Pure services exemption applies to lease and way leave charges, while refundable security deposits are not GST consideration.
Lease and way leave arrangements over land and water areas were treated as pure services, because the transaction involved no supply of goods and fell within the GST treatment of lease, tenancy, easement and licence to occupy land as services. On that basis, the associated lease rent, compensation and way leave charges were covered by the exemption entry. MMRDA was recognised as a Government Entity, as it was constituted under a State enactment and performed development functions entrusted by the State. Refundable security deposits were not treated as consideration, since they were held only as performance security and were not appropriated as payment for the supply; accordingly, they were outside GST.
Issues: (i) Whether the amounts receivable by the applicant under the memorandum of understanding, including lease rent, way leave charges, compensation amounts and refundable deposits, constituted pure services eligible for exemption under the GST exemption notification; (ii) Whether the recipient, MMRDA, was a Government Entity for the purpose of the exemption; and (iii) Whether the refundable deposits and security deposits were consideration liable to GST.
Issue (i): Whether the amounts receivable by the applicant under the memorandum of understanding, including lease rent, way leave charges, compensation amounts and refundable deposits, constituted pure services eligible for exemption under the GST exemption notification.
Analysis: The underlying transaction was the grant of lease and way leave permission in respect of land and water areas. The arrangement did not involve any supply of goods, and the activity fell within the statutory treatment of lease, tenancy, easement and licence to occupy land as services. The amounts described as lease rent, compensation linked to the grant of possession, and way leave charges all arose from that service arrangement.
Conclusion: The supply was treated as pure services and fell within the exemption entry.
Issue (ii): Whether the recipient, MMRDA, was a Government Entity for the purpose of the exemption.
Analysis: MMRDA was constituted under a State enactment, was under Government control, and was created to carry out development and infrastructure functions entrusted by the State. On that basis, it satisfied the definition of a Government Entity in the relevant notification.
Conclusion: MMRDA was held to be a Government Entity.
Issue (iii): Whether the refundable deposits and security deposits were consideration liable to GST.
Analysis: A deposit is not treated as consideration unless it is appropriated as such. The refundable security deposits were held to be in the nature of security against performance and possible damages, and not payment in return for the supply. Accordingly, they did not lose their character as deposits merely because they were received in the course of the lease arrangement.
Conclusion: The refundable deposits were not treated as taxable consideration and were held not liable to GST.
Final Conclusion: The applicant's supplies under the memorandum of understanding were exempt from GST under the relevant exemption entry, and the associated refundable deposits were also outside GST levy on the facts found.
Ratio Decidendi: Lease and way leave transactions that constitute pure services, when supplied to a Government Entity for functions connected with Articles 243G or 243W of the Constitution, fall within the exemption notification, and refundable security deposits are not consideration unless appropriated as payment for the supply.