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 to another party was held taxable as service under "Other miscellaneous service" at 18% GST rate. The transaction fell under Schedule II para 2 of CGST Act covering land and building services. Exemption under Notification 12/2017 entry 41 was denied as it applies only to State Government Industrial Development Corporations, not private transfers. The upfront premium amount paid for lease transfer rights was deemed taxable service, not exempt land transfer.

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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 Provisions
The 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 Amount
The 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 Buyer
The 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. 41
The 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.

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