In a landmark judgment, the Nagpur bench of the Bombay High Court has determined that the Goods and Services Tax (GST) does not apply to the transfer of development rights (TDR) or floor space index (FSI) in development agreements. This decision came as a response to a legal challenge by Shrinivasa Realcon Private Ltd against a GST notice demanding payment on TDR under a 2017 notification by the Central Board of Indirect Taxes and Customs.
The controversial clause (5-B) cited in the notification states that “Services supplied by any person by way of transfer of development rights or Floor Space Index (FSI) for construction of a project by a promotor” are liable for GST. TDR is a planning tool utilized to transfer unused development rights from one property to another, typically for monetary benefits or other compensations. FSI refers to the permissible construction area on a particular plot of land relative to its size.
Shrinivasa Realcon had entered into a development agreement in January 2022 to erect a multi-storey complex on an 8,000 sqft plot, with the transaction involving ₹7 crore and the allocation of two apartments to the landowner. The firm contended that this arrangement did not equate to a supply of TDR and highlighted the absence of a definitive description of TDR within the GST Act itself.
