While clarifying that no supply of goods or services takes place when the Delhi Development Authority (DDA) converts the property from leasehold to freehold, the Delhi High Court ruled that the conversion of property from leasehold to freehold is nothing but a part of the process of sale of immovable property, and hence, no GST would be liable to be charged on such activity.
The Division Bench comprising Justice Prathiba M Singh and Justice Shail Jain observed that Section 7(2) of the CGST Act clearly exempts immovable property from the domain of supply of goods or services. Thus, the Bench directed that no coercive steps shall be taken against the petitioner-taxpayer to recover any amounts which are mentioned in the demand orders till the next date of hearing, while listing the matter on December 05, 2025.
The Bench explained that whenever any property is purchased initially, as per the policy, the property is given out on a leasehold basis for a particular period. Thereafter, the said purchaser or lessee pays conversion charges and the title in favour of the purchaser is merely affirmed by conversion of the property from leasehold to freehold.
Prime facie, the Bench concluded that conversion is nothing but a part of the process of sale of the immovable property by the DDA to purchasers, and GST would not be liable to be charged on such conversion in terms of Section 7(2) of the CGST Act itself.
Briefly, the Delhi Development Authority (DDA) had raised demands levying GST on the previously paid conversion charges with retrospective effect amounting to Rs. 30.26 lacs, based upon Note 5 of the SOP, where GST is being charged on alleged services for foregoing the future rent which would have been payable if the property was not converted from leasehold to freehold.
Appearances:
Senior Advocate Sandeep Sethi, along with Advocates Saurabh Seth, Sukrit Seth, and Aishwarya Modi, for the Petitioner/ Taxpayer
Advocates Rajeev Lochan Mahunta, Sahil S Panwar, Bhanu Katyal, Pratyush Mishra, and Anushree Narain, for the Respondent/ Revenue
