Transfer of Development Rights Not Taxable As Service: CESTAT Quashes ₹4.48 Crore Demand on Omaxe

The Customs, Excise and Service Tax Appellate Tribunal, New Delhi, has set aside a Rs 4.48 crore service tax demand against real estate developer Omaxe Limited, ruling that the transfer of development rights is not taxable as a service.

Allowing the appeal, the tribunal relied on its earlier ruling in DLF Commercial Projects Corporation v. Commissioner of Service Tax, Gurugram. It held that “transfer of such land development rights is transfer of immovable property” under the General Clauses Act and therefore falls outside the service tax law.

The ruling by Judicial Member Binu Tamta and Technical Member Hemambika R Priya set aside an order dated November 6, 2018, passed by the Commissioner of CGST, Delhi East. That order had confirmed service tax along with interest and penalties against the company.

The dispute arose from agreements under which Omaxe acquired development rights from land-owning companies to develop integrated townships. While the landowners retained legal title, Omaxe carried out the development.

The tax department argued that since there was no direct transfer of land title, the arrangement amounted to a taxable service under the Finance Act, 1994. It also invoked the extended limitation period.

The tribunal rejected this argument. It noted that the issue had already been settled by earlier rulings. Those decisions held that development rights are benefits arising out of land.

The tribunal also noted that such arrangements ultimately lead to the transfer of an undivided interest in land to buyers through registered conveyance deeds. This, it said, underlines that the transaction is one involving immovable property.

Relying on precedents, the CESTAT set aside the entire tax demand, along with interest and penalties, and allowed Omaxe's appeal in full.