2022 (3) TMI 791 - AAR - GST

FDCM's lease rights relinquishment to Irrigation Department for project constitutes taxable supply of services under GST

AAR Maharashtra ruled that FDCM's relinquishment of lease rights on land to the Irrigation Department for Kolsapada Minor Irrigation Project constitutes ... Classification of supply - supply of service or not - transfer of land, held under lease by FDCM, towards Kolsapada Minor Irrigation Project - amount of compensation received by FDCM against transfer of land held under lease for Kolsapada Minor Irrigation Project - applicability of exemption under Entry No 3. Of Notification No. 12/2017 Central Tax (Rate), dated 28.06.2017 - HELD THAT:- In the subject case, the applicant has agreed to do an act i.e. the applicant has agreed to relinquish its lease right on the said land in favour of Irrigation Department on the directions of the owner of the land i.e. MSFR Department. Thus the said action of the applicant is nothing but supply of services under the GST Laws and the said supply is to MSFR department for which compensation is received from the Irrigation department. The applicant has submitted that the impugned supply is to the Irrigation department. However, it is seen that the applicant is agreeing to do an act as per the directions of the MSFR department and not the Irrigation department and the applicant has not brought anything on record to show that the impugned services are provided to MSFR department by way of an activity in relation to any function covered under Article 243G or 243W of The Constitution of India. In view of non-submissions of details on this aspect by the applicant, the second question i.e. “Whether exemption under entry No 3. Of Notification No. 12/2017 Central Tax (Rate), dated 28.06.2017 will be applicable on the amount of compensation received by FDCM against transfer of land held under lease for Kolsapada Minor Irrigation Project” cannot be answered. Issues Involved:1. Whether the transfer of land, held under lease by FDCM, towards Kolsapada Minor Irrigation Project is a supply of service.2. Whether exemption under Entry No. 3 of Notification No. 12/2017 Central Tax (Rate), dated 28.06.2017, is applicable on the amount of compensation received by FDCM against the transfer of land held under lease for Kolsapada Minor Irrigation Project.Detailed Analysis:Issue 1: Whether the transfer of land, held under lease by FDCM, towards Kolsapada Minor Irrigation Project is a supply of service.The applicant, M/s. Forest Development Corporation of Maharashtra Limited (FDCM Ltd), is a wholly owned company of the State Government of Maharashtra. It has been leased land by the Maharashtra State Forest and Revenue Department (MSFR Department) for plantation and harvesting activities. The land in question is required to be diverted for the Kolsapada Minor Irrigation Project, and FDCM Ltd is to receive compensation for this transfer.According to Section 7 of the CGST Act, 2017, which defines the scope of supply, and Schedule II of the same Act, any lease, tenancy, easement, or license to occupy land is treated as a supply of services. The applicant argued that the compensation received for transferring the leased land back to the Forest & Revenue Department for the Kolsapada Minor Irrigation Project should be considered as a supply of service.The Authority observed that the land belongs to the MSFR Department, which has leased it to the applicant. The MSFR Department directed the applicant to hand over part of the land to the Irrigation Department. This transfer would result in the MSFR Department becoming the lessor and the Irrigation Department the lessee, with the applicant relinquishing its lease rights.Under Section 7 and Schedule II of the CGST Act, agreeing to the obligation to do an act, such as relinquishing lease rights, amounts to a supply of services. Therefore, the applicant's action of transferring the leased land is considered a supply of services under GST laws. The compensation received from the Irrigation Department for this transfer is thus attributed to the supply of services.Issue 2: Whether exemption under Entry No. 3 of Notification No. 12/2017 Central Tax (Rate), dated 28.06.2017, is applicable on the amount of compensation received by FDCM against the transfer of land held under lease for Kolsapada Minor Irrigation Project.The applicant contended that services provided to the State, Central Government, or local authority by way of an activity related to any function covered under Article 243G or 243W of the Constitution of India are exempt from GST as per Notification No. 12/2017-Central Tax (Rate). Since minor irrigation is covered under these articles, the applicant argued that the supply of services for the Kolsapada Minor Irrigation Project should be exempt from GST.However, the Authority noted that the applicant is agreeing to the transfer of land as per the directions of the MSFR Department, not directly to the Irrigation Department. The applicant did not provide sufficient details to show that the impugned services are provided to the MSFR Department by way of an activity related to any function covered under Article 243G or 243W of the Constitution. Due to the lack of details, the Authority could not determine the applicability of the exemption under Notification No. 12/2017-Central Tax (Rate).Order:1. The transfer of land, held under lease by FDCM, towards the Kolsapada Minor Irrigation Project is considered a supply of service.2. The applicability of the exemption under Entry No. 3 of Notification No. 12/2017 Central Tax (Rate), dated 28.06.2017, on the compensation received by FDCM could not be determined due to insufficient details.