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GST update on taxability of Assignment of leasehold right in immovable property

Pradeep Jain
GST on Assignment of Leasehold Rights Deemed Taxable Service, Attracts 18% Rate; Input Tax Credit Available The article discusses the GST implications on the assignment of leasehold rights in immovable property, focusing on a case reviewed by the Authority for Advance Ruling in West Bengal. It clarifies that while the sale of land is not subject to GST, services related to land, such as leasing, are taxable. The assignment of leasehold rights is considered a service under 'Other miscellaneous services' and attracts an 18% GST rate. The decision highlights that this activity is not sub-leasing but a service, allowing the applicant to claim input tax credit on the transfer fees paid. (AI Summary)

Sale of land is out of the purview of GST Law as it is an entry in Schedule III but certain services associated with land such as construction services wherein consideration is received prior to completion certificate, leasing services in relation to land are liable to GST. The present update seeks to discuss the issue regarding taxability of assignment of leasehold right on immovable property and admissibility of input tax credit thereon which was raised before the AAR in the case of IN RE: M/S. ENFIELD APPARELS LTD [2020 (8) TMI 251 - AUTHORITY FOR ADVANCE RULING, WEST BENGAL]

The applicant is under liquidation and one of the assets under liquidation is the leasehold property, taken on lease for 99 years from the West Bengal Industrial Development Corporation Ltd. One of the conditions of lease was that it can be sub-leased after five years from the date of signing of deed after taking approval of the West Bengal Industrial Development Corporation Ltd. on payment of transfer fees being 10% of the prevailing market value of the property as assessed by the Registering Authority of the State Government. The question before the AAR was whether GST is payable on the consideration received on assignment of leasehold right in property to another person and whether input tax credit can be claimed on transfer fees.

The paragraph 2 of Schedule II of the CGST Act provides that with respect to transactions relating to land and buildings, any lease, tenancy, easement, license to occupy the land, letting out of a building including a commercial, industrial or residential complex for business or commerce is the supply of services. In other words, ‘benefits arising from land’ in the forms specified in paragraph 2 of Schedule II are not to be treated as transactions in immovable property but as the supply of service for the purpose of the GST Act. Now, the question arises is whether activity of assignment of leasehold right in factory can be considered as sub-leasing so as to attract GST? It was observed that the West Bengal Development Corporation has no title or ownership, which is central to sale of any immovable property within the meaning Transfer of Property Act, 1882. Activity of assignment is in the nature of agreeing to transfer one’s leasehold rights which does not amount to further sub-leasing. Neither does it create fresh benefit from land other than the leasehold right. It is like a compensation for agreeing to do the transfer of rights in favour of the assignee. Thus, it classifies to be a service under ‘Other miscellaneous services’ and liable to GST at 18%. Furthermore, it was held that as GST is payable on the activity of assignment of leasehold right in immovable property, the input tax credit of tax paid on transfer fee is admissible to the applicant.

The above decision is interesting one as it does not treats the activity as that of sub-leasing but rather considers it as a declared service entry of Schedule II of CGST Act, 2017.

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