The Hon’ble Karnataka High Court in the case of M/s. Shyamaraju And Co (India) Private Limited v. The Deputy Commissioner of Commercial Taxes (Audit) -1.7 & The Deputy Commissioner of Commercial Taxes (Audit) -1.3, Bangalore [WRIT PETITION No. 5027 OF 2024 (T-RES), order dated July 18, 2025] held that GST demand on the Petitioner (Landlord) under an unregistered Joint Development Agreement is unsustainable where the registered developer has already discharged the entire liability, preventing double taxation.
Facts:
M/s. Shyamaraju And Co (India) Private Limited (“the Petitioner”) entered into a Joint Development Agreement (JDA) dated February 6, 2017 with the landowner for developing a residential project, ‘Republic of Whitefield’ (“ROW Project”), covering undivided property rights. Prior to the JDA, M/s. DivyaSree R.O.W. Projects Private Limited (“the Developer”), a registered person, was appointed to construct the project under an Agreement for Appointment of Construction Contractor (AACC) dated May 19, 2014.
The Petitioner assumed the Developer’s obligations via a novation agreement and completed the project. Occupancy Certificates were obtained, and an Agreement for Sale was executed for unsold units.
The Deputy Commissioner issued a Show Cause Notice (SCN) demanding GST from the Petitioner on 100% of the property under the unregistered JDA.
The Petitioner contended that the Developer, being registered, had already discharged the GST liability for the entire property, including the Petitioner’s share, preventing double taxation. They also contended that the SCN was a mere reiteration of previous notices (DRC-01A) without independent reasoning, violating natural justice. Moreover, the interest under Section 50 is only compensatory and applicable where tax is payable; here, no tax is due from the Petitioner.
The Respondent on the other hand contended that the unregistered JDA could not exempt the Petitioner from GST liability. Thus, the Petitioner approached the Court seeking quashing of the SCN and adjudication orders dated December 28 and 30, 2023.
Issues:
- Whether an unregistered Joint Development Agreement can exempt the Petitioner from GST liability when the developer has already discharged the entire tax?
- Whether Interest under Section 50 is leviable, when no tax is payable?
Held:
The Hon’ble Karnataka High Court in WRIT PETITION NO. 5027 OF 2024 (T-RES) held as under:
- Observed that, the impugned adjudication order demanding GST from the Petitioner under the unregistered JDA was erroneous, as the Deputy Commissioner had already recognized the Developer’s liability to pay GST and also accepted payment.
- Noted that, GST liability for construction services under the JDA is properly fastened on the registered Developer, preventing double taxation on the Petitioner.
- Observed that, the Respondent was estopped from taking a diametrically opposite position after earlier accepting the JDA and Developer’s GST payment.
- Held that, issuance of SCN without proper consideration of submissions and documents violated principles of natural justice.
- Observed that, interest under Section 50 is compensatory and cannot be demanded where no GST tax is payable.
- Held that the impugned adjudication orders dated December 28 and 30, 2023, and the SCN in Form GST DRC-07 were quashed. The Petitioner is not liable to pay GST or interest on the property under the JDA, when the Developer discharged the full liability.
Our Comments:
This judgment reinforces the principle of estoppel against the revenue where it has previously recognized and acted upon the tax liability discharged by a registered developer. It underscores avoidance of double taxation and strict adherence to natural justice in GST proceedings. The Court also affirms settled jurisprudence that interest under Section 50 is accessory to principal tax liability and cannot be independently imposed. The decision aligns with the general legal approach of reading contractual arrangements as a whole for GST purposes and not imposing liability contrary to the parties’ actual rights and obligations.
The present judgment is also pari materia to the case of Triton Communication Pvt. Ltd., v. C.S.T. [2022 (11) TMI-CESTAT AHMEDABAD], wherein the Hon’ble Tribunal held that, where the Broadcasters already deposited the service tax amount to government as allegedly collected by the appellant from clients against the Broadcasting Services and demand of service tax again from the appellant would amount to double payment. However, the Broadcasters having already paid such collected amount to the government, the appellant cannot be asked to deposit the same again with the Government exchequer. Therefore, once tax has already been paid on the services, it was not open to the Department to confirm the same against the appellant, in respect of the same services.
Relevant Provisions:
Section 50 of the CGST Act, 2017
50. Interest on delayed payment of tax.-
“(1) Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made thereunder, but fails to pay the tax or any part thereof to the Government within the period prescribed, shall for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding eighteen per cent., as may be notified by the Government on the recommendations of the Council:
Provided that the interest on tax payable in respect of supplies made during a tax period and declared in the return for the said period furnished after the due date in accordance with the provisions of section 39, except where such return is furnished after commencement of any proceedings under section 73 or section 74 3[or section 74A] in respect of the said period, shall be levied on that portion of the tax that is paid by debiting the electronic cash ledger.
(2) The interest under sub-section (1) shall be calculated, in such manner as may be prescribed, from the day succeeding the day on which such tax was due to be paid.
(3) Where the input tax credit has been wrongly availed and utilised, the registered person shall pay interest on such input tax credit wrongly availed and utilised, at such rate not exceeding twenty-four per cent. as may be notified by the Government, on the recommendations of the Council, and the interest shall be calculated, in such manner as may be prescribed.”
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