GST on Transfer of Rights in Under-Construction Property: A Legal and Practical Analysis

By Murali Krishna Ravuri, Taxurity — Tax & Audit Consultancy, Bengaluru

Preface

One of the most litigated questions in GST on real estate is deceptively simple: when does a transfer involving an under-construction property attract GST, and when does it not? The answer lies not in whether a completion certificate has been issued, but in whether a construction service obligation exists between the transferor and the transferee at the time of the agreement.

This article examines the legal framework governing GST on transfers of rights in under-construction property, analyses the landmark Karnataka High Court ruling in Rohan Corporation India Pvt. Ltd. v. Union of India and Others [TS-924-HC(KAR)-2024], and addresses a frequently misunderstood point: the mere existence of a GST registration in the hands of the transferor does not, by itself, attract GST on a transfer of immovable property.

I. The Statutory Framework

1.1 What Attracts GST — Section 7, CGST Act, 2017

GST is levied on the "supply" of goods or services or both. Section 7(1) of the CGST Act, 2017 defines supply to include all forms of supply of goods or services made or agreed to be made for a consideration by a person in the course or furtherance of business.

Crucially, the scope of "supply" is bounded by the three Schedules appended to the Act:

Schedule I — Activities treated as supply even without consideration.
Schedule II — Activities classified specifically as either supply of goods or supply of services.
Schedule III — Activities or transactions that shall be treated as neither supply of goods nor supply of services, and are therefore outside the purview of GST altogether.

1.2 Entry 5(b) of Schedule II — The Critical Provision

Entry 5(b) of Schedule II to the CGST Act classifies the following as a supply of services:

"Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier."

The twin conditions for Entry 5(b) to be attracted are, therefore:

There must be a contract for undertaking construction service by the service provider for the service recipient.
Consideration towards such construction service must be received prior to issuance of the completion certificate.

If either condition is absent, Entry 5(b) is not attracted.

1.3 Entry 5 of Schedule III — The Exempting Provision

Entry 5 of Schedule III to the CGST Act explicitly provides that "sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building" shall be treated as neither supply of goods nor supply of services.

The legal architecture is therefore clear: a transaction is a sale of immovable property (outside GST) unless it satisfies the dual conditions under Schedule II Entry 5(b) to be reclassified as a supply of construction service (liable to GST).

II. The Rohan Corporation Ruling — Karnataka High Court

2.1 Facts of the Case

Rohan Corporation India Private Limited v. Union of India and Others [TS-924-HC(KAR)-2024, decided 10 September 2024] arose from the liquidation of Lotus Shopping Centres Pvt. Ltd. under proceedings before the National Company Law Tribunal (NCLT), Bengaluru. Lotus was constructing a shopping mall. A liquidator was appointed by the NCLT to liquidate the assets of Lotus.

Rohan Corporation participated in an e-auction conducted by the liquidator and emerged as the successful bidder for the under-construction mall. The completion certificate for the project had not been received. The liquidator proposed GST on the sale transaction, which Rohan paid under protest to complete the purchase (after execution of the sale certificate and payment of stamp duty). Rohan thereafter filed a refund claim of ₹14.32 crores.

The refund was rejected by the sanctioning authority on the ground that the transaction was covered by Entry 5(b) of Schedule II and correctly liable to GST.

2.2 The Court's Analysis

The Karnataka High Court examined the two conditions under Entry 5(b) and held as follows:

Condition 1 — No construction obligation on the liquidator. The sale was on an "as is where is" basis. The sale agreement imposed no obligation on the liquidator (the transferor) to undertake any further construction activity. There was no consensus ad idem for the rendering of any construction service by the liquidator to the purchaser. Absent a contractual construction obligation, the first condition for Entry 5(b) is not satisfied.

Condition 2 — Consideration was not paid for construction service. Since the agreement was purely for transfer of immovable property and not for construction, the consideration paid was towards the sale of the asset, not towards any construction service. Payment of stamp duty on the transaction further confirmed its nature as a sale of immovable property.

Conclusion of the Court. The transaction fell squarely within Schedule III Entry 5 (sale of building) and was outside the scope of GST entirely. The mere fact that the completion certificate had not been received was held to be an irrelevant consideration when there was no construction obligation attached to the agreement.

2.3 Precedents Relied Upon

The High Court drew support from two significant earlier rulings:

Larsen & Toubro Ltd. v. State of Karnataka [(2014) 1 SCC 708] — The Supreme Court held that construction activity is taxable as a "works contract" only from the stage the developer enters into a contract with the intending buyer. Where no construction activity is carried out pursuant to the agreement, the transaction cannot be treated as a works contract.

Munjaal Manishbhai Bhat v. Union of India [2022 (62) GSTL 262 (Guj.)] — The Gujarat High Court held that the supply of construction service is initiated only once an agreement is entered into between the supplier and the recipient. Where no construction activity is carried out after the agreement, there is no supply of construction service.

2.4 Significance of the Ruling

The Karnataka High Court's ruling is significant for the following reasons:

First, it crystallises the legal test: GST on an under-construction property transaction is not triggered by the stage of construction or the absence of a completion certificate. It is triggered solely by the existence of a post-agreement construction obligation borne by the transferor.

Second, it confirms that a liquidator's sale of under-construction property on "as is where is" terms is a sale of immovable property falling within Schedule III, not a supply of construction service under Schedule II.

Third, as noted by Dhruva Advisors in their commentary on the judgment, the ratio of this ruling extends to banks and NBFCs selling repossessed immovable properties, as well as to investors who have transacted in immovable property — wherever the transferor does not bear any post-agreement construction obligation.

III. Extension to Assignment of Booking Rights by an Individual or Non-Real-Estate Business

3.1 The Common Scenario

Consider a situation where a person (individual or entity) has booked a flat or commercial unit in an under-construction project. The project has not received its completion certificate. The person decides to transfer or assign the booking rights to a third party for a consideration.

The question is: Does GST apply on this assignment?

The answer requires examining the same legal test established above.

3.2 Applying the Schedule II / Schedule III Framework

For GST to apply under Entry 5(b) of Schedule II, there must be a construction service being provided by the transferor to the transferee. In the case of an assignment of booking rights:

The original builder/developer has a construction obligation. That obligation runs between the builder and the original buyer (and, by substitution, the new buyer after assignment).
The person assigning the booking rights (the original buyer) has no construction obligation whatsoever towards the new buyer. The assignor is merely transferring a contractual right — the right to demand delivery of the constructed unit from the builder.

Since the assignor does not provide any construction service to the assignee, Entry 5(b) of Schedule II is not attracted. The transaction is, in substance, a transfer of an actionable claim or an interest in immovable property — both of which are outside the scope of GST.

3.3 The GST Registration Question — A Frequently Misunderstood Point

A question that often arises in practice is: "If the person assigning the booking rights already has a GST registration for their other business (which is unrelated to real estate), does that registration pull this assignment transaction into the GST net?"

The answer is an unequivocal No, and the reasons are as follows.

GST registration does not create a taxable supply. Registration under the CGST Act is a compliance mechanism, not a charging mechanism. The charging section is Section 9, read with Section 7. Section 9 levies tax on "supply" as defined under Section 7. As established above, the assignment of booking rights (without a construction obligation) is not a "supply" within the meaning of Section 7 read with Schedule III Entry 5. The existence of a GST registration does not convert a non-taxable transaction into a taxable one.

The nature of the transaction is determinative, not the identity or registration status of the supplier. The GST Act taxes the transaction, not the person. A registered person can enter into transactions that are outside the scope of GST — for instance, sale of their own residential property, or receipt of salary income. The registration does not render those transactions taxable.

Section 7(2)(b) — Schedule III is a statutory carve-out. Section 7(2)(b) of the CGST Act explicitly provides that activities or transactions specified in Schedule III shall be treated as neither supply of goods nor supply of services, regardless of whether the person performing them is registered or not.

Circular No. 177/09/2022-TRU, dated 03 August 2022 — The CBIC clarified through this circular that assignment of "actionable claims" in certain real estate contexts requires examination of the underlying nature of the transaction. Where the assignment relates to a contractual right rather than a construction service, GST is not attracted.

Practical illustration. Suppose a chartered accountant (registered under GST for professional services) had booked a commercial unit in 2020 and assigns the booking in 2024 for a profit. The CA is registered under GST. Despite this, the assignment transaction is not subject to GST because the CA is not rendering any construction service to the new buyer. The CA is merely transferring a right in immovable property. The transaction falls within Schedule III.

3.4 When Does GST Apply on Assignment?

For completeness, GST on assignment of booking rights can arise only if:

The assignor is the original developer/builder and retains a construction obligation that transfers along with the assignment; or
The transaction is structured as part of a business activity of dealing in real estate (e.g., a registered real estate agent or developer assigning developer-level rights); or
The CBIC issues a specific notification treating the assignment as a taxable supply (which, as of the date of this article, has not been done for simple buyer-to-buyer assignments).

IV. Implications for Banks, NBFCs, and Liquidators

The Rohan Corporation ruling has direct application to:

Banks and NBFCs selling SARFAESI-repossessed properties. When a bank repossesses and sells an under-construction property under the SARFAESI Act, 2002, the bank has no construction obligation. The sale is "as is where is." The ratio of Rohan Corporation applies squarely — no GST is leviable on such transactions.

Liquidators appointed under IBC, 2016. This is the precise fact-pattern in Rohan Corporation itself. A liquidator selling an under-construction asset in an e-auction, without any construction obligation, is effecting a sale of immovable property under Schedule III.

Resolution applicants under IBC. Similarly, where a resolution applicant acquires an under-construction asset as part of a resolution plan, and the transferor (corporate debtor or resolution professional) has no residual construction obligation, GST is not attracted on the acquisition.

In all these cases, taxpayers who have paid GST under protest or under incorrect advice should examine the possibility of filing refund applications under Section 54 of the CGST Act, 2017, subject to the applicable limitation period of two years from the relevant date.

V. Practical Action Points

For individual transferors (assignment of booking rights):

The transaction does not attract GST regardless of the transferor's GST registration status.
No GST invoice is to be issued for such a transaction.
The gain (if any) is subject to Income Tax under capital gains provisions — Short-Term or Long-Term depending on the period of holding of the booking right, per the Income Tax Act, 1961 / Income Tax Act, 2025 as applicable.
No GST liability arises and no GST disclosure is required in the GST returns for this transaction.

For corporates and LLPs assigning booking rights (not in the business of real estate):

Same position as above. The corporate entity's GST registration for its core business does not pull in this transaction.
The transaction should not be included in the taxable turnover in GSTR-1 or GSTR-3B.

For liquidators and insolvency professionals:

Ensure that the sale agreement clearly documents the "as is where is" nature and the absence of any construction obligation on the liquidator.
This documentation is critical evidence to resist any GST demand at the time of sale or at audit.

For banks and NBFCs:

SARFAESI sale notices should clarify the "as is where is" nature.
GST collected during earlier similar sales (if any) should be evaluated for refund eligibility under Section 54, CGST Act.

VI. Conclusion

The Karnataka High Court's ruling in Rohan Corporation India Private Limited v. Union of India and Others [TS-924-HC(KAR)-2024] provides authoritative judicial clarity on a question that had caused unnecessary compliance uncertainty in the real estate sector. The ruling firmly establishes that GST on an under-construction property transaction is triggered not by the absence of a completion certificate, but by the presence of a post-agreement construction obligation borne by the transferor.

Where no such obligation exists — whether in a liquidator's sale, a SARFAESI auction, or a simple assignment of booking rights — the transaction is a sale of immovable property falling within Schedule III of the CGST Act. It is outside the scope of GST. The transferor's GST registration status, business nature, or turnover size is irrelevant to this determination.

Taxpayers, professionals, and transacting parties operating in this space should calibrate their GST positions accordingly and should examine past transactions for potential refund opportunities.

This article is authored by Murali Krishna Ravuri, Proprietor, Krishna and Associates (Taxurity), Bengaluru. The views expressed are the author's own based on applicable law as of the date of publication. This does not constitute legal or tax advice; specific transactions should be evaluated independently.

Contact: krishna@taxurity.in | www.taxurity.in

Key References:

Rohan Corporation India Pvt. Ltd. v. Union of India and Others — TS-924-HC(KAR)-2024 (Karnataka HC, 10 September 2024)
Larsen & Toubro Ltd. v. State of Karnataka — (2014) 1 SCC 708
Munjaal Manishbhai Bhat v. Union of India — 2022 (62) GSTL 262 (Gujarat HC)
Section 7, 9, Schedule II Entry 5(b), Schedule III Entry 5 — CGST Act, 2017
CBIC Circular No. 177/09/2022-TRU dated 03 August 2022

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