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. Despite the applicant receiving a 30-year industrial land lease after paying the first installment, subsequent payments made in 10 equal installments over 5 years after allotment do not meet the upfront payment criteria. The AAR determined that "upfront" means payment before service delivery, and since installments are paid after allotment, they remain subject to GST without exemption.

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Issues:
1. Imposition of GST on land premium payable to RIADA
2. Applicability of serial No. 41 of notification 12/2017 on upfront lease premium

Analysis:

Issue 1: Imposition of GST on Land Premium
The 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 12/2017
The 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.

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