2021 (8) TMI 731 - AAR - GST

GST Applicable on Leasehold Rights Transfer for INOX Air Products

The ruling concluded that GST is payable on the consideration of Rs. 15 Crores received by the applicant for transferring leasehold rights to M/s. INOX ... 'Supply' as defined under Section 7 of the CGST/TNGST Act, 2017 - consideration' as constituting taxable value for supply - agreeing to do an act' as a taxable activity - business' as inclusive definition under GST - approval of a third party does not negate existence of a supplier-recipient contract - classification as 'Other Miscellaneous Services' (SAC 9997)'Supply' as defined under Section 7 of the CGST/TNGST Act, 2017 - approval of a third party does not negate existence of a supplier-recipient contract - business' as inclusive definition under GST - The transaction of agreeing to part with leasehold interests in favour of INOX is a 'supply' under GST. - HELD THAT: - The Authority examined the lease deed terms and the Memorandum of Understanding between the applicant and INOX. Although SIPCOT retained the right to grant or refuse approval and to impose conditions, the MOU records a clear agreement between IPL and INOX in which IPL undertakes to part with its leasehold interests and INOX undertakes corresponding obligations; the conditions of the transaction are set out by the parties and the possibility of SIPCOT approval was contemplated in the MOU. The inclusive definition of 'supply' under Section 7 requires an activity made or agreed to be made for a consideration in the course or furtherance of business. The applicant's undertaking to part with its leasehold interests for consideration, in furtherance of business, thus meets the statutory elements of 'supply'. The involvement of a third party approver (SIPCOT) does not extinguish the supplier recipient relationship or preclude the transaction from being a supply where the parties have entered into an agreement conditioned upon such approval. Consequently, the activity is characterised as an agreement to do an act, falling within the scope of supply under the Act. [Paras 7]The activity of agreeing to part with the leasehold interests is a 'supply' under Section 7 and constitutes a transaction in the course or furtherance of business.Consideration' as constituting taxable value for supply - 'agreeing to do an act' as a taxable activity - classification as 'Other Miscellaneous Services' (SAC 9997) - GST is payable on the consideration received by the applicant for agreeing to part with leasehold interests, and the activity is taxable as a service under 'Other Miscellaneous Services' (SAC 9997). - HELD THAT: - The consideration paid by INOX for IPL's agreement to part with leasehold interests is payment for the agreed activity and therefore falls within the definition of 'consideration' for a taxable supply. The Authority concluded that the transaction is not a direct transfer of SIPCOT's lease (since IPL lacked unilateral power to sub let) but is an agreement by IPL to part with its leasehold interests for the remaining lease period in favour of INOX. Such agreeing to do an act is a taxable activity and, on classification, fits within 'Other Miscellaneous Services' (SAC 9997). Hence GST is leviable on the consideration received by IPL. [Paras 7, 8]GST is liable on the consideration received by the applicant; the activity is taxable as a service under 'Other Miscellaneous Services' (SAC 9997).Final Conclusion: The Authority ruled that the applicant's agreement to part with leasehold interests in favour of M/s. INOX Air Products Private Limited constitutes a 'supply' under Section 7 of the CGST/TNGST Act, 2017; the consideration received is taxable and GST is payable, the activity being classifiable as 'Other Miscellaneous Services' (SAC 9997). Issues Involved:1. Whether GST is payable on the transfer of leasehold rights for a consideration of Rs. 15 Crores received by the applicant from M/s. INOX Air Products Private Limited.2. Whether the subsequent transfer of SIPCOT's allotted land from the applicant to M/s. INOX Air Products Private Limited falls within the ambit of 'Supply' as defined under Section 7 of the Goods and Services Act 2017.Detailed Analysis:Issue 1: GST on Transfer of Leasehold RightsThe applicant, M/s. India Pistons Limited, sought an advance ruling on whether GST is payable on the Rs. 15 Crores received for transferring leasehold rights to M/s. INOX Air Products Private Limited. The ruling examined the nature of the transaction, noting that the applicant was allotted land by SIPCOT and had entered into a Memorandum of Understanding (MOU) with INOX to transfer the leasehold rights for the remaining lease period, subject to SIPCOT's approval. The applicant argued that the transaction did not constitute a 'Supply' under GST as it was contingent on SIPCOT's approval and did not involve a voluntary agreement between the applicant and INOX. The ruling, however, determined that the activity of agreeing to part with leasehold interests for consideration falls under the definition of 'Supply' as per Section 7 of the CGST Act, 2017. The compensation received was considered 'Consideration' under Section 2(31) of the CGST Act, 2017. Thus, GST is payable on the Rs. 15 Crores received.Issue 2: Transfer of SIPCOT's Allotted Land and 'Supply' DefinitionThe second issue concerned whether the transfer of SIPCOT's allotted land to INOX falls within the definition of 'Supply' under Section 7 of the CGST Act, 2017. The ruling examined the lease deed between SIPCOT and the applicant, which prohibited sub-letting or transferring the land without SIPCOT's approval. The applicant had agreed to transfer the leasehold rights to INOX, subject to SIPCOT's approval, and SIPCOT had approved the transfer with conditions. The ruling concluded that the applicant's activity of agreeing to part with leasehold interests for consideration constitutes a 'Supply' under GST. The transaction was not a direct transfer of leasehold rights but an agreement to part with the interests, with SIPCOT's approval being a necessary condition. The ruling emphasized that the relationship between the applicant and INOX was that of a service provider and recipient, making the activity taxable under 'Other Miscellaneous Services' with SAC 9997.Conclusion:The ruling determined that the activity of agreeing to part with leasehold interests held by the applicant in favor of M/s. INOX Air Products Private Limited is a 'Supply' under Section 7 of the CGST Act, 2017. Consequently, GST is liable to be paid on the Rs. 15 Crores consideration received by the applicant.