GST on Free Redevelopment Flats: Analysis of AAR Maharashtra Ruling in M/s. Sharda Vastu Nirmitee Pvt. Ltd.

The Maharashtra Authority for Advance Ruling examined in detail how GST applies to a typical redevelopment structure where a housing society grants development rights to a builder in return for new flats and certain monetary benefits. The ruling in In re M/s. Sharda Vastu Nirmitee Pvt. Ltd. (GST AAR Maharashtra) clarifies when such supplies become taxable, how they are valued, and how monetary payouts to members and the society are to be treated.

This article distils the lengthy order into key facts, legal reasoning, and practical implications for real estate promoters engaged in redevelopment of residential societies.

Background of the Redevelopment Arrangement

Parties and Project

  • Developer: M/s. Sharda Vastu Nirmitee Pvt. Ltd., a private limited company engaged in redevelopment of old residential buildings.
  • Society: Shree Dutta Vihar Co-Op. Hsg. Soc. Ltd., Thane.
  • Land: Plot area of 1130 Sq. Mtr with an existing fully residential building comprising 22 members, each holding carpet areas between 260 Sq. Ft. and 680 Sq. Ft.

Contractual Timeline

  1. Original Development Agreement (DA) – dated 02.09.2016
  2. First Supplementary Agreement – dated 01.12.2021
  3. Second Supplementary Agreement – dated 20.04.2024
  4. Commencement of construction – March 2022
  5. Completion of construction – July 2024
  6. Occupation Certificate (OC) – 12.08.2024

The original DA pre-dated GST. However, the supplementary agreements, commencement of construction, and actual transfer of possession all took place under the GST regime.

Commercial Terms Across the Agreements

Original Development Agreement – 02.09.2016

Key elements included:

  • Permissible FSI under the then rules was a 1:1.55 scheme, including 15% redevelopment benefit and 40% TDR.
  • Existing members were to receive additional 14% carpet area free of cost over and above their existing area.
  • The developer undertook to pay:
    • Monthly rent for alternate accommodation during construction, with a 10% annual escalation on the last paid rent.
    • Two-way shifting charges for moving out and moving back.
    • Brokerage equivalent to one month’s rent for arranging alternate premises.
    • Hardship compensation / corpus per existing carpet area, payable 50% on vacating and 50% on taking possession.
  • Members were given an option to purchase extra area at an agreed rate.
  • Out of the developer’s share, 1704 Sq. Ft. was sold to members at Rs. 19,000/- per Sq. Ft. on carpet area.
  • The initial building configuration was Stilt + 7 floors, 5 flats per floor (total 35 flats):
    • 24 flats for 22 existing members
    • 11 flats for the developer’s sale in the open market

First Supplementary Agreement – 01.12.2021

Because of changes in Development Control Regulations and the building being declared dilapidated, the project was reworked:

  • Revised scheme and FSI under UDCPR allowed higher construction potential.
  • New building plan: Stilt + 7 floors, 7 flats per floor (total 49 flats).
    • 24 flats reserved for existing 22 members
    • 25 flats for developer’s sale (instead of 11 earlier)
  • Certain earlier individual benefits to members like additional free area, rent escalation clauses, etc., were modified/neutralized, and new benefits to the society were introduced, such as:
    • Lump sum payment of Rs. 20.00 Lakhs to the society.
    • Corpus @ Rs. 3,000/- per carpet Sq. Ft. on additional saleable area above 4,893 Sq. Ft. (7,765 Sq. Ft. identified as additional area), payable on sale or within one year from OC if unsold.
    • Provision of one additional lift as an extra amenity.

This agreement significantly altered the allocation and commercial rights between the society and the developer.

Actual Commencement and Payments During Construction

Construction began in March 2022. During the construction period, the developer made the following payments to each member:

  • Shifting charges of Rs. 12,500/- (for moving out).
  • Monthly rent regularly from March 2022 to August 2024.
  • First instalment of corpus @ Rs. 200/- per Sq. Ft. of existing carpet area.
  • Brokerage equal to one month’s rent.

Second Supplementary Agreement – 20.04.2024

Subsequent amendments to UDCPR enabled one extra floor:

  • Revised building: Stilt + 8 floors, 7 flats per floor (total 56 flats).
    • 24 flats continued to be earmarked for existing 22 members
    • 32 flats became available to the developer for sale (increased from 25).
  • In return, the developer offered:
    • Additional ~40 Sq. Ft. carpet area (balcony) free of cost for each of the 24 member flats, over and above the previously agreed additional 14%.
    • No further monetary benefit to members or the society.

Position on Completion and OC

On issuance of OC on 12.08.2024: