2021 (1) TMI 549 - AAR - GST

Taxable Supply Ruling: Lease Premiums Subject to Reverse Charge Mechanism

In Re: M/s. Jinmagal Corporation,

In Re: M/s. Jinmagal Corporation, - TMI Issues Involved:1. Whether the one-time long-term lease premium payable/paid by the applicant to Ahmedabad Urban Development Authority (AUDA) is a supply and thus liable to pay tax under Section 7 of the CGST Act, 2017.2. Whether the applicant is required to discharge/pay tax under Reverse Charge Mechanism (RCM) in accordance with Section 9(3) of the CGST Act, 2017 on the one-time lease premium payable to AUDA.3. Whether the annual lease premium payable/paid by the applicant is a supply.4. Whether the applicant is required to discharge/pay tax under RCM on the annual lease premium payable to AUDA in light of Notification No. 13/2017 as amended by Notification No. 05/2019.Issue-Wise Detailed Analysis:1. One-Time Long-Term Lease Premium as Supply:The applicant contended that a long-term lease exceeding 30 years is akin to the sale of immovable property and should not attract GST. They cited various legal definitions and judgments to support their claim that such transactions are treated as conveyance under the Gujarat Stamp Duty Act. However, the authority observed that the lease agreement for 99 years with AUDA includes several restrictions and does not transfer absolute ownership. Therefore, the lease of the plot for 99 years is not considered a 'sale of land' but a lease of plot/land, making it a supply under Section 7(1) of the CGST Act, 2017. The authority concluded that the one-time lease premium/salami and annual premium paid by the applicant for the lease of the commercial plot/land is a 'supply' and covered under Section 7(1) of the CGST Act, 2017.2. Tax Liability under Reverse Charge Mechanism (RCM):To determine the applicability of RCM, the authority referred to Section 9(3) of the CGST Act, 2017, and Notification No. 13/2017-CT (Rate) dated 28.06.2017, as amended by Notification No. 05/2019-CT (Rate) dated 29.03.2019. The relevant entry specifies that the long-term lease of land (30 years or more) by any person against consideration in the form of an upfront amount or periodic rent for construction of a project by a promoter is subject to GST under RCM. The term 'promoter' is defined under the Real Estate (Regulation and Development) Act, 2016. The authority concluded that the applicant, being a promoter, is liable to pay GST under RCM on the one-time premium/salami and annual lease premium paid to AUDA.3. Annual Lease Premium as Supply:The authority reiterated that the lease of the plot for 99 years is not a sale but a lease, making the annual lease premium paid by the applicant a supply under Section 7(1) of the CGST Act, 2017. This is further supported by Schedule II of the GST Act, 2017, which specifies that any lease, tenancy, easement, or license to occupy land is a supply of services. Therefore, the annual lease premium is considered a supply and is taxable under GST.4. Tax Liability on Annual Lease Premium under RCM:Similar to the one-time lease premium, the annual lease premium payable to AUDA is also subject to GST under RCM as per Notification No. 13/2017-CT (Rate) dated 28.06.2017, as amended by Notification No. 05/2019-CT (Rate) dated 29.03.2019. The applicant, being a promoter, is required to discharge/pay tax on the annual lease premium under RCM.Ruling:1. The one-time long-term lease premium payable/paid by the applicant to AUDA is a supply and thus liable to pay tax under Section 7 of the CGST Act, 2017.2. The applicant is required to discharge/pay tax under RCM on the one-time lease premium payable to AUDA in light of Notification No. 13/2017 as amended by Notification No. 05/2019.3. The annual lease premium payable/paid by the applicant is a supply.4. The applicant is required to discharge/pay tax under RCM on the annual lease premium payable to AUDA in light of Notification No. 13/2017 as amended by Notification No. 05/2019.