Transfer of development rights is a transaction in immovable property, not a taxable service.

The appellant, engaged in trading lubricants and motor vehicles, was registered under the service-tax law for specified construction-related services.

It entered into an agreement with M/s. Bestech India Ltd. and other landowners to transfer development rights in land situated at Village Wazirpur, Gurgaon, in exchange for a specified share of the built-up area in the development project.

The appellant subsequently sold its share of flats for ₹8,15,43,987 through the developer and treated the receipts as consideration for construction services, paying service tax after claiming 75% abatement under Notification No. 26/2012-ST.

The appellant also availed CENVAT credit of ₹30,40,929 on administrative charges and construction services provided by the developer.

Following verification of the appellant’s records, the Department alleged that the appellant had actually transferred development rights, which constituted a taxable service, and that the claimed abatement was unavailable.

The Joint Commissioner confirmed service-tax demand of ₹1,06,66,772 under Section 73 of the Finance Act, 1994, imposed penalties under Sections 77 and 78, and ordered recovery of the CENVAT credit with an equivalent penalty under Rule 15 of the CENVAT Credit Rules, 2004.

The Commissioner (Appeals) upheld that order, leading to the present appeal.

Whether the transfer of development rights in land constituted a taxable service, including construction service, or was a transaction in immovable property outside the scope of service tax?

Whether the appellant was entitled to retain the CENVAT credit of ₹30,40,929 availed on administrative charges and construction services supplied by the developer?

Whether the extended period of limitation and penalties under Sections 77 and 78 of the Finance Act, 1994 and Rule 15 of the CENVAT Credit Rules, 2004 were sustainable?

The Tribunal applied Section 3(26) of the General Clauses Act, 1897, under which “immovable property” includes land, benefits arising out of land, and things attached to the earth; consequently, development rights, FSI and TDR are treated as immovable property.

It relied principally on Chheda Housing Development Corporation v. Bibijan Shaikh Farid, 2007 (2) TMI 664 (Bombay High Court), which held that FSI/TDR is a benefit arising from land and therefore immovable property.

The Tribunal also followed Genius Probuild Pvt. Ltd. v. Commissioner of Central Excise and CGST, Jaipur, 2025 (9) TMI 1607 (CESTAT New Delhi), and Raipur Development Authority v. Commissioner of Customs, Central Excise and Service Tax, Raipur, 2025 (7) TMI 1542 (CESTAT New Delhi), holding that transfer of development rights is not a service.

Under Rule 14 of the CENVAT Credit Rules, 2004, wrongly availed credit is recoverable, while Rule 15 provides for penalty in specified cases; however, the extended limitation period and penalty require conduct warranting such action.

The Tribunal further referred to Section 11B of the Central Excise Act, 1944, as applicable to service tax, for any refund of service tax paid, including the doctrine that amounts passed on to others must be credited to the Consumer Welfare Fund.

The Tribunal held that development rights constitute a benefit arising from land and are therefore immovable property under Section 3(26) of the General Clauses Act, following the binding reasoning in Chheda Housing Development.

Since the appellant’s transaction involved transfer of such development rights to the developer, it was not a taxable service—whether construction service or any other service—and the service-tax demand under Section 73 was consequently unsustainable.

The Tribunal nevertheless distinguished the tax demand from the CENVAT-credit issue: because the transfer of development rights was not an output service, the administrative charges and construction services obtained from the developer could not qualify as input services for the appellant, making the credit inadmissible under Rule 14.

However, the appellant had genuinely treated the transaction as taxable construction service and had paid service tax on that basis; therefore, the Tribunal found no justification for invoking the extended limitation period or imposing the penalty under Rule 15.

The same circumstances also warranted setting aside the penalties under Sections 77 and 78.

It held that the transfer of development rights was a transaction in immovable property and not a taxable service; accordingly, the service-tax demand of ₹1,06,66,772 and the penalties under Sections 77 and 78 of the Finance Act, 1994 were set aside.

The recovery of CENVAT credit under Rule 14 was upheld only for the normal limitation period, while the penalty under Rule 15 was set aside.

The Tribunal further observed that the appellant could seek refund of the service tax wrongly paid, subject to Section 11B and the applicable doctrine of unjust enrichment.