Simplified Explanation of the Judgment
In a recent judgment dated May 5, 2025, the Patna High Court dismissed a writ petition filed by a private construction company challenging a tax demand under the GST Act. The petitioner had entered into a development agreement with a landowner in 2014 and completed the project in 2018. Under this agreement, the landowner was to receive a portion of the built-up area in exchange for land rights, a common practice in real estate development.
The Assistant Commissioner of State Tax, Muzaffarpur, passed an assessment order on November 30, 2023, under Section 73(9) of the Bihar GST Act. The petitioner was directed to pay ₹4.61 crore in taxes, interest, and penalties. The petitioner challenged the order on the grounds that:
- The tax liability was imposed based on notifications allegedly beyond the statutory powers.
- The development agreement, executed before GST came into force (July 1, 2017), could not attract GST.
- The supply was not taxable as the construction was completed before the relevant notification (04/2019) was issued.
The Court examined these claims in detail and upheld the tax assessment. It held that the petitioner was liable to pay GST under the Reverse Charge Mechanism (RCM) for construction services provided to the landowner, as per Notification No. 11/2017. The Court clarified that the supply of construction services falls under SAC code 9954 and has been taxable since June 28, 2017.
The Court also rejected the petitioner’s reliance on the Supreme Court’s decision in Balbir Singh Maini, observing that in that case, the agreement was not even registered and the development did not proceed due to lack of approvals. In contrast, here, possession of constructed property was handed over to the landowner and completion certificate was issued in 2018—indicating actual supply of services.
Further, the Court observed that the claim regarding the invalidity of GST-related notifications was irrelevant as the assessment was completed within the statutory period under Section 73(10).
Significance or Implication of the Judgment
This judgment reinforces the applicability of GST to construction services rendered under development agreements, especially where consideration is received in the form of development rights. It clarifies that:
- GST liability under RCM exists even if the development agreement predates GST’s implementation, provided the supply of services occurred post-GST.
- Notifications defining the timing of tax liability (like 04/2018) aim to streamline developer-landowner transactions and are legally valid.
- Builders and developers must not confuse the transfer of development rights with the supply of construction services—both are distinct and separately taxable under GST.
For real estate developers in Bihar and across India, the ruling is a strong reminder of compliance obligations under GST, especially in joint development models.
Legal Issue(s) Decided and the Court’s Decision
- Whether GST is applicable to construction services provided under a development agreement entered before 01.07.2017?
✅ Yes. The Court held that if the actual supply occurs after GST came into force, tax liability arises. - Whether tax under Reverse Charge Mechanism is valid when consideration is in the form of development rights?
✅ Yes. The Court upheld tax under RCM as per Notification No. 11/2017 and clarified supply of services was properly taxed. - Whether assessment order dated 30.11.2023 was time-barred under Section 73(10)?
❌ No. The Court found the assessment was within the permissible 3-year time limit. - Can a writ petition be entertained when alternative statutory remedies are available?
❌ No. The Court emphasized that the petitioner should have exhausted the appellate remedy.
Judgments Referred by Parties
- Commissioner of Income Tax vs. Balbir Singh Maini, (2018) 12 SCC 354
- Govind Saran Ganga Saran vs. Commissioner of Sales Tax, 1985 Supp SCC 205
Judgments Relied Upon or Cited by Court
- Super Poly Fabriks Ltd. vs. CCE, (2008) 11 SCC 398
- Prahitha Construction Pvt. Ltd. vs. UOI, 2024 SCC OnLine TS 3994
- M/S Adarsh Construction vs. State of Bihar, CWJC No. 18149/2023
- M/S Radhika Packing and Printers vs. State of Bihar, CWJC No. 18168/2023
Case Title
M/S Shashi Ranjan Constructions Pvt. Ltd. vs. Union of India & Others
Case Number
CWJC No. 6700 of 2024
Coram and Names of Judges
Hon’ble Mr. Justice Rajeev Ranjan Prasad
Hon’ble Mr. Justice Ashok Kumar Pandey
Names of Advocates and who they appeared for
- Mr. D.V. Pathy, Sr. Advocate — For the Petitioner
- Dr. Krishna Nandan Singh, ASGI; Mr. Anshuman Singh, Sr. SC; Mr. Shivaditya Dhari Sinha; Mr. Alok Kumar — For the Union of India
- Mr. Vikash Kumar, SC-11 — For the State
Link to Judgment
MTUjNjcwMCMyMDI0IzEjTg==-j3nFDEkN8Rk= (1).pdf
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