No Supply Of Service In Building Plan Sanction Process, GST Cannot Be Levied: Karnataka High Court

The Karnataka High Court has held that Goods and Services Tax (GST) cannot be levied on charges collected for sanctioning a building plan, as the process does not involve any supply of goods or provision of services.

Justice R. Nataraj on 21 July, partly allowed a petition filed by Sai Sravanthi Infra Projects Pvt. Ltd. and others against the Bangalore Development Authority (BDA) and other authorities, holding that the authorities lacked statutory authority to impose several charges while sanctioning the petitioners' development plan. He held:

“The respondent No.3 is not entitled to collect CGST and SGST as there is no supply of goods or provision of services in sanctioning the building plan.”

Petitioners had sought approval for a development plan for construction on their properties in Bengaluru. The authorities raised a demand of Rs.4.43 crore towards scrutiny fee, ground rent, development fee, plan paper fee, Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST), labour welfare cess and security deposit.

The petitioners challenged the demand, contending that the authorities had no statutory basis to impose several of the charges. They specifically argued that GST could not be levied on charges relating to sanction of the building plan since the process did not involve any supply of goods or services.

The Court relied on its earlier decision in Mr. Sunderam Shetty v. State of Karnataka, which held that charges including ground rent, licence fee, scrutiny fee and security deposit could not be imposed without statutory authority. It observed:

“There are no provisions under the Bangalore Development Authority Act, 1976 that authorize it to collect ground rent, scrutiny fee, security deposit etc., The authority has imposed these charges, apparently in view of the BBMP imposing such charges…”

The Bench also held that labour welfare cess could not be demanded upfront before construction. It directed the authorities to collect the cess in accordance with Rule 4 of the Building and Other Construction Workers' Welfare Cess Rules, 1998.

Accordingly, the High Court quashed the demand towards scrutiny fee, ground rent and security deposit. It directed the authority to raise a fresh demand for labour cess in accordance with the prescribed procedure and to sanction the building plan within one month. It clarified that the directions are subject to the outcome of a pending appeal against the earlier decision relied upon by the Court.

For Petitioner (s): Sammith S., Advocate

For Respondent (s): Aditya Diwakar, Additional Government Advocate for R1 and R2, Deepti Ayathan, Advocate for R3 and R5, and Aravind M. Neglur, Advocate for R 4