APPLICABILITY OF GST TO UPFRONT CONCESSION FEE

In re ‘Goa Tourism Development Corporation Limited’ – 2018 (11) TMI 1347 - AUTHORITY FOR ADVANCE RULING, GOA, the applicant is a Government company and registered under the provisions of GST laws.  The applicant has executed concession agreement for renovation/development of their Anjuna property through private investment mode with Myrayash Hotels Private Limited, Mumbai on 09.12.2016.   The agreement gives the right, licence and authority to construct, operate and maintain the project for a period of 30 years extendable by further period of 30 years totaling 60 years.

The applicant collected one time upfront concession fees from Myrayash Hotels Private Limited @ ₹ 42,00,000 lakhs per year.  The total fee is ₹ 25.2 crores was collected by the applicant from the said company.  The said company may use the property of the applicant on the basis of Design, build, finance, operate and transfer (DBFOT).

The applicant filed an application before the Authority for Advance Rulings for seeking clarification as to the application of GST for the one time upfront concession fees. The question put forth before the Authority is – ‘Whether GST is applicable on One time concession fees charged by the applicant in respect of their property at Anjuna, Goa, which is given to Myrayash Hotels Private Limited, Mumbai for a long term lease of 60 years for development of infrastructure for financial business on DBFOT basis (Design, Build, Finance, Operate and Transfer) providing exclusive right, licence and authority to construct, operate and maintain the project’.

The applicant submitted the following before the Authority-

• The one time upfront concession fee charged by the applicant for lease of 60 years granted to Myrayash Hotels Private Limited, Mumbai is exempted from payment of GST under Sl. No. 41  Notification No. 12/2017-Central Tax (Rate), dated 28.06.2017 as amended by Notification No. 32/2017-CTR, dated 13.10.2017.
• The conditions for claiming exemption under this Notification are as follows-

• The exemption is for upfront payment.
• The lease shall be for a period of 30 years or more.
• The lease shall be for industrial development of infrastructure for financial business.
• The lease shall be granted by State Government Development Corporation or State Government undertaking by any other entity having 50% or more ownership of Central Government, State Government or Union territory

• Since all the above four conditions are satisfied the applicant is eligible for exemption from GST in respect of one time upfront concession fee received from the hotel.

The Authority observed that the four conditions in the Notification are satisfied which are arrived at as follows-

• As specified in clause 4.1.3. of the lease agreement the upfront concession fee to the extent of ₹ 28 crores is payable to the applicant – The first condition of exemption is fulfilled since it is for upfront concession fees.The invoice also indicated as – Upfront Concession Fee with respect of Anjuna Property.
• As specified in clause 3.1.1. of the agreement the lease period is for 60 years.The second condition of exemption is also satisfied since the lease period is more than 30 years.
• The Authority referred the Black’s Laws Dictionary for the definition of the term ‘industry’.According to this Dictionary the term industry is defined as any department or branch of art, occupation or business conducted as a means of livelihood or for profit, especially one which employs much labor and capital and is a distinct branch of trade.In this case since the land is given on lease for the purpose of providing accommodation services to the customer it can be inferred that the plot is used for industrial purposes.
• The lease right has been assigned by the applicant which is a Government company.This satisfies the fourth condition in the Notification.

The Authority further observed that it is on record that-

• The service provider is an undertaking of Goa Government.
• The lease is made for 60 years.
• The long term lease shall be in respect of industrial plots or plots for development of infrastructure for financial businesses located in ‘any industrial or financial business area’.

Either the Act or the concerned Notification does not define the expression ‘industrial or financial business area’.  Therefore the Authority got the definition of the said expression from the ‘Goa Industrial Development Act, 1965’.  Section 2(g) of the said Act defines the expression ‘industrial area’ as any area to be declared as industrial area by the State Government by Notification in the Official Gazette, which is to be developed and where industries are to be accommodated.

The Authority considered that an area cannot be treated as industrial or financial business area merely on the ground that the area is being used for the purpose of industry/finance.  The approval/declaration from the State Government is mandatory for treatment of any area as industrial or financial area.  In this case there is no such notification is on record.  Therefore the said area cannot be treated as industrial/financial business area and the benefit of exemption under entry No. 41 of the Notification No.12/2017-Central Tax (Rate), dated 28.06.2017 cannot be extended to the applicant.

The Authority relied on the judgments of High Courts-

• In ‘Greater Noida Development Authority v. Commissioner of Customs, Central Excise’ – 2015 (4) TMI 1231 - ALLAHABAD HIGH COURT, the High Court while considering the demand in relation to the services of renting of immovable property of Greater Noida, has arrived at a conclusion that the same was a taxable service and on the consideration received, the service tax could have been levied and demanded.
• In ‘Builders Association of Navi Mumbai and Neelsidhi Realties v. Union of India and others’ – 2018 (4) TMI 461 - BOMBAY HIGH COURT, the Bombay High Court considered the issue whether GST can be levied and collected on the long term lease granted by Industrial and Development Corporation of MaharashtraLimited for 60 years.The High Court has observed the lease premium amount is a consideration and subject to GST.

Section 142(10) of Central Goods and Services Tax Act, 2017 provides that  if the contract is made in service tax regime and the service is provided in GST regime or the service is in nature of continuous supply of service, the same is liable to tax under GST Act.   In the present case the lease agreement is made prior to GST regime and the service  is to be provided for the next 60 years and it is a continuous supply of service.  The Authority ruled that the same is liable to be taxed under GST.