What Happened?

• An owner had paid a builder Rs.7 crore to redevelop his building and received 2 apartments as return.
• They did not transfer or sell their development rights to the builder.
• The government attempted to charge GST, but the court intervened. 

How GST Typically Works

In most redevelopment situations in which homeowners and developers sign a Joint Development Agreement (JDA), GST is charged in two ways:

• On the sale of development rights (utilizing the reverse charge mechanism).
• On construction services rendered by the developer.
  

What the Court Said

Since the homeowner didn’t sell development rights or Floor Space Index (FSI) to the builder, GST provisions under Entry 5B of the CGST notification are not applicable. Hence, no GST on construction.

What This Means for Homeowners

This is welcome news for owners of property who wish to redevelop without parting with their rights. It may save them an awful lot of money, but only if the agreement is set out in this style of case.