Land conversion permission fee is not Panchayat-function exempt and attracts reverse charge under GST notification.

Payment made to the State Government for permission to convert unnotified land from wetland to ordinary land under Section 27A of the Kerala Conservation of Paddy Land and Wetland Act, 2018 is treated as consideration for a private benefit, namely authorisation of land conversion for the applicant. The activity was not regarded as one in relation to functions entrusted to a Panchayat under Article 243G or as covered by Notification No. 14/2017-Central Tax (Rate), because it did not fall within agriculture, land improvement, soil conservation, or minor irrigation in the Eleventh Schedule. As the exemption was unavailable, reverse charge liability under Notification No. 13/2017-Central Tax (Rate) applies.

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Issues: Whether the amount paid to the State Government for permission to change the nature of unnotified land from wetland to ordinary land under Section 27A of the Kerala Conservation of Paddy Land and Wetland Act, 2018 is covered by Notification No. 14/2017-Central Tax (Rate) as an activity in relation to a function entrusted to a Panchayat under Article 243G of the Constitution of India, and consequently whether reverse charge liability under Notification No. 13/2017-Central Tax (Rate) is attracted.

Analysis: The payment arose from a statutory permission mechanism under which the Revenue Divisional Officer, and in some cases the Government, may permit conversion of unnotified land for residential, commercial or other purposes subject to conditions and fee. The activity was held to be principally for the benefit of the applicant seeking conversion, and the fee was treated as consideration for conferring a private benefit rather than as an activity in relation to agriculture, land improvement, soil conservation, or minor irrigation within the Eleventh Schedule. The exemption for governmental activities connected with Panchayat functions was therefore found inapplicable, and the transaction was not treated as neither a supply of goods nor a supply of service.

Conclusion: The activity is not covered by Notification No. 14/2017-Central Tax (Rate), and reverse charge liability under Notification No. 13/2017-Central Tax (Rate) is attracted.

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