Indirect Tax Alert – March 2024
GST Calendar –Compliances for the month of March’2024
| Nature of Compliances | Due Date |
| GSTR-7 (Tax Deducted at Source ‘TDS’) | April 10, 2024 |
| GSTR-8 (Tax Collected at Source ‘TCS’) | April 10, 2024 |
| GSTR-1 | April 11, 2024 |
| IFF- Invoice furnishing facility (Availing QRMP) | April 13, 2024 |
| GSTR-6 Input Service Distributor | April 13, 2024 |
| GSTR-2B (Auto-Generated Statement) | April 14, 2024 |
| GSTR-3B | April 20, 2024 |
| GSTR-5 (Non-Resident Taxable Person) | April 20, 2024 |
| GSTR-5A (OIDAR Service Provider) | April 20, 2024 |
| PMT-06 (who have opted for the QRMP scheme) | April 25, 2024 |
A challenge has been filed in the Delhi High Court against the imposition of GST on corporate guarantees.
Facts
Sterlite Power Transmission Limited (petitioner) has contested the imposition of GST on the provision of a corporate guarantee to a subsidiary by the holding company, arguing that it does not qualify as a service transaction. Additionally, the petitioner has challenged Circular No. 204/16/2023-GST issued by the Central Board of Indirect Taxes and Customs (CBIC) on 27th October 2023, which provided clarification on the taxability of personal and corporate guarantees.
Background
The petitioner pointed out that the Customs Excise and Service Tax Appellate Tribunal (CESTAT) Chennai had ruled in favor of its group company, M/s. Sterlite Industries India Limited, stating that providing a corporate guarantee to an associate company is akin to an internal safeguard to protect the company’s investments and does not constitute provision of taxable services.
Referring to the Supreme Court’s verdict in the case of M/s. Edelweiss Financial Services Limited, the petitioner argued that even under the previous service tax regime, issuing a corporate guarantee to a group company without any consideration was considered a non-taxable service.
Furthermore, the petitioner stressed that a corporate guarantee is essentially a contingent contract, enforceable only when a bank or financial institution demands it in case of default. Therefore, attributing a value to the guarantee based on potential enforcement, such as fixing it at 1% of the corporate guarantee’s value, would impose a burdensome obligation on the entity providing the guarantee.
Rulings
The High Court has issued a notice regarding the case and instructed that no coercive measures should be implemented against the petitioner until a final assessment is made or a demand is officially established
The Telangana High Court has ruled that the transfer of development rights under a Joint Development Agreement constitutes a ‘service’ rather than an outright ‘sale of land’.
FACTS
M/s. Prahitha Constructions Private Limited (petitioner) is involved in constructing commercial properties and has entered into a Joint Development Agreement (JDA) with the landowners. As per the agreement, the petitioner undertook to construct three towers of the adjoining building, complete with modern amenities and facilities.
The petitioner sought a declaration that the transfer of development rights of the land by the landowners through the execution of a JDA should be considered equivalent to the ‘sale of land’ and hence should not be subject to GST.
Consequently, the petitioner challenged the constitutional validity of Notification No. 04/2018-CT(Rate) dated 30 September 2019, which imposed GST on such transactions.
Background
The petitioner argued that through the execution of the Joint Development Agreement (JDA), the landowners effectively transferred the development rights in the land for the purpose of development. Consequently, the transfer of these development rights should be considered as equivalent to the sale of land, exempting it from GST liability.
Highlighting the JDA as merely a medium for landowners to sell their land to developers, the petitioner emphasized that in return for the development rights, the landowners receive residential or commercial properties through corresponding conveyances.
The petitioner asserted that such transfer of development rights constitutes a sale of land, which falls outside the purview of GST as it is neither a supply of goods nor a service.
Furthermore, the petitioner contended that the imposition of tax via notification without explicit provisions or proper mechanisms for determining the tax amount is unjustified. The impugned notification, lacking any methodology for the offer of development rights, was argued to exceed jurisdiction and violate the statute.
As a result, the petitioner deemed the notification illogical, arbitrary, unconstitutional, and in violation of Articles 14, 246A, and 265 of the Indian Constitution.
Rulings
The High Court determined that a Joint Development Agreement (JDA) does not serve as a medium for the transfer of title in land. Upon scrutinizing the terms of the JDA, it was noted that the petitioner does not acquire the right, title, and ownership of the property solely by executing the JDA. Instead, the petitioner gains entitlement to the land only upon fulfilling specific conditions, milestones, or stages outlined in the agreement.
Regarding the transfer of development rights, the Court clarified that the JDA facilitates the petitioner to conduct construction activities on the land owned by the landowner. Upon completion of construction, the petitioner is entitled to a share of the land proportionate to their share in the built-up area. This share is granted to the petitioner through a separate sale deed. Failure to complete construction within the stipulated time or any breach of terms by the petitioner would not confer any rights upon them. The Court affirmed that such transfer of development rights, allowing the petitioner to engage in development activities, constitutes a service provided by the landowner rather than an outright sale of land in exchange for construction services.
Additionally, the Court highlighted that the transfer of development rights does not equate to the transfer of ownership rights. The petitioner can only sell their share of the developed property after the underlying land is conveyed to them through a sale deed, which occurs upon the receipt of the completion certificate (CC) for the project. Therefore, the transfer of development rights via JDA is considered permissive possession and not delivery of possession, thus falling outside the scope of a sale.
Regarding the impugned notification, the Court noted that it merely prescribes the point of taxation rather than creating a charge on the transfer of development rights. The notification determines the time of supply, specifying when the tax payment is due, typically upon the delivery of possession of the underlying land upon receipt of the completion certificate (CC). Based on these observations, the Court dismissed the petition.