry 5B by the high court means for homeowners who wish to put their land for redevelopment.

What are the facts of this case?

According to the order of the Bombay High Court dated April 8, 2025, here are the details:

• January 7, 2022: A homeowner who owned a plot of land entered into an agreement of sale with a builder for development of his plot of land.
• As per this agreement, the builder was allowed to develop the plot of land into a multi-storied apartment, in exchange for Rs 7 crore and 2 apartments as consideration.
• July 24, 2024: The builder received a GST tax demand notice for failing to charge GST on reverse charge basis (RCM) on this transaction.

As per Entry 5B of Central GST notification dated June 28, 2017, a builder is supposed to pay GST on behalf of the homeowner/landowner for construction of a project through supply of services by way of TDR or floor space index (FSI) including additional FSI.

In this case neither the homeowner paid the builder any GST nor the builder charged GST and deposited it with the government.

What did the government’s lawyers say about charging GST on redevelopment projects?

The government’s lawyers said in the high court that as per Entry 5B, which clause 18 of the agreement of the development satisfies, it would permit the government to levy GST on the said transaction. Clause 18 of the agreement specified how the builder would redevelop the plot of land in exchange for Rs 7 crore and 2 apartments in return.

The following table was shared by the government’s lawyers: Services supplied by any person by way of transfer of development rights or floor space index (FSI) (including additional FSI) for construction of a project by a promoter.

1	2	3	4
5B	Services supplied by any person by way of transfer of development rights or floor space index (FSI) (including additional FSI) for construction of a project by a promoter.	Any person	Promoter

Builder’s lawyers say neither the homeowner nor they are liable to pay GST on this redevelopment project as there is no compensation

The builder’s lawyer argued before the high court that in the agreement of development with the homeowner, the terms were that the builder would be granted a right to develop the property in question by utilising its present FSI or any increases thereof. The builder’s lawyers also said that as per this agreement, which they executed no TDR (Transferable Development Rights) or FSI (Floor Space Index) has been purchased by the owner or for that matter by the builder from any person / entity whomsoever, hence GST is not applicable here.

Legal arguments presented by the builder’s lawyers

The builder’s lawyers said before the High Court that the language of entry 5B suggests that it relates to services which can be said to be supplied by any person by way of transfer of development rights or Floor Space Index (FSI) [including additional FSI] for construction of a project by a promoter.

The builder’s lawyers also said: “The expression ‘transfer of development rights’ read in conjunction with ‘FSI’ as indicated in entry 5B, would only relate to a TDR (Transferable Development Rights) as contemplated by clause 11.2.2 under the regulations for grant of TDR in the Unified Development Control and Promotion Regulations for the State of Maharashtra, clause 11.2.1 of which defines transferable development rights, to mean compensation in the form of Floor Space Index (FSI) or development rights, which shall entitle the owner for construction of built up area subject to the provisions in the said regulations.”

The builder’s lawyers argued: “It therefore, follows, that the TDR / FSI as contemplated by entry 5B, cannot be related, to the rights which a developer derives from the owner under the agreement of development for constructing the building for the owners, in lieu of the owner agreeing to permit the developer to transfer certain built up units for consideration to be appropriated by the developer.”

Bombay High Court judgement: No GST in such an agreement between landowner and developer

The Bombay High Court accepted the arguments made by the builder’s lawyers and ruled that No GST is required to be paid by anybody in this specific case.

Ranjeet Mahtani, Partner, Dhruva Advisors, says: “In our understanding, the High Court, after ascertaining the true nature of the contract, appropriately, ruled that the landowner did not explicitly provide for the transfer (by landowner to the developer) of DR (i.e. TDR) or FSI, so as to make the transaction amenable to GST. The contract in question was apparently for the development of a parcel of land with construction of a multi-storied complex and, it did not contemplate any TDR between the parties.

Mahtani adds: “In that way, the arrangement could be regarded as one involving a service provider being appointed for undertaking construction/development of a land parcel, for consideration, without grant of development rights.”

The Bombay High Court interpreted the law and used this legal reasonings

The Bombay High Court said:

• Clause 18 relied upon by the counsel for the respondents (government) merely indicates, that the owners shall sign and execute a deed of declaration under Section 2 of the Maharashtra Apartment Ownership Act, 1970 submitting the entire scheme to the provisions of the Maharashtra Apartment Ownership Act and the execution of the apartment deeds in favour of each individual buyers to the nominees of the developers.
• It is, therefore, apparent, that the transaction as contemplated in terms of the agreement dated 07.4.2022 does not fall within entry 5B of the Notification dated 28.6.2017, as it stand amended by the Notification dated 29.3.2019, in view of which, neither the show cause notice dated 14.08.2023 (page 123) nor the consequent order dated 10.12.2024 (page 137), can be sustained and are hereby quashed and set aside. The petition is accordingly allowed in the above terms.

Parag Mehta, partner, NA Shah & Associates says: "This recent judgement of Mumbai High Court has distinguished the TDR/FSI as per notification and rights derived under Development Agreement. Further in another judgement drawing rational from Gujarat High Court the courts have held that any rights in land are also akin to sake land and hence there can be no GST on Development Rights."

How GST applies on transfer of development rights in a Joint Development Agreement (JDA)?

Sudipta Bhattacharjee (Partner, Indirect Taxes, Khaitan & Co.) explains: It is pertinent to understand how GST applies on transfer of development rights in a Joint Development Agreement (JDA) context. From April 1, 2019, there is an exemption from GST on “Service by way of transfer of development rights (TDR) or Floor Space Index (FSI) (including additional FSI)” to the extent of such development rights are attributable to residential units booked/sold prior to the completion certificate.

There is also a reverse charge liability notification which uses very similar language and needs to be read conjointly with this exemption notification – under this, a reverse charge GST liability has been cast on the developer to pay GST on transfer of development rights to the extent attributable to the apartments that remain un-booked on the date of completion certificate/first occupancy. So, it is not a flat 18% GST liability on the entire value of development rights transferred by landlord to developer – it is 18% GST payable by the Developer on a reverse charge basis only on the value attributable to un-booked apartments on the completion certificate date.

In effect, in a JDA scenario, GST applies by treating a JDA as a barter transaction – supply of development rights by landowner to developer on one hand and supply of construction services by developer to the landowner on the other hand – both are leviable to GST in the hands of the developer (the former, on a reverse charge basis and the latter, on a forward charge basis).

Shivam Mehta, Executive Partner, Lakshmikumaran & Sridharan Attorneys, says: "In a typical development agreement for construction of flats, the developer retains a portion of the constructed area as their entitlement and provides the remaining portion—either in the form of constructed flats (non-monetary consideration) or a lump sum (monetary consideration)—to the landowner in exchange for development rights. This is treated as a supply under GST."

What is the impact of this judgement for redevelopment projects?

ET Wealth Online has asked many experts about the impact of the precedent set by this judgement, here's what they said:

Sudipta Bhattacharjee (Partner, Indirect Taxes, Khaitan & Co.: Sale of land is specifically excluded from GST. On the basis of expansive interpretations of the word ‘land’ (pursuant to older judgments and statutes wherein ‘benefits arising out of land’ have also been included within the definition of ‘land’), legal arguments have been raised that development rights being benefits arising out of land, transfer of development rights should also get covered under the exclusion from GST on land. This argument has been rejected by the Telangana High Court (In the case of Prahitha Constructions) and is now pending in appeal before the Supreme Court – Supreme Court refused to grant a stay against the Telangana High Court judgment. Similar challenges are pending in other High Courts too.

To sum up, as on date, there is no exclusion from GST on transfer of development rights.

This recent Bombay High Court judgment has interpreted the reverse charge notification to conclude that such reverse charge liability of GST should only trigger in cases of supply of Transferable Development Rights (basically, Development Right Certificates as envisaged under the Unified Development Control and Promotion Regulations for the State of Maharashtra) and not to JDA scenarios involving landowners giving a right to develop the land to a developer. While this may appear beneficial for the real estate sector on the face of it, it is pertinent to highlight that this reverse charge notification is connected with and uses almost the same language as the aforementioned GST exemption notification – thus, if reverse charge liability doesn’t trigger based on this interpretation by the Bombay High Court, arguably, even the aforementioned GST exemption may no longer be available which may lead to unforeseen GST demands.

Respectfully, it appears that this aspect was not brought to the attention of the Bombay High Court during the arguments – this anomaly may lead to unintended consequences and it would be important for CBIC to clarify its stance on the issue at the earliest, to avoid unnecessary litigation.

Shivam Mehta, Executive Partner, Lakshmikumaran & Sridharan Attorneys: Without delving into the correctness of the judgment, it is pertinent to note that the precedent set by it would not be applicable in cases where TDRs are granted by the Authority under statutory provisions. In particular, the judgment does not hold good in the scenarios where TDR is issued by the Authority pursuant to Clause 11.2.1 of the Unified Development Control and Promotion Regulations (UDCPR) for the State of Maharashtra.

Parag Mehta, partner, N A Shah & Associates: GST on development rights has been a bone of contention since introduction of GST between the developers and GST Authorities. Further with new notifications notified in 2019 for real estate sector, the general perception was that there is no escape from GST on development rights and builders will be liable to discharge GST under Reverse charge mechanism. The position was further strengthened for the authorities vide various writ petitions in their favor. The issue of GST on development rights is pending before various forums and the ultimate deciding factor will be Supreme Court or corresponding amendment in the GST Act. The trade has represented a lot before the authorities to exempt GST on development rights as it is leading to increased taxation resulting in higher cost for housing.

Sangita Prakash, Associate Partner, Dhruva Advisors: It should be appreciated that an independent transfer of TDR or FSI, if contemplated between parties, attracts GST under the forward charge mechanism in the hands of the landowner, whereas in case of typical joint development agreements, where the landowner grants TDR to the developer, the GST on such supply of TDR is payable under the reverse charge mechanism, by the developer.

Applicability of the High Court's ruling shall be confined to cases where the agreement does not grant or involve supply of TDR or FSI. Each arrangement (agreement and contract revealing the same) is unique, and the ratio of this judgement will not enable all transactions between landowners and developers to have a no GST position”.