2018 (11) TMI 1347 - AAR - GST

GST Applicable on Concession Fee for Infrastructure Lease

The Authority ruled that GST is applicable on the one-time concession fee charged for a 60-year lease for infrastructure development, as the applicant's ... Exemption for upfront premium on long term lease of industrial plots - industrial or financial business area requiring state government notification - State Government undertaking - continuous supply under Section 142(10) - taxability of upfront consideration for long-term leaseExemption for upfront premium on long term lease of industrial plots - industrial or financial business area requiring state government notification - State Government undertaking - Whether the one-time upfront concession fee paid for a 60-year lease qualifies for exemption under Entry No. 41 of Notification No. 12/2017-C.T. (Rate) as amended. - HELD THAT: - Entry No. 41 grants exemption for upfront amounts payable for granting of long term lease (30 years or more) of industrial plots for development of infrastructure for financial business, where the lease is granted by a State Government Industrial Development Corporation or an undertaking or entity having 50% or more government ownership and other conditions are met. The Authority accepted that the lessor is a State Government undertaking and that the lease term exceeds 30 years and the payment is an upfront concession fee. However, the Notification requires that the lease relate to an 'industrial or financial business area.' The GST statute and notification do not define that term; the Authority therefore adopted the definition in the Goa Industrial Development Act, 1965, which treats an 'Industrial Area' as an area declared to be industrial by the State Government by notification in the Official Gazette. Absent a state government notification declaring the area as an industrial or financial business area, the leased plot cannot be treated as such merely because industrial or commercial activity will occur there. Because no notification declaring the area was placed on record, the condition for Entry No. 41 was not satisfied and the exemption could not be availed. [Paras 8, 9, 14]The upfront concession fee does not qualify for exemption under Entry No. 41 because the leased plot is not shown to be located in an area declared by the State Government as an industrial or financial business area.Continuous supply under Section 142(10) - taxability of upfront consideration for long-term lease - Whether the upfront concession fee received (and contracted for) prior to the appointed date is taxable under the GST Act. - HELD THAT: - Section 142(10) provides that supplies made on or after the appointed day pursuant to contracts entered into prior to that day are liable to tax under the GST Act. Where the supply is in the nature of a continuous supply, even if the contract and receipt of consideration occurred before the appointed date, GST applies to the supply made after the appointed date. The Authority found that the upfront payment in this case was consideration for services to be rendered over the 60-year lease period and is therefore in the nature of a continuous supply. Consequently, the fact that the contract and payment pre-dated the appointed day does not exclude the transaction from GST. [Paras 12, 13, 14]The upfront concession fee is taxable under the GST Act as the supply is a continuous supply falling within Section 142(10).Final Conclusion: Advance Ruling: The applicant is not entitled to exemption under Entry No. 41 of Notification No. 12/2017-C.T. (Rate) because the leased plot is not shown to be in an area declared by the State Government as an industrial or financial business area; the one time upfront concession fee for the long term lease is liable to GST as a continuous supply under Section 142(10). Issues:Whether GST is applicable on One Time Concession Fees Charged by the applicant for a long term lease of 60 years for development of infrastructure for financial business.Whether the conditions for exemption under Entry No. 41 of Notification No. 12/2017-C.T. (Rate) are satisfied.Applicability of GST on long term lease agreements.Interpretation of Section 142(10) of the GST Act regarding the liability to tax under the provisions of the Act.Analysis:The applicant sought an Advance Ruling on the applicability of GST on a one-time concession fee charged for a 60-year lease for infrastructure development. The applicant claimed exemption under Entry No. 41 of Notification No. 12/2017-C.T. (Rate), citing conditions met such as upfront payment, lease duration, industrial plot use, and lessor being a State Government undertaking. However, the Authority found no declaration of the leased area as an industrial/financial business area, rendering the exemption inapplicable.The Authority referenced a High Court case where lease premium was subject to GST, indicating that consideration for services is taxable. Another High Court decision on renting services concluded that service tax could be levied. Regarding Section 142(10) of the GST Act, the Authority clarified that continuous supply of service post-GST introduction is taxable, even if the contract was made pre-GST, as in this case where services are to be provided for 60 years.Ultimately, the Authority ruled that the applicant's service did not meet the criteria for exemption under Entry No. 41, making the long-term lease subject to GST. The decision highlighted the importance of compliance with specific conditions for exemption and the applicability of GST on continuous supply of services post-GST implementation.