In a significant relief for the real estate sector, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has ruled that Transfer of Development Rights (TDR) does not constitute a taxable service under the Finance Act, 1994. The tribunal has set aside a service tax demand of ₹4.48 crore raised against Omaxe Limited, along with interest and penalties.
Key Issue Before the Tribunal
The dispute arose from development agreements entered into by Omaxe Limited with land-owning entities. Under these agreements, Omaxe acquired development rights to construct integrated townships, while the legal ownership of land remained with the landowners. The tax department treated this arrangement as a taxable service, alleging that there was no direct transfer of land title and hence service tax was applicable.
The department also invoked the extended period of limitation to raise the demand.
CESTAT’s Ruling
Allowing Omaxe’s appeal, the CESTAT categorically held that the transfer of development rights amounts to a transfer of immovable property, which falls outside the scope of service tax.
The bench comprising Judicial Member Binu Tamta and Technical Member Hemambika R. Priya relied heavily on its earlier decision in DLF Commercial Projects Corporation v. Commissioner of Service Tax, Gurugram, where it was held that development rights are benefits arising out of land.
Referring to the General Clauses Act, the tribunal observed that such rights are inseparable from land and therefore qualify as immovable property, not a service under Section 65B(44) of the Finance Act, 1994.
No Service Tax on Development Agreements
The tribunal further noted that these development arrangements ultimately result in the transfer of undivided interest in land to buyers through registered conveyance deeds. This clearly establishes the nature of the transaction as one involving immovable property, reinforcing the view that service tax cannot be levied.
Rejecting the department’s arguments, the CESTAT held that the issue was already settled by consistent judicial precedents and that invocation of extended limitation was unjustified.
Final Outcome
Accordingly, the tribunal quashed the entire service tax demand of ₹4.48 crore, along with interest and penalties, and allowed Omaxe Limited’s appeal in full, setting aside the order dated 6 November 2018 passed by the Commissioner of CGST, Delhi East.
Why This Judgment Matters
This ruling provides much-needed clarity for real estate developers and landowners by reaffirming that Transfer of Development Rights (TDR) is not a taxable service under the pre-GST regime. It also strengthens the legal position that development rights are intrinsically linked to land, thereby falling outside the ambit of service tax law.
Case Details
- Case Title: Omaxe Limited vs Commissioner of Central Goods and Service Tax & Central Excise, Delhi East
- Case Number: Service Tax Appeal No. 50348 of 2019
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Citation: 2026 LLBiz CESTAT (DEL) 50