Relevant Definitions, Sections & Schedules under GST
“Services” is defined under section 2(102) as anything other than goods, money, and securities. As is evident from the definition, it has a very broad scope. Unless included in exemptions vide Schedule III or notifications under Section 11, everything other than those mentioned above is leviable to GST under “Services.”
Unlike the erstwhile service tax regime, GST law does not specifically exclude transfer of immovable property-related rights from the definition of service. Also, Section 7 (1)(a) provides that all forms of goods or services for consideration in the course or furtherance of business are taxable supplies.
Further, para. 5(b) of Schedule II also provides that construction of a complex, building, civil structure, or a part thereof intended for sale to a buyer before completion certificate shall be treated as a supply of service.
More importantly, paragraph 2(a) of the same schedule treats lease, tenancy, easement, and license to occupy land as a supply of services.
In that sense, transfer of development rights (TDR) and leasehold rights would be services. However, these are generally closely linked to the underlying immovable property, so much so that TDR, leasehold rights transfer, Joint Development Agreements (JDA), and other similar rights arising from immovable properties have become one of the most litigated issues in the real estate sector.
Recent judicial pronouncements, especially by the Gujarat High Court and the Bombay High Court, indicate an emerging trend that such rights are intrinsically connected with immovable property and therefore may fall outside the scope of GST.
However, there are contrary rulings also by the Telangana and Patna High Courts that development rights are independent commercial rights that are independently transferable, commercially exploitable, and are monetisable rights. Hence, they constitute separate taxable supplies distinct from land itself.
So the core controversy is whether rights arising from land are themselves “immovable property” or whether they are independent taxable services.
Based on discussions in the GST Council, was GST on land ever intended?
During the 5th and 7th GST Council meetings, the Council noted that service tax was not leviable on the transfer of immovable property. Since stamp duty already applies to land and buildings, imposing GST additionally could lead to double taxation and constitutional concerns. Hence, the Council deferred the levy of GST on land and completed buildings, leading to the insertion of para. 5 under Schedule III.
This legislative history has become one of the strongest arguments against levy of GST on rights attached to the land.
Judicial Pronouncement For and Against GST Levy
Let’s look at judicial pronouncements for and against levy of GST on TDR, Leasehold Rights and other rights attached to land.
Judicial Support Exists for GST Levy
The Telangana High Court held that transfer of Development Rights (TDR) is amenable to GST; it cannot be treated as a sale of land/building under Schedule III.
The Court also observed that the developer did not acquire ownership in land merely by execution of the development agreement; therefore, the transaction could not be treated as a sale of land under Schedule III.
Judicial Support Against GST Levy
This is presently the most significant judgement favouring the tax payer
The Court held that leasehold rights are benefits arising from land and that the assignment of leasehold rights is transfer of immovable property and hence not leviable to GST. It further held that Section 7 and Schedule II cannot override exclusion under Schedule III.
GST Law Recognises linking to underlying goods
It should be noted that GST law itself recognises that services intrinsically linked with underlying goods may adopt the character, valuation, or tax treatment of the underlying subject matter. Thus rights arising directly from land such as TDR and leasehold rights cannot be artificially divorced from the underlying immovable property. Consequently, such rights should inherit the same GST treatment as land, which stands excluded under Schedule III.
Here are some examples:
| Sl. No. | Nature of Supply / Service | GST Treatment | Linkage with Underlying Goods / Asset | Relevance to TDR / Leasehold Rights Argument |
|---|---|---|---|---|
| 1 | Restaurant Services | Treated as supply of service | Tax structure substantially linked to supply of food and beverages | Demonstrates that GST recognises composite economic substance rather than rigid classification |
| 2 | Works Contract Services | Deemed as service under Schedule II | Embedded transfer of goods and land components recognised in valuation and taxation | Shows that land and goods components continue to influence GST treatment despite service classification |
| 3 | Leasing / Renting of Motor Vehicles | GST rate often aligned with underlying vehicle tax structure | Service taxation influenced by nature/type of underlying vehicle | Supports argument that GST treatment may follow underlying asset characteristics |
| 4 | Leasing of Aircrafts / Vessels / Machinery | Concessional or aligned GST rates based on underlying goods | Rate parity maintained between leasing service and underlying goods | Indicates legislative recognition of intrinsic nexus between service and asset |
| 5 | Job Work Services | Concessional GST rates linked to underlying goods processed | Nature of goods determines classification/rate of service | Supports principle that underlying subject matter influences service taxation |
| 6 | Transportation of Goods | GST implications linked to type of goods transported in certain cases | Character of underlying goods impacts exemption/rate treatment | Reflects dependency of service treatment on underlying goods |
| 7 | Transfer of Right to Use Goods | Historically treated akin to deemed sale / service depending on framework | Tax treatment inseparable from underlying goods | Reinforces substance-over-form approach in indirect taxation |
| 8 | Software Licensing / Temporary Transfer of IPR | GST treatment influenced by nature of underlying intellectual property | Service classification tied to underlying intangible property | Demonstrates that rights connected with underlying property often derive character from such property |
| 9 | Warehousing of Agricultural Produce | Exemption linked to nature of goods stored | Service exemption dependent upon underlying agricultural produce | Illustrates legislative practice of adopting treatment based on underlying goods |
| 10 | Renting of Precincts for Religious Functions / Educational Activities | Exemption depends on nature/use of underlying premises/activity | Character of underlying property/use determines GST consequence | Supports argument that underlying asset/use can govern GST treatment |
| 11 | Transfer of Development Rights (TDR) (taxpayer argument) | Taxability disputed | TDR has no independent existence without land | Therefore, TDR should inherit the GST treatment of underlying land excluded under Schedule III |
| 12 | Assignment of Leasehold Rights (taxpayer argument) | Taxability disputed | Leasehold rights are benefits arising from immovable property | Supports contention that such rights should be treated identically to land itself |
Conclusion
Multiple SLPs against the Gujarat High Court decisions are presently pending before the Supreme Court. The final verdict of the Apex Court will determine whether TDR, leasehold rights, JDA, and other rights arising from immovable property constitute taxable services or non-taxable immovable property transactions.
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