2018 (9) TMI 2101 - AAR - GST

Installment payments for land lease premium don't qualify as upfront payments under GST notification 12/2017 serial 41

The AAR held that installment payments for land lease premium to RIADA do not qualify as 'upfront' payments under GST notification 12/2017, serial no. 41. ... Levy of GST - land premium to be payable to the RIADA - applicability of serial No. 41 of notification 12/2017 under heading 9972 of GST issued by the central government on the payment of upfront lease premium on future installments - HELD THAT:- In the present case (i) the lease is for 30 years, (ii) The lessor i.e. RIADA is a corporation established by the State Government but the premium paid for the lease in 10 equal instalment over a period of 5 years. After paying the first instalment as upfront the applicant has received the service i.e. the industrial land/shed for the period of 30 years from the date of allotment. Since the applicant has admitted himself that the word upfront means 'beforehand' or 'before the actual evident is due', the so called premium paid in instalment after the allotment does not qualify the criteria of upfront amount. The amount payable in instalment to the Ranchi Industrial Development Authority (RIADA) on lease in respect of the scheduled land/ shed for a period of 30 years from the date of allotment after getting the allotment letter does not come under the category of upfront payment. Hence, it is not exempted from the GST vide serial no 41 of notification 12/2017 under heading 9927 of GST. Issues:1. Imposition of GST on land premium payable to RIADA2. Applicability of serial No. 41 of notification 12/2017 on upfront lease premiumAnalysis:Issue 1: Imposition of GST on Land PremiumThe applicant, a company engaged in manufacturing garments, sought clarification on the GST imposition on the land premium payable to RIADA for setting up an industrial unit. The lease agreement required the lessee to pay the premium in 10 installments over 5 years. The applicant argued that the payment qualifies for exemption under Serial No. 41 of notification 12/2017, as it was a long-term lease of industrial land from a state government corporation. However, the Authority ruled that since the premium was paid in installments after allotment, it did not meet the criteria of an upfront payment as defined in the notification. Therefore, the payment was not exempt from GST.Issue 2: Applicability of Notification 12/2017The applicant also sought clarification on the applicability of Serial No. 41 of notification 12/2017 regarding the upfront lease premium on future installments. The notification exempted one-time upfront amounts for long-term leases of industrial plots from GST. The applicant argued that their lease satisfied the conditions of the notification. However, the Authority found that the payment made in installments post-allotment did not qualify as an upfront payment, thus not meeting the exemption criteria under the notification.In conclusion, the Authority ruled that the payment made in installments to RIADA for the leased land did not qualify as an upfront payment and was therefore not exempt from GST as per the provisions of Serial No. 41 of notification 12/2017. The ruling clarified the application of GST on such lease premiums and upheld the tax liability on the installment payments made over the lease period.