Bombay High Court Continues Stay On GST Notice Over 1/3rd Land Deduction Amid Pending Proceedings

The Bombay High Court on 4 February, continued its interim order staying further action on a show cause notice issued to Khusharav Builders Pvt. Ltd. under Section 74 of the CGST/MGST Act, observing that the core issue is whether the Department had jurisdiction to issue the notice in light of earlier High Court rulings striking down the mandatory one-third land deduction under GST.

A Division Bench of Justice G.S. Kulkarni and Justice Aarti Sathe on 6 January, granted interim relief and directed the respondents to file a reply affidavit within two weeks on the preliminary issue of jurisdiction. The Court ordered that, “in the meantime, no further action under the impugned show cause notice shall be taken.”

Khusharav Builders relied on the judgment of the Gujarat High Court in Munjaal Manishbhai Bhatt v. Union of India, which had read down Paragraph 2 of Notification No. 11/2017. The High Court had held:

“The impugned Paragraph 2 of the Notification No.11/2017 -Central Tax (Rate) dated 28-6-2017… which provide for a mandatory fixed rate of deduction of 1/3rd of total consideration towards the value of land is ultra-vires the provisions as well as the scheme of the GST Acts… The deeming fiction of 1/3rd will not be mandatory in nature. It will only be available at the option of the taxable person in cases where the actual value of land or undivided share in land is not ascertainable.”

The party also relied on a similar view taken by the Delhi High Court in Sanjeev Sharma v. Union of India.

It was further pointed out that the issue is pending before the Supreme Court of India in Special Leave Petitions. By order dated 1 October 2024, the Supreme Court had directed that no coercive steps or adjudication of show cause notices based on the impugned notification be taken till further orders.

The Bombay High Court noted that in earlier connected matters, including petitions filed by Arkade Developers Ltd., interim relief had been granted. In one such matter, a direction to deposit 10% of the demanded amount was later stayed by the Supreme Court.

Considering the pan-India applicability of a central notification under the CGST Act and earlier High Court rulings holding Paragraph 2 to be ultra vires, the Court observed that the primary issue for consideration was whether the respondent had jurisdiction to issue the impugned show cause notice.

The matter was thereafter listed on 20 January 2026. Again on 4 February 2026, the Court directed that the interim protection granted earlier shall continue.

Appearance for the Petitioner: Mr. Naresh Jain, Ms. Neha Anchlia, Priyanshi Jain

Appearance for the Respondent: Mr. Satyaprakash Sharma with Mr. Abhishek Mishra