2018 (4) TMI 461 - HC - GST

GST applies to one-time lease premium for 60-year land leases under Schedule II Section 7

The Bombay HC held that GST is leviable on one-time lease premium for 60-year land leases. The petitioner argued that long-term leases constitute sale of ... Supply includes lease or licence and is taxable where for consideration - one-time lease premium as consideration for supply - treatment of activities undertaken by Central/State Government or local authority under non-obstante clause - lease/tenancy/licence to occupy land treated as supply of service under Schedule II - requirement of a notification to exclude governmental/public authority activities from supply - distinction between sovereign/regal functions and commercial/statutory functions of public authoritiesOne-time lease premium as consideration for supply - lease/tenancy/licence to occupy land treated as supply of service under Schedule II - supply includes lease or licence and is taxable where for consideration - The one-time lease premium charged by CIDCO for long-term (60 years) leases is subject to GST as consideration for a supply of service. - HELD THAT: - The GST enactment defines 'supply' inclusively to cover all forms of supply made for a consideration in the course or furtherance of business, and Schedule II expressly treats leases, tenancies and licences to occupy land and buildings as supplies of services. The one-time premium demanded by CIDCO is a lumpsum consideration for granting the lease and, read harmoniously with section 7 and Schedule II, falls within the taxable net as consideration for supply. Reliance on income tax authorities and decisions addressing capital/revenue character of receipts does not alter the statutory scheme under the GST law, which targets supply and consideration rather than the Income tax treatment of receipts. The court therefore upheld that the one-time lease premium is leviable to GST. [Paras 10, 11, 14, 15]The demand for GST on the one-time lease premium is legally sustainable; such premium constitutes consideration for a taxable supply of service.Treatment of activities undertaken by Central/State Government or local authority under non-obstante clause - requirement of a notification to exclude governmental/public authority activities from supply - distinction between sovereign/regal functions and commercial/statutory functions of public authorities - CIDCO's status as a statutory/new town development authority does not, by itself, exempt the one-time lease premium from GST in the absence of a specific notification under the non obstante clause in section 7(2). - HELD THAT: - Section 7(2) contemplates that activities or transactions undertaken by the Central/State Government or local authorities in which they act as public authorities may be excluded from supply only by notification made by the Government on the Council's recommendation. The court found no such notification applicable to CIDCO's disposals of land. Merely being a statutory authority performing public functions or being designated a New Town Development Authority does not automatically place its transactions outside the GST net. The distinctions between sovereign and non sovereign functions do not warrant judicial exclusion of CIDCO's lease premiums where the statutory exclusion mechanism in the GST Act has not been invoked. [Paras 12, 13, 16, 20]Absent any notification under section 7(2), CIDCO's receipts from the one-time lease premium are not excluded from GST merely by reason of its statutory status.Final Conclusion: The writ petition challenging levy and collection of GST on one-time lease premium charged by CIDCO is dismissed; the court upholds that such premium is taxable as consideration for a supply of service and that CIDCO's statutory status does not exclude the transaction from GST in the absence of the prescribed notification. Issues Involved:1. Levy and collection of Goods and Services Tax (GST) on one-time lease premium.2. Nature of the transaction and its classification under GST.3. Legal status and functions of CIDCO.4. Applicability of previous judicial precedents and statutory provisions.Detailed Analysis:1. Levy and Collection of GST on One-time Lease Premium:The petitioners challenged the order levying GST on the one-time lease premium charged by CIDCO for leasing plots of land. They sought a writ of mandamus directing the respondents not to collect GST on the long-term lease granted by CIDCO.2. Nature of the Transaction and Its Classification Under GST:The petitioners argued that a long-term lease of 60 years is akin to the sale of immovable property, as it deprives the lessor of the right to use, enjoy, and possess the property. They cited Section 105 of the Transfer of Property Act, 1882, and argued that the one-time premium is a lump sum consideration for entering into the lease. The petitioners contended that such a transaction should be treated as a conveyance under Article 36, Schedule I of the Maharashtra Stamp Act, 1958, and thus not subject to GST.The respondents, however, argued that the transaction is a supply of services under the GST Act. They pointed out that the definition of 'supply' in Section 7 of the GST Act includes lease transactions for consideration. The court agreed with the respondents, stating that the GST Act's provisions clearly include lease transactions as taxable supplies. The court emphasized that the one-time premium is a consideration for leasing the land, making it subject to GST.3. Legal Status and Functions of CIDCO:The petitioners highlighted that CIDCO is a statutory authority performing governmental functions and duties under the Maharashtra Regional and Town Planning Act, 1966. They argued that CIDCO's activities should not be subject to GST as they are not business activities but statutory obligations.The court, however, noted that CIDCO, despite being a statutory authority, engages in activities that fall within the definition of 'business' under the GST Act. The court referred to Section 2(17) of the GST Act, which includes activities undertaken by governmental authorities as public authorities. The court concluded that CIDCO's leasing of land for consideration is a business activity subject to GST.4. Applicability of Previous Judicial Precedents and Statutory Provisions:The petitioners relied on various judgments, including the Supreme Court's decisions in Commissioner of Income Tax Assam, Tripura and Manipur vs. Panbari Tea Co. Ltd. and R. K. Palshikar (HUF) vs. Commissioner of Income Tax, to argue that the one-time lease premium should be treated as a capital receipt and not subject to GST. They also cited a previous order of the Bombay High Court in Commissioner of Central Excise, Nashik vs. Maharashtra Industrial Development Corporation.The court distinguished these cases, stating that they were decided in the context of income tax and not GST. The court emphasized that the GST Act has its own definitions and provisions, which should not be conflated with those of other tax laws. The court also referred to the Allahabad High Court's judgment in Greater Noida Industrial Dev. Authority vs. Commissioner of Customs, Central Excise, which upheld the levy of service tax on similar transactions.Conclusion:The court concluded that the demand for GST on the one-time lease premium is in accordance with the law. The transaction is a supply of services under the GST Act, and CIDCO's status as a statutory authority does not exempt it from GST. The court dismissed the petition, stating that the demand for GST is neither unfair nor unjust.Final Judgment:The writ petition was dismissed, and the rule was discharged. The demand for payment of GST on the one-time lease premium was upheld as lawful, with no order as to costs.