GST EXEMPTION ON LONG TERM LEASE OF LAND FOR INDUSTRIAL OR FOR DEVELOPMENT OF INFRA FOR FINANCIAL BUSINESS

Section 11(1) deals with exemption of GST on supply of Goods or Services. Exemptions will be notified as recommended by GST Council and exemptions can be granted from entire or partial GST and may be conditional. Notification 12/2017-Central Tax (Rate) dated 28th June 2017 read with all amendments deals with exemptions from GST for supply of various services or Goods.

Entry 41 of Notification 12 deals with exemption of GST on Long Term Lease of Land. This exemption entry has undergone changes from time to time since its introduction and is subject to various conditions. From 1st July 2017 till date, Entry 41 pertains to Long Term Lease of Land  of industrial plot and for tenure of thirty (30) years or more.

Changes in Entry 41 of Notification 12/2017-CT(Rate) are tracked from time to time below:

• 1st July 2017 to 12th Oct 2017:

Entry 41 of Exemption Notification 12/2017-CT(R) read as below:

One-time upfront amount (called as premium, salami, cost, price, development charges or by any other name) leviable in respect of the service, by way of granting long term (thirty years, or more) lease of industrial plots, provided by the State Government Industrial Development Corporations or Undertakings to industrial units.

Lessor should be State Government Industrial Development Corporations or Undertakings and Lessee should be Industrial Units.

• 13th Oct 2017 to 19th Sept 2018:

Notification 32/2017-CT(Rate) dated 13th Oct 2017 amended Entry 41 of Exemption Notification 12/2017-CT(R) and it read as below:

Upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable in respect of service by way of granting of long term lease of thirty years, or more) of industrial plots or plots for development of infrastructure for financial business, provided by the State Government Industrial Development Corporations or Undertakings or by any other entity having 50 per cent or more ownership of Central Government, State Government, Union territory to the industrial units or the developers in any industrial or financial business area.

Changes were as below:

1. One-time upfront amount was replaced by Upfront amount
2. Long Term Lease of Land could be of industrial plots or plots for development of infrastructure for financial business
3. Lessor could be State Govt Industrial Development Corporation/Entity or any other entity which were having minimum 50% ownership by Central Government, State Government or Union Territory.  

• 20th Sept 2018 till 30th Nov 2020:

Notification 23/2018-Central Tax (Rate) dated 20th Sept 2018 maintained the Entry 41 same as mentioned above but explanation as mentioned below was inserted to the Entry 41 of Notification 12-2017-CT(R):

Upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable in respect of service by way of granting of long term lease of thirty years, or more) of industrial plots or plots for development of infrastructure for financial business, provided by the State Government Industrial Development Corporations or Undertakings or by any other entity having 50 per cent or more ownership of Central Government, State Government, Union territory to the industrial units or the developers in any industrial or financial business area.

Explanation- For the purpose of this exemption, the Central Government, State Government or Union territory shall have 50 per cent or more ownership in the entity directly or through an entity which is wholly owned by the Central Government, State Government or Union territory

The above explanation was newly added to Entry 41. This Explanation expanded the scope of 50% holding by Central Government or State Government or Union Territory as directly or through an entity which is wholly owned by Central Government or State Government or Union Territory.

• 1st December 2020 till Date:

Notification 28/2019 dated 31st December 2019 amended Notification 12/2017-CT(R ) dated 28th June 2017 with effect from 1st January 2020.

Entire Entry 41 was same as mentioned above in (III) except 50% holding was reduced to 20%. This was from 1st January 2020. Thus Entry 41 of Notification 12-Central Tax (Rate) dated 28th June 2017 wef 1st January 2020 appeared as below:

Upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable in respect of service by way of granting of long term lease of thirty years, or more) of industrial plots or plots for development of infrastructure for financial business, provided by the State Government Industrial Development Corporations or Undertakings or by any other entity having 20 per cent or more ownership of Central Government, State Government, Union territory to the industrial units or the developers in any industrial or financial business area.

Explanation - For the purpose of this exemption, the Central Government, State Government or Union territory shall have 20 per cent or more ownership in the entity directly or through an entity which is wholly owned by the Central Government, State Government or Union territory

Additionally, wef 1st January 2020 the following four conditions were inserted alongwith Entry 41 of Exemption Notification No 12/2017-CT(Rate):

• Leased Plot should be used for Industrial or Financial Activity in Industrial or Financial Business Area.
• State Government shall monitor and enforce the above condition as per order issued by State Government
• In case the originally leased plot is used for purpose other than industrial purpose or for purpose other than financial activity in financial business area or there is any change in land use then the original lessor, original lessee or any subsequent lessor or lessee shall be jointly and severally liable to pay applicable GST along with interest and penalty.
• The original lease agreement between original lessor and original lessee and any subsequent sub lease agreement shall incorporate in terms and conditions the fact that GST on lease between original lessor and original lessee has been exempted subject to above conditions and parties to original agreement or subsequent agreement undertake to comply with the said terms and conditions.

QUESTIONS:

• Will GST be applicable if in case CIDCO (City and Industrial Development Corporation of Maharashtra Limited) leases plot for 60 years to a housing society?

Yes. Above Entry 41 of Notification 12 /2017-CT(Rate) is applicable only if plot is used for Industrial activity or for development of infrastructure for financial business. CIDCO is completely (100%) owned by Government of Maharashtra but lessee in above question is using plot for developing residential complex.

• In case MIDC (Maharashtra Industrial Development Corporation) or like wise GIDC leases plot to industrial units then will exemption from GST under Entry 41 be applicable?

Yes. But subject to conditions as stated in (IV) regarding usage of plot, condition to be incorporated in agreements and GST being jointly/severally payable by each lessor/ sub lessor or lessee/sub lessee with interest and penalty in case of violation of any condition

(Views are strictly personal)

Manoj M Kasture ([email protected])