GST Update

 Desk of CA. Praveen Sharma – 1069 Series (CAPS) 

 KARNATAKA HIGH COURT IN THE CASE OF IMPORTANT GST RULING

Sai Sravanthi Infra Projects Pvt. Ltd. v. State of Karnataka

Karnataka High Court: No GST on Sanctioning of Building Plans

In Sai Sravanthi Infra Projects Pvt. Ltd. v. State of Karnataka, the Karnataka High Court considered whether GST and various other charges could be collected while approving a building development plan.

Sai Sravanthi Infra Projects Pvt. Ltd. and other petitioners had applied for approval of a development plan for construction on their properties in Bengaluru. While processing the application, the authorities raised a demand of approximately ?4.43 crore.

The demand included scrutiny fees, ground rent, development fees, plan paper fees, CGST, SGST, labour welfare cess and a security deposit.

The petitioners challenged the demand before the High Court. They argued that several charges were not authorised by the Bangalore Development Authority Act, 1976, and therefore could not legally be collected.

They also submitted that examining and sanctioning a building plan is a statutory and regulatory duty performed by the authority. It does not involve any supply of goods or services and, therefore, GST cannot be charged.

The Karnataka High Court accepted this argument. It held that the authority was not entitled to collect CGST or SGST on the sanctioning of a building plan because no taxable supply of goods or services was involved.

The Court also relied upon its earlier decision in Sunderam Shetty v. State of Karnataka. It held that scrutiny fees, ground rent and security deposits could not be collected without proper statutory authority.

The Court further ruled that labour welfare cess could not be demanded in advance before construction began. It must be collected in accordance with Rule 4 of the Building and Other Construction Workers’ Welfare Cess Rules, 1998.

Accordingly, the disputed demand was set aside. The authority was directed to issue a fresh demand for labour welfare cess in accordance with law and sanction the building plan within one month.

The directions remain subject to the final outcome of the pending appeal against the earlier judgment relied upon by the Court.

Key takeaway: Sanctioning a building plan is a statutory regulatory function and not a taxable supply. Therefore, GST cannot be collected merely because the authority charges fees during the approval process.

LINK: CA. Praveen Sharma on Linkedin

Regards
CAPS