Maharashtra AAR: GST Payable on ‘Free’ Flats, Amenities and Charges in Redevelopment; Treated as Barter for Development Rights
Pranav B Prem
The Maharashtra Authority for Advance Ruling (AAR) has held that Goods and Services Tax (GST) is payable on free flats, additional area, amenities, and other charges provided to members of a housing society in redevelopment projects, treating the arrangement as a barter for transfer of development rights (TDR).
The Bench comprising D. P. Gojamgunde (Joint Commissioner of State Tax) and Priya Jadhav (Joint Commissioner of Central Tax) observed that when a developer receives TDR/FSI from a society and, in return, supplies newly constructed flats and other benefits free of cost to society members, the transaction amounts to “exchange” under Section 7(1)(a) of the MGST Act, 2017, and thus falls within the scope of supply under GST law.
Background
The applicant, M/s Sharda Vastu Nirmiti Pvt. Ltd., is engaged in real estate business, specifically the redevelopment of old residential buildings. The company was awarded a redevelopment project involving a housing society consisting of 22 members, each occupying flats ranging from 260 sq. ft. to 680 sq. ft. carpet area.
A Development Agreement was executed under which the developer agreed to demolish the old building and construct a new residential project. The society transferred its development rights to the applicant, and in return, the developer undertook to provide to the existing members:
Area in lieu of their old flats,
Additional area,
Amenities,
Parking spaces, and
Payment of stamp duty and registration charges.
Additionally, the developer was to pay monetary compensation to members towards rent and brokerage for alternate accommodation, shifting charges, and corpus payments.
Issues for Ruling
The applicant approached the AAR seeking clarity on:
Whether GST is applicable on the free supply of area, additional area, amenities, parking, and charges borne by the developer for society members.
Whether GST is payable on monetary payments such as rent, brokerage, shifting charges, and corpus provided to members and the society.
The basis for determining the taxable value of supply in such redevelopment projects.
Findings of the AAR
The AAR observed that although the units and amenities provided by the developer appeared to be “free,” they were, in fact, consideration for the development rights transferred by the society. The authority clarified that the transaction between the society and developer is not gratuitous but an exchange/barter arrangement falling squarely under the scope of supply defined in Section 7 of the GST Act.
It was held that the supply of construction services by the developer to society members amounts to taxable supply. The applicable rate of GST would be 1% in the case of affordable residential units and 5% in the case of non-affordable units, without input tax credit, in terms of Notification No. 3/2019-CT (Rate) dated 29.03.2019.
On the issue of valuation, the AAR ruled that the taxable value of the supply would be determined based on the open market value of similar apartments sold by the developer to independent buyers nearest to the date of transfer of development rights.
With regard to monetary payments, the AAR distinguished between consideration and supply. It held that payments like rent, brokerage for alternate accommodation, shifting charges, and corpus given to society members were part of the overall consideration flowing from the developer to acquire TDR. Since these payments were not in the nature of “supply” by members, they were not independently liable to GST.
Ruling
The AAR concluded as follows:
GST is payable on free area, additional space, amenities, parking, and charges borne by the developer as they form part of consideration for TDR received.
Such transactions are to be treated as barter/exchange and fall within the scope of supply under GST law.
GST is not applicable on monetary compensation given to members (such as rent, brokerage, corpus, and shifting charges), as these do not constitute supply of services by the members.
The taxable value for GST purposes shall be equivalent to the value of similar apartments sold by the developer to independent buyers closest to the date of the development agreement.
Accordingly, the application was disposed of with directions that the developer is liable to discharge GST on the supply of residential units provided to society members under redevelopment.
Applicant’s Name: M/S. Sharda Vastu Nirmitee Private Limited
