GST Liability in Joint Development Agreements: Key Takeaways from Patna HC

 GST Liability in Joint Development Agreements: Key Takeaways from Patna HC

On May 5, 2025, the Patna High Court confirmed that a builder must discharge GST on a reverse‑charge basis for the proportion of flats allotted to a landowner under a Joint Development Agreement (JDA) executed before issuance of the completion certificate (CC). This ruling clarifies that development rights transferred prior to CC trigger a taxable supply of construction service, not a mere transfer of land, thereby exposing builders—and indirectly landowners—to additional tax obligations. Homebuyers should now verify both the project’s CC status and the seller’s GST compliance to avoid unexpected tax burdens.

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Background of Joint Development Agreements (JDAs)

What Is a JDA?: A JDA is a contractual arrangement whereby a landowner grants development rights (also known as transferable development rights, TDR) on their parcel to a builder in exchange for a mix of newly constructed residential/commercial units and, occasionally, cash consideration. The builder undertakes construction at its own cost, then sells its share of completed units to end‑users, while the landowner may retain, occupy, or sell their allotted share.

Typical JDA Structure: 

• Landowner’s Consideration: Development rights (TDR/FSI) on the land.
• Builder’s Consideration: Construction service and delivery of a specified percentage of flats.
• Split Example: In the Patna case, the agreement provided the builder 57% of units and the landowner 43%.

Chronology of the Patna HC Case

Date	Event
27 Nov 2014	Landowner and builder executed JDA (43% units to landowner; 57% to builder).
20 Dec 2018	Construction completed; builder handed over 43% share to landowner.
30 Nov 2023	GST authority issued show‑cause notice: ₹4.62 cr tax + ₹2 cr interest + ₹0.24 cr penalty.
05 May 2025	Patna HC delivered its judgment upholding the department’s reverse‑charge GST demand.

Each milestone underscores how timing—particularly pre‑completion agreements—anchors the taxable event.

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Government’s GST Position

1. No CC‑Based Exemption: The builder cannot sidestep GST merely because possession was handed over post‑CC; the taxable supply occurred when development rights exchanged hands.
2. Supply of Service: Transfer of constructed units in lieu of TDR is categorized as “construction service” (SAC 9954), not a land sale, and thus falls under GST’s reverse‑charge mechanism per Section 9(3) of the CGST Act.

Patna High Court’s Key Findings

Developer’s Title and Timing

• No Title Pre‑CC: The builder gains no right to market or sell any “developer’s area” until after CC issuance.
• RCM Trigger: Since development rights were furnished well before CC, the builder’s supply of construction service on the landowner’s behalf is taxable under reverse charge.

Rejecting Land Sale Exemption: The court held that JDAs executed pre‑CC cannot be classified under Schedule II/III exemptions (land/building sale), as the essence is service, not immovable property transfer.

Reliance on Supreme Court Precedent: Invoking M/S Govind Saran Ganga Saran, the HC confirmed all elements—service, consideration, and timing—align with GST liability under reverse charge.

Broader GST Framework for JDAs

Rates & Time of Supply (Post‑April 2019)

• Residential Projects: 1% (affordable) / 5% (other) without ITC
• Commercial Projects: 18% (standard) or 12% (with 33% land value deduction)
• Time of Supply: On completion certificate or first occupancy, whichever is earlier.

Reverse‑Charge on Development Rights: Under Notification 04/2018‑CT(Rate) dated 25 Jan 2018, the developer must pay GST on inward supply of construction when TDR is non‑monetary, claiming ITC against input services.

Impact on Stakeholders

Landowners

• Additional Cost: Builders may pass on GST to landowners via higher sale prices or reduced unit counts, depending on JDA clauses.
• Negotiation Leverage: Landowners should negotiate whether the builder absorbs GST or adjusts unit entitlement accordingly.

Builders

• Cash‑Flow Planning: Reverse‑charge liability arises pre‑CC, requiring working‑capital provision.
• Compliance: Builders must register for GST, file reverse‑charge returns, and maintain clear records of JDA dates.

Homebuyers

• Pre‑CC Purchases: Attract GST at prevailing JDA rates (1%, 5%, or higher).
• Post‑CC Purchases: Generally exempt if sold by builder after CC or by non‑dealer landowner.
• Due Diligence: Verify the CC date, JDA execution date, and seller’s GST registration to anticipate any embedded tax.

Expert Perspectives

• Highlights far‑reaching effects for JDAs executed between FY 2017‑18 and FY 2018‑19, noting unresolved Supreme Court matters (e.g., Vasantha Greens).
• Emphasizes that post‑CC unsold units held by builders are RCM‑taxable, while landowner sales post‑CC remain exempt.
• Advises that GST on developer‑to‑landowner services may be absorbed or passed on, but does not affect direct homebuyers.
• Recommends buyers always confirm both project CC status and the seller’s GST compliance to avoid surprises.

In summary, this Patna High Court verdict reinforces that any JDA executed before project completion triggers a reverse‑charge GST liability on the construction service element. Builders, landowners, and buyers alike must align their agreements and due‑diligence processes with this clarified framework to ensure compliance and cost predictability.

Read More:GST Liability in Joint Development Agreements: Key Takeaways from Patna HC