2024 (2) TMI 647 - AAR - GST

Transfer of leasehold rights in industrial plot constitutes taxable service under GST at 18% rate

In Re: M/s Remarkable Industries Private Limited,

AAR UP ruled that transfer of leasehold rights in industrial plot constitutes supply of services under GST Act. The appellant's assignment of lease rights ... Taxability - Activity relating to Sale/Transfer of leasehold Land and building and also to obtain permission for such sale - GST on upfront called premium amount as a cost of land and building - Transfer of plot originally allotted to the appellant by Noida Authority - ITC will be eligible to buyer or not - Applicability of N/N. 12/2017 serial no. 41 Heading 9972 - HELD THAT:- Scope of supply under section 7 (I) of the GST Act includes all forms of supply of goods and services, including a sale, transfer, barter, exchange, license, rental, lense or disposal made or agreed to be made. Section 7 (1A) read with Schedule II under the GST Act provides which of such supplies shall be treated as supply of goods or services. Paragraph 2 of Schedule II provides that with respect to transactions relating to land and buildings, any lease, tenancy, easement, license to occupy the land, letting out of a building including a commercial, industrial or residential complex for business or commerce is the supply of services. In the instant case, the applicant wants to sell industrial plot to M/s S.K. Industries and transfer the lease rights with the approval of Noida Authority. The moment the lease right is to be transferred from the applicant to M/s S.K. Industries, the part has provided service of transferring the leasehold rights and thus action of the applicant is very well covered under Paragraph 2 of Schedule II of CGST Act 2017. The applicant's interest in the benefits arising out of the Demised Premises is limited to sub-leasing in terms of the Deed, and he is capable of transferring the benefits only to that extent. The assignment, therefore, does not amount to transfer of any benefit other than leasehold rights in terms of the Deed for the unexpired period of the lease and is no transfer of any immovable property in the context of the GST Act - Exemption vide Entry No. 41 of Notification No. 12/2017-CT dt. 28th June 20-17 is also not applicable in the instant case. Entry No. 41 holds that one time upfront amount (called as premium, salami, cost, price, development charges or by any other name) leviable in respect of the service, by way of granting long term (thirty years, or more) lease of industrial plots, provided by the State Government Industrial Development Corporations or Undertakings to industrial units is exempted from service lax. The emphasis is on one time upfront amount on industrial plots provided by State Government Industrial Development Corporations or Undertakings. The activity of assignment is in the nature of agreeing to transfer one's leasehold rights. It does not amount to further sub-leasing, as the applicant's rights as per the Deed stands extinguished. Neither does it create fresh benefit from land other than the leasehold right. It is like a compensation for agreeing to do the transfer of the applicant's rights in favour of the assignee. It is a service classifiable under Other miscellaneous service (SAC 999792) and taxable @ 18% under SI No. 35 of Notification No. 11/2017 CT (Rale) dated 28/06/2017. Issues Involved:1. Taxability under GST provisions of the sale/transfer of leasehold land and building.2. Applicability of GST on the upfront called premium amount.3. Eligibility of Input Tax Credit (ITC) for the buyer.4. Applicability of Notification No. 12/2017 serial no. 41 regarding GST exemption.Summary:Issue 1: Taxability under GST ProvisionsThe applicant sought clarification on whether the sale/transfer of leasehold land and building and obtaining permission for such sale would be taxable under GST provisions. The Authority ruled that the activity of transferring leasehold rights constitutes a service under Paragraph 2 of Schedule II of the CGST Act, 2017. The transfer of leasehold rights is classified as 'Other miscellaneous service' (SAC 999792) and is taxable at 18% under SI No. 35 of Notification No. 11/2017 CT (Rate) dated 28/06/2017.Issue 2: Applicability of GST on Upfront Called Premium AmountThe Authority clarified that the activity of agreeing to transfer one's leasehold rights does not amount to further sub-leasing. The applicant's right as per the Deed of sub-lease stands extinguished after assignment, and it does not create a fresh benefit from the land. Therefore, it is considered a service and is taxable at 18%.Issue 3: Eligibility of ITC for the BuyerThe Authority did not offer comments on the eligibility of Input Tax Credit (ITC) for the buyer, as it pertains to the recipient of the service.Issue 4: Applicability of Notification No. 12/2017 Serial No. 41The applicant inquired about the applicability of Notification No. 12/2017 serial no. 41, which exempts GST on the one-time upfront amount for long-term leases provided by State Government Industrial Development Corporations or Undertakings. The Authority ruled that this exemption is not applicable to the applicant since the seller, M/s Remarkable Industries, is not a State Government Industrial Development Corporation or Undertaking. The exemption was limited to the original lease agreement executed between M/s PEC Equipment and Noida Authority.Ruling:The Authority ruled that the activity of transferring leasehold rights is taxable at 18% under GST as a service. The exemption under Notification No. 12/2017 does not apply to the applicant. The ruling is valid within the jurisdiction of the Authority for Advance Ruling Uttar Pradesh and subject to the provisions under Section 103(2) of the CGST Act, 2017 until declared void under Section 104 (1) of the Act.