2023 (7) TMI 701 - AAR - GST

Government fees for converting wetland to ordinary land under Section 27A constitute taxable supply

The AAR Kerala ruled that payments made to the Government of Kerala under Section 27A of The Kerala Conservation of Paddy Land and Wetland Act, 2018 for ... Neither a supply of goods nor a supply of service - supply within the meaning of Section 7 of the CGST Act - consideration for supply - reverse charge liability under Notification No. 13/2017 - CT (Rate) - Notification No. 14/2017 - activities in relation to functions entrusted to Panchayat under Article 243G - fee under Section 27A of the Kerala Conservation of Paddy Land and Wetland Act, 2018Notification No. 14/2017 - activities in relation to functions entrusted to Panchayat under Article 243G - fee under Section 27A of the Kerala Conservation of Paddy Land and Wetland Act, 2018 - consideration for supply - reverse charge liability under Notification No. 13/2017 - CT (Rate) - neither a supply of goods nor a supply of service - Reverse charge liability under Notification No. 13/2017 is attracted on the fee paid to the State under Section 27A of the Kerala Conservation of Paddy Land and Wetland Act, 2018. - HELD THAT: - The Authority examined whether the activity of permitting change of nature of unnotified land under Section 27A falls within Notification No. 14/2017 which treats certain government activities 'neither as a supply of goods nor a supply of service' when undertaken as a public authority in relation to functions entrusted to a Panchayat under Article 243G. While the permission is an activity performed by the State as a public authority, the Authority found that the core object and operation of Section 27A - permitting conversion of unnotified land for residential, commercial or other uses subject to conditions and levy of fees - primarily confers a private benefit on the applicant. On a combined reading of the Act, definitions of 'conversion' and 'reclamation', and the provisions of Section 27A, the activity of granting permission subject to fees and conditions cannot be considered an activity in relation to the specific Panchayat functions in the Eleventh Schedule (such as agricultural extension, land improvement, soil conservation, minor irrigation or water management). Consequently the activity does not qualify for exclusion from supply under Notification No. 14/2017. Further, the fee charged by the State is a consideration/compensation for conferring that private benefit and is therefore consideration for a supply. Given these conclusions, the payment is taxable and attracts liability under the reverse charge mechanism as per Notification No. 13/2017 - CT (Rate). [Paras 7]The fee paid under Section 27A is not covered by Notification No. 14/2017 and is consideration for a taxable supply; reverse charge under Notification No. 13/2017 applies.Final Conclusion: The Authority ruled that the payment made to the Government of Kerala under Section 27A of the Kerala Conservation of Paddy Land and Wetland Act, 2018 for change of description of land is not excluded from supply by Notification No. 14/2017 and, being consideration for a taxable activity, attracts GST under reverse charge as per Notification No. 13/2017 - CT (Rate). Issues Involved:1. Whether the reverse charge liability under Notification No. 13/2017 CT (Rate) dated 28-06.2017 is attracted on the payment made to the Government of Kerala under Section 27A of The Kerala Conservation of Paddy Land and Wetland Act, 2018 for change of description of land from wetland to ordinary land in Government of Kerala village office records and permission for construction of office complex for the purpose of business.Summary:Issue 1: Reverse Charge Liability under Notification No. 13/2017 CT (Rate):The applicant, a Non-Banking Financial Company, sought an advance ruling on whether the reverse charge liability under Notification No. 13/2017 CT (Rate) dated 28-06.2017 is attracted on payments made to the Government of Kerala under Section 27A of The Kerala Conservation of Paddy Land and Wetland Act, 2018. The applicant argued that the payment for changing the land description from wetland to ordinary land should not attract GST liability as it falls under activities that are neither supply of goods nor services per Notification No. 14/2017 CT (Rate) dated 28.06.2017.The applicant contended that to determine GST liability, it must be examined whether there was a supply of service within the meaning of Section 7 of the CGST Act and whether there was any consideration for the service. They argued that the activities undertaken by the government in relation to a function entrusted to a Panchayat under Article 243G of the Constitution should not attract GST.Discussion and Findings:The Authority for Advance Ruling examined whether the activity in question satisfies the conditions of Notification No. 14/2017 CT (Rate) dated 28.06.2017. The Kerala Conservation of Paddy Land and Wetland Act, 2018 aims to conserve paddy land and wetland to promote agricultural growth and sustain the ecological system. Section 27A of the Act involves permitting the use of unnotified land for residential, commercial, or other purposes subject to conditions and fees.The Authority concluded that the activity of allowing the change of nature of unnotified land for residential or commercial purposes, subject to conditions and fees, is primarily for the benefit of the applicant and not an activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution. Therefore, it cannot be treated as 'neither a supply of goods nor a supply of service' under Notification No. 14/2017 CT (Rate).Ruling:The reverse charge liability under Notification No. 13/2017 CT (Rate) dated 28.06.2017 is attracted on the payment made to the Government of Kerala under Section 27A of the Kerala Conservation of Paddy Land and Wetland Act, 2018 for changing the description of land from wetland to ordinary land in Government of Kerala village office records and for permission for construction of an office complex for business purposes.