Amid an ongoing legal battle on GST’s application on Joint Development Agreement (JDA) in the real estate sector, the GST Council is expected to look into the issue, as suggested by the Group of Ministers, on September 9.

“A Group of Ministers (GoM) on is likely to meet this week. One of the key terms of reference is to examine various aspects of GST levied on the transfer of development rights in the Joint Development Agreement and suggest a suitable model. Based on the recommendations of this GoM, the GST Council will consider various options,” a senior Government official said. The Council is scheduled to meet on September 9. 

The seven-member GoM will be convened by Goa Chief Minister, Parmod Sawant with Deputy Chief Ministers of Maharashtra and Bihar, Ajit Pawar and Samrat Choudhary, serving as members. Other members include Suresh Khanna (Finance Minister, Uttar Pradesh), Harpal S Cheema (Finance Minister, Punjab), Kanubhai Desai (Finance Minister, Gujarat) and K N Balagopal (Finance Minister, Kerala). The GoM has also been asked to examine and suggest composition scheme or any other scheme, to boost the real estate sector. It also has to examine the legality of land or any other ingredient, in composition and suggest valuation mechanism.

Background

JDA is a legal agreement that allows landowners and developers to come together to build projects on the former’s land. Currently, JDA is a common form of real estate development across sectors in India. There are two options for taxation. One is during the pre-March 31, 2019 under which GST of 18 per cent is applicable with input tax credit (ITC). The second option, for agreements entered after April 1, 2019, 1.5/7.5 per cent without input tax credit (ITC) is levied. A number of rulings by the Authority for Advance Rulings (AAR) have upheld the applicability of GST.

Court Order

Earlier in February, the Telangana High Court had dismissed a writ petition filed by a realtor challenging GST on ‘transfer of land development rights’ (TDR) on a JDA for residential projects. This held valid the notification that imposed GST on JDA. The petitioner, Prahitha Contruction Private Limited, moved the High Court with a prayer that when the land is transferred to the developer by the landowner under JDA, it should not attract GST. It was argued that GST on transfer of development rights by the landowner under a JDA is essentially similar to sale of land, which does not attract GST.

The Court emphasised that while the transfer of land itself is exempted from GST, the transfer of the right to develop under a joint development agreement shall be taxable under GST. 

The matter has now reached the Supreme Court, where the ruling has been challenged. In its first hearing, the apex court did not grant a stay on the GST. Next date of hearing is September 9.