The Karnataka High Court has ruled that GST cannot be imposed on charges collected for sanctioning a building plan, observing that the approval process does not constitute a “supply of goods” or “supply of services” under the GST law.
The judgment provides important clarity for builders, developers and property owners who are required to obtain development-plan approvals from statutory authorities. The Court also examined the legality of several other charges demanded during the building-plan sanction process.
Karnataka High Court Examines Legality of Building Plan Charges
The ruling was delivered by Justice R. Nataraj on July 21 in Sai Sravanthi Infra Projects Pvt. Ltd. v. The State of Karnataka, Writ Petition No. 5188 of 2022 (BDA).
The petitioners had approached the Court after the authorities demanded approximately ₹4.43 crore in connection with approval of a development plan for construction on their properties in Bengaluru.
The demand included various components such as scrutiny fee, ground rent, development fee, plan paper fee, CGST, SGST, labour welfare cess and security deposit.
The petitioners challenged the demand, arguing that several of these amounts lacked statutory authority. They particularly disputed the levy of GST, contending that sanctioning a building plan does not amount to providing a taxable service.
No GST on Building Plan Sanction
Accepting the petitioners’ contention regarding GST, the High Court held that the concerned authority was not entitled to collect CGST and SGST in connection with sanction of the building plan.
The Court observed that there was no supply of goods or provision of services involved in the statutory process of approving the development plan. Consequently, the collection of GST on such charges could not be sustained.
The decision is significant because GST generally applies when there is a taxable supply of goods or services for consideration. The Court’s finding indicates that a statutory approval granted in exercise of regulatory powers cannot automatically be treated as a taxable service merely because a fee is collected.
Charges Must Have Statutory Authority
The High Court also relied upon its earlier decision in Mr. Sunderam Shetty v. State of Karnataka. In that case, the Court had examined the authority’s power to impose charges such as ground rent, licence fee, scrutiny fee and security deposit.
Following that reasoning, the Court observed that the Bangalore Development Authority Act, 1976 did not contain provisions authorising collection of certain charges, including ground rent, scrutiny fee and security deposit.
The Court therefore held that statutory authorities cannot impose financial burdens on citizens merely because similar charges may be collected by another authority or local body.
Labour Welfare Cess Cannot Be Demanded Upfront
The Court separately considered the demand for labour welfare cess under the Building and Other Construction Workers’ Welfare Cess Rules, 1998.
It held that the cess could not be demanded upfront at the stage of sanctioning the building plan. Instead, the authorities were directed to recover the cess in accordance with the procedure prescribed under Rule 4 of the 1998 Rules.
Court Directs Fresh Demand and Building Plan Approval
The Karnataka High Court consequently quashed the demands towards scrutiny fee, ground rent and security deposit. It directed the authorities to raise a fresh demand for labour welfare cess strictly in accordance with the prescribed legal procedure.
The authority was also directed to sanction the petitioners’ development plan within one month.
However, the Court clarified that its directions would remain subject to the outcome of the pending appeal against the earlier judgment on which reliance had been placed.
Key Takeaway for Developers and Property Owners
The judgment reinforces an important legal principle: a statutory authority cannot impose a fee or tax without clear legislative authority. More importantly, the mere collection of money during a regulatory approval process does not necessarily make the underlying activity a taxable supply under GST.
For developers and property owners, the ruling could have implications where GST is being charged on statutory building-plan approval or similar regulatory permissions.
Case: Sai Sravanthi Infra Projects Pvt. Ltd. v. The State of Karnataka
Case No.: W.P. No. 5188 of 2022 (BDA)
Court: Karnataka High Court
Judge: Justice R. Nataraj
Decision Date: 21 July