It is a wide-spread practice in the Real Estate sector wherein developers/builders/realtors identify suitable land for development, enter into joint development agreements with the landowners and develop the property either into plots or commercial/residential flats by incurring all the development such as construction cost. 

Under the current laws sale of land is outside the purview of GST as per Para 5 of Schedule III to the CGST Act, 2017. 

Therefore transfer of development rights by the landowner to the developer in a JDA is merely a form of transfer of land and thereby should exempt from GST. 

However recently, the Hon’ble Telangana High Court (Prahitha Construction Pvt Ltd (2024) 15 Centax 295 levied GST on transfer of development rights by the landowner in a JDA stating that it is not a sale of land. 

In rendering its judgement, the Hon’ble HC has extensively relied on the clauses of the JDA agreement. In this specific case, the JDA has explicitly provided that the developer was treated as just contractor till he finishes the construction and hands over the landowner’s share. 

The rights to developer on the constructed property would arise only after finishing the construction and after handing over the constructed property to the landowner.  

However many argue that the above clause in the JDA may not commonly be prevalent in all the cases. Having vetted 100’s of JDA’s, in most JDA’s developer would get the right on his share of undivided share of land immediately after entering the JDA. 

That is the reason the landowner would give irrevocable power of attorney to the Developer on the land. An irrevocable power of attorney is executed for facilitating the sale of flats by the developer from the initial phase of the project itself. 

Otherwise, no developer would take the risk of investing so much of money without having the right to convey his share to customers.

When the rights in the property are transferred to the developer at the time of entering the JDA itself, if the builder is entitled to convey the flats to his customers through irrevocable Power of Attorney, one can say in substance transaction is well covered under Schedule III as the same akin to sale of land. 

It is arguable case. Therefore, it is suggested not to apply the rationale of the judgment as a straight-jacket formula in all the JDA cases but to consider the relevant facts of each case for deciding the taxability. 

Couple of important arguments neither considered by the Telangana High Court nor placed before the Court for consideration.Holistically the judgment is fact based, specific to that JDA, judgment is not a ratio decidendi for all the JDA’s. (The writer is an Advocate, AP High Court. Views are personal.)