2024 (2) TMI 647 - AAR - GST

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

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 ... Transfer of leasehold rights as supply of service - Schedule II paragraph 2 treatment of leases and rights in land - exemption under Entry No. 41 of Notification No. 12/2017 - one time upfront premium for long term lease by State industrial development undertakings - classification as other miscellaneous services (SAC 999792) - taxable at 18% under the rate notificationTransfer of leasehold rights as supply of service - Schedule II paragraph 2 treatment of leases and rights in land - Whether the activity of selling/transferring leasehold land and building (with transfer permission) amounts to a taxable supply under GST - HELD THAT: - The Authority held that transactions conferring benefits specified in paragraph 2 of Schedule II (lease, tenancy, licence to occupy, letting out of a building) are to be treated as supply of services for GST purposes. The applicant, being a lessee with no title to the demised premises, can only transfer its leasehold right for the unexpired period; such assignment is therefore not a transfer of immovable property within the meaning of the GST provisions but is a supply of service consisting of transfer of leasehold rights. Consequently, the activity of agreeing to transfer one's leasehold rights (and obtaining permission for such transfer) falls within the ambit of taxable services under the CGST/UPGST framework (determinative reasoning at paras. 13.2-13.5). [Paras 13]The assignment/transfer of leasehold rights is a supply of service taxable under the GST law.Exemption under Entry No. 41 of Notification No. 12/2017 - one time upfront premium for long term lease by State industrial development undertakings - Whether the exemption in Entry No. 41 of Notification No. 12/2017 applies to the applicant's transaction - HELD THAT: - Entry No. 41 grants exemption for a one time upfront amount leviable for granting long term (30 years or more) leases of industrial plots where the service is provided by State Government Industrial Development Corporations or Undertakings. The Authority found the exemption to be conditional on the service being rendered by the specified State entities at the time of original grant. The present activity is a subsequent transfer/assignment by a private lessee and not a grant by a State industrial development undertaking; hence the conditions of the notification are not satisfied. The Authority emphasised that where the language of the notification is clear and unambiguous, its plain meaning governs (determinative reasoning at para. 13.6). [Paras 13]Entry No. 41 of Notification No. 12/2017 is not applicable to the applicant's transfer of leasehold rights.Classification as other miscellaneous services (SAC 999792) - taxable at 18% under the rate notification - How the applicant's activity is to be classified and the applicable GST rate - HELD THAT: - The Authority concluded that the activity of agreeing to transfer leasehold rights constitutes a service akin to compensation for assigning the applicant's rights and does not create any fresh benefit from land. Such activity is classifiable as Other miscellaneous service (SAC 999792). Relying on the applicable rate notification, the Authority held that this service is taxable at the rate specified for miscellaneous services (18%), as set out in the rate notification (determinative reasoning at para. 13.7 and the ruling at para. 14). [Paras 13, 14]The assignment/transfer is classifiable as Other miscellaneous service (SAC 999792) and is taxable at 18%.Final Conclusion: The Authority ruled that the sale/transfer of the applicant's leasehold rights (including obtaining permission for transfer) is a taxable supply of service under Schedule II, the exemption in Entry No. 41 of Notification No.12/2017 does not apply to this subsequent transfer by a private lessee, and the activity is classifiable as Other miscellaneous service (SAC 999792) taxable at 18%; no comment was offered on input tax credit eligibility as that question pertains to the recipient. 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.