Patna High Court Upholds GST on Construction Services in Development Agreement, Rejects Time-Bar Challenge

Patna, Bihar - In a significant ruling, the Patna High Court has dismissed a writ petition filed by Shashi Ranjan Constructions Private Limited , upholding the levy of Goods and Services Tax (GST) on construction services provided under a development agreement entered into before the GST regime. The court, comprising Hon'ble Mr. Justice Rajeev Ranjan Prasad and Hon'ble Mr. Justice Ashok Kumar Pandey , also rejected the petitioner's contention that the assessment order for the Financial Year 2018-19 was time-barred.

The judgment, dated May 5, 2025, affirmed an order by the Assistant Commissioner of State Tax, Muzaffarpur, demanding a total of Rs. 4,61,72,628 from the construction company, comprising tax, interest, and penalty.

Background of the Dispute

Shashi Ranjan Constructions Private Limited , a company engaged in building construction, challenged an order dated November 30, 2023, and the summary of order in Form GST DRC-07. This order held the company liable for Rs. 2,37,59,706 in CGST/BGST/IGST, Rs. 2,00,17,554 in interest, and Rs. 23,95,368 as penalty for the Financial Year 2018-19. The tax demand arose from non-monetary consideration (36 flats) received by the petitioner under a development agreement.

The petitioner also challenged two Central Board of Indirect Taxes and Customs (CBIC) notifications (No. 09/2023 and No. 56/2023) that extended the time limit for issuing assessment orders under Section 73(9) of the GST Act for FY 2018-19, arguing these were issued without a valid force majeure condition as required by Section 168A of the CGST Act.

Petitioner's Contentions

The petitioner, represented by Senior Advocate Mr. D.V. Pathy, primarily argued:

1. Time-Barred Assessment: The assessment order was passed beyond the statutory time limit prescribed under Section 73(10) of the GST Act, and the notifications extending this limit were invalid.

2. Non-Taxability of Pre-GST Agreement: The development agreement was registered on November 27, 2014 (pre-GST). The petitioner contended that the land stood transferred to the builder then, thus transactions under it were outside GST's purview.

3. Prospective Nature of Notification 04/2019: It was argued that Notification No. 04/2019, dated March 29, 2019, which dealt with tax on transfer of development rights, was prospective and could not apply to FY 2018-19, especially since the project was completed on December 20, 2018.

4. Sale of Immovable Property: Handing over flats after the completion certificate classified the transaction as a sale of land and building, which is neither a supply of goods nor services under Schedule II of the CGST/BGST Act.

State's Counter-Arguments

Mr. Vikash Kumar, SC-11 for the State, refuted the claims:

1. Assessment Within Time: The assessment order (November 30, 2023) was passed within the original three-year limit from the extended due date for filing the annual return for FY 2018-19 (which was December 31, 2020, making the order deadline December 31, 2023). Thus, the challenged notifications were irrelevant to this case.

2. Tax on Construction Services: The petitioner was taxed for the "supply of construction services" (SAC code 9954), which was taxable under Notification No. 11/2017-Central Tax (Rate) dated June 28, 2017, and not for "transfer of development rights" (SAC code 9972).

3. Consideration Received Before Completion: The consideration for construction services was received in the form of development rights well before the issuance of the completion certificate or first occupancy, making it taxable.

4. Nature of Development Agreement: The agreement did not transfer ownership of land pre-GST; the developer gained rights to its share only upon project completion.

Court's Analysis and Ruling

The High Court meticulously examined the arguments and documentary evidence.

On Timeliness and Challenge to Notifications

The Court found "much substance" in the State's argument that the assessment order was passed within the original statutory deadline. > "The impugned assessment order dated 30.11.2023 has been passed within three years from the due date for filing of Annual return for 2018-19... Since the extended date for filing annual return for 2018-19 was 31.12.2020, the assessment order under Section 73(9) has to be completed up to 31.12.2023. In this case, it has been completed on 30.11.2023 within the deadline..."

Consequently, the challenge to Notifications No. 09/2023 and No. 56/2023 was deemed "misconceived," "irrelevant and superfluous." The Court rejected the petitioner's claim that the order was time-barred.

On Taxability of the Transaction

The Court delved into the nature of the development agreement and the applicable GST provisions. 1. Interpretation of Development Agreement: Reading the agreement as a whole, the Court concluded: > "In fact the petitioner does not get any right on the said property until the completion of the project. After the project is completed and completion certificate is issued, the petitioner gets a right to sell the area of the property which is called 'Developers Area'. We do not find any substantial material to establish that with execution of the development agreement, the petitioner got ownership in the land." The Court distinguished the Supreme Court's ruling in Commissioner of Income Tax vs. Balbir Singh Maini , stating it would not help the petitioner as it dealt with different facts and Income Tax law.

Applicable Tax and Notifications: The Court agreed with the State that the petitioner was taxed for "supply of construction services" under SAC Code 9954, which was taxable under Notification No. 11/2017-Central Tax (Rate) dated June 28, 2017. This notification made construction of a complex intended for sale taxable, except where entire consideration was received after completion certificate or first occupancy. > "In this case, it has been specifically pleaded by the State-respondent that the consideration had been received by the petitioner in the form of transfer of development rights, which happened long before the issuance of completion certificate or first occupancy. This Court agrees that in this case, the petitioner cannot claim that it had received the consideration after the issuance of completion certificate or first occupancy."

Role of Notification No. 04/2018: The Court noted that Notification No. 04/2018-Central Tax (Rate) dated January 25, 2018, determined the time of supply for transfer of development rights and supply of construction services, stating liability arises when the developer transfers possession/right in the constructed complex to the landowner. > "The supply of services of transfer of development rights remained taxable since introduction of the GST but by virtue of notification no.04/2018, the liability to pay Central tax shall arise only on the consideration received in form of construction services."

Irrelevance of Notification No. 04/2019 for this Tax: The Court rejected the petitioner’s reliance on Notification No. 04/2019 (effective April 1, 2019) as the basis for liability, as the tax was levied on construction services already taxable.

Essential Components of Tax Met: Citing Govind Saran Ganga Saran vs. Commissioner of Sales Tax & Others , the Court found that all essential components of a tax (taxable event, person liable, rate, measure) were clearly ascertainable.

Final Verdict

The Patna High Court dismissed the writ application, finding no ambiguity regarding the petitioner's GST liability on a Reverse Charge Mechanism (RCM) basis for construction services rendered in lieu of development rights under the 2014 agreement. > "We are of the opinion that there is no ambiguity with regard to liability of the petitioner on account of ‘GST’ on ‘RCM’ basis on the constructions services rendered by him in lieu of the developments rights under the Development Agreement dated 27.11.2014."

No costs were imposed. This judgment clarifies the application of GST to ongoing construction projects under development agreements straddling the pre and post-GST eras, particularly concerning the timing of consideration and the specific service being taxed.