The Karnataka High Court has declared that goods and services tax cannot be levied on fees collected for building plan approvals, citing lack of statutory basis and regulatory nature of the process.
The Karnataka High Court has ruled that goods and services tax cannot be charged on fees collected for sanctioning building plans, holding that the approval process does not amount to the supply of goods or services. In a July 21 order, Justice R. Nataraj partly allowed a petition filed by Sai Sravanthi Infra Projects Pvt. Ltd. and others against the Bangalore Development Authority and other authorities, saying the department had no statutory basis for several of the charges imposed while clearing the development plan.
The dispute arose after the applicants sought permission for construction on their Bengaluru properties and were handed a demand of ₹4.43 crore covering scrutiny fee, ground rent, development fee, plan paper fee, CGST, SGST, labour welfare cess and security deposit. The petitioners argued that the authorities were trying to impose levies without legal authority and that GST could not apply because plan sanction was a regulatory exercise, not a commercial transaction. The court agreed, saying there was no supply of goods or provision of services in the sanction process.
The court relied on an earlier Karnataka High Court ruling in Mr Sunderam Shetty v. State of Karnataka, which had already questioned charges such as ground rent, licence fee, scrutiny fee and security deposit in the absence of statutory backing. That line of reasoning has appeared in several recent cases involving Bengaluru civic authorities. In June, another bench invalidated BBMP-linked amendments that allowed plan sanction fees to be tied to property market value, with the court saying the model lacked a rational basis. In a separate case, the court also struck down a betterment charge demanded from a school for a building plan revision.
Justice Nataraj also held that labour welfare cess could not be demanded before construction begins and said it should instead be collected under the procedure laid down in the Building and Other Construction Workers’ Welfare Cess Rules, 1998. The court set aside the demands for scrutiny fee, ground rent and security deposit, directed the authority to issue a fresh labour cess demand in the proper manner and ordered that the building plan be sanctioned within one month. The ruling adds to a series of decisions in which the court has pushed back against local authorities levying charges without clear statutory support, including a separate ruling on GST reimbursement for works contractors and another on statutory university fees not attracting GST.
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