Delhi HC to Decide on DDA's Retrospective GST Levy on Leasehold to Freehold Property Conversions

A Delhi-based property owner has approached the Delhi High Court to challenge a controversial directive issued by the Delhi Development Authority (DDA) that seeks to impose Goods and Services Tax (GST) retrospectively on the conversion of leasehold properties into freehold. The matter is slated for hearing on Friday, bringing into focus the question of whether such a levy can be applied with retrospective effect on transactions completed after the implementation of the Central Goods and Services Tax (CGST) Act in 2017.

Petitioner Questions Constitutional Validity of DDA's SOP

The petitioner, Mala Sahni Seth, has filed the plea not only against the DDA but has also impleaded the Ministry of Finance, the Central Board of Indirect Taxes and Customs (CBIC), the GST Council Secretariat, and the Delhi government as respondents in the case. Represented by advocate Saurab Seth, the petitioner has urged the court to declare the Standard Operating Procedure (SOP) issued by the DDA on March 28, 2024, as unconstitutional and beyond the scope of the CGST Act.

According to the petition, the SOP issued by the DDA's internal GST Cell attempts to create a new taxable event by categorizing the statutory conversion of leasehold property into freehold tenure as a taxable 'service', thereby imposing GST retrospectively on such conversions. The petitioner has contended that the impugned SOP was issued without any statutory delegation or authorization from any provision of the CGST Act, nor was it supported by the central government or the GST Council.

Retrospective GST Invoices Issued Despite Prior Payment of Conversion Charges

The petition states that Mala Sahni Seth, along with other joint owners of a property situated at DLF South Court Mall in Saket, had paid the requisite conversion charges and successfully converted their property to freehold status in 2023. However, in April 2024, the DDA, relying on the March SOP, retrospectively issued GST invoices amounting to Rs 30.26 lakh on the payments that had already been made.

The petitioner has argued that this levy of GST is beyond the jurisdiction of the DDA and is in violation of the CGST Act, which explicitly excludes the sale or transfer of land from the definition of 'supply', and consequently, from GST liability. The plea further asserts that the SOP represents an impermissible exercise of delegated legislative power and constitutes a colourable use of fiscal authority.

Implications for Property Owners Across Delhi

The case is expected to have significant implications for numerous property owners in Delhi who have converted their properties from leasehold to freehold in recent years. A ruling in favor of the petitioner could set an important precedent on the retrospective application of GST in real estate transactions involving government authorities, and may provide relief to property owners who have been subjected to similar retrospective tax demands.

Legal experts believe that the outcome of this case could also influence how government bodies and statutory authorities interpret and apply tax provisions in real estate conversions. The petition challenges the very foundation of the DDA's authority to impose such a levy without explicit statutory backing, raising fundamental questions about the limits of administrative discretion in taxation matters related to property transactions.

Disclaimer: This news article is based on available information and legal proceedings. Readers are advised to consult legal and tax professionals for specific advice related to property conversions and GST implications. The views and information presented in this article are for informational purposes only and do not constitute legal or financial advice.