2024 (2) TMI 708 - AAR - GST

Industrial plot lease premiums in NOIDA exempt from GST for financial business infrastructure development under Notification 12/2017-CT Entry 41

The UP AAR ruled that upfront lease premiums charged for 90-year industrial plot leases in NOIDA are exempt from GST when for development of ... Exemption under Entry No.41 of Notification No.12/2017-CT(Rate) - long term lease of thirty years or more - lease for development of infrastructure for financial business - local/State industrial development authority allotting plots - lease premium treated as supply of services under Schedule II - distinction between lease and sale of land for GST purposesExemption under Entry No.41 of Notification No.12/2017-CT(Rate) - long term lease of thirty years or more - lease for development of infrastructure for financial business - local/State industrial development authority allotting plots - Applicability of nil rate (exemption) on the upfront amount (lease premium) charged for grant of long term lease of plots by NOIDA under Entry No.41 of Notification No.12/2017-CT(Rate). - HELD THAT: - The Authority examined whether the conditions of Entry No.41 are satisfied: (i) existence of an upfront amount for granting long term lease of thirty years or more; (ii) the lease being of an industrial plot or for development of infrastructure for financial business; (iii) allotment by a State Government industrial development corporation/undertaking or an entity having at least 20% ownership of the Government; and (iv) allotment to industrial units or developers in an industrial or financial business area. The facts show NOIDA grants leases exceeding thirty years, is a State industrial development authority (meeting the ownership criterion), and allots plots to developers in the notified industrial area. The model lease deed describes the demised premises as for development of infrastructure for financial business, including commercial activities. The Authority held that commercial or mixed use development falls within 'infrastructure for financial business' when the lease and other conditions of the notification are satisfied. Consequently, where the long term lease is of an industrial plot or for development of infrastructure for financial business and all conditions of the notification are met, the upfront amount (lease premium) is exempted; otherwise the lease premium is taxable at the applicable rate. [Paras 11, 12, 13, 15, 16]Exempted if the long term lease qualifies as an industrial plot or for development of infrastructure for financial business and satisfies the conditions of Entry No.41; otherwise taxable.Lease premium treated as supply of services under Schedule II - distinction between lease and sale of land for GST purposes - Whether the upfront amount charged for a long term (ninety years) lease is in the nature of sale of land and therefore outside the scope of GST. - HELD THAT: - The Authority referred to paragraph 2(a) of Schedule II to the CGST Act which treats lease, tenancy, easement or licence to occupy land as a supply of services. It noted there is no statutory distinction between long term and short term leases for this purpose. Ownership in a long term lease remains with the lessor and the relationship is of lessor lessee, not seller buyer. Specific entries in the notifications also recognise 'long term lease' for tax treatment rather than treating it as a sale of land. On this basis the Authority held that a long term lease cannot be equated to sale of land and is not outside the scope of GST. [Paras 14, 15, 16]In the negative - the upfront amount for long term lease is not a sale of land and is within the scope of GST (subject to any exemption if notification conditions are satisfied).Final Conclusion: The Authority ruled that NOIDA's upfront lease premium for ninety year leases is eligible for exemption under Entry No.41 of Notification No.12/2017-CT(Rate) only if the lease qualifies as an industrial plot or for development of infrastructure for financial business and all conditions of the notification are fulfilled; otherwise the premium is taxable. Further, a long term lease is not to be treated as a sale of land and remains within the ambit of GST. Issues Involved:1. Exemption from GST on upfront amount (lease premium) for long-term lease of plots in NOIDA.2. Nature of long-term lease as a transaction for sale of land and its applicability under GST.Summary of Judgment:Issue 1: Exemption from GST on upfront amount (lease premium) for long-term lease of plots in NOIDAThe applicant, a statutory authority under the UPIAD Act, 1976, sought clarification on whether the upfront amount charged as lease premium for granting long-term lease of ninety years for plots in NOIDA is exempt from GST under Entry No. 41 of Notification No. 12/2017-CT (Rate) dated 28.06.2017. The applicant argued that the lease premium should be exempt as it falls under the scope of Entry No. 41, which provides a NIL rate of tax for upfront amounts payable for long-term leases of industrial plots or plots for infrastructure development for financial business by State Government Industrial Development Corporations or entities with at least 20% government ownership.The Authority for Advance Ruling (AAR) noted that the conditions stipulated in the notification were fulfilled by the applicant, including the long-term lease of over 30 years, allocation by an entity with 20% government ownership, and allotment to industrial units or developers in an industrial or financial business area. However, the AAR emphasized that the leased plots must be used for the purpose for which they are allotted, i.e., for industrial or financial activity. The AAR concluded that the upfront amount charged by the applicant for long-term leases in NOIDA for development of infrastructure for financial business is exempt from GST, provided the conditions of the notification are satisfied. Otherwise, the activity is taxable under GST.Issue 2: Nature of long-term lease as a transaction for sale of land and its applicability under GSTThe applicant contended that the long-term lease should be considered a sale of land, which is outside the scope of GST as per Para 5 of Schedule III of the CGST Act. The AAR, however, clarified that per Para 2(a) of Schedule II of the CGST Act, any lease, tenancy, easement, or license to occupy land is treated as a supply of services, irrespective of the lease term. The AAR further noted that long-term leases do not equate to the sale of land since ownership remains with the lessor, and the relationship is that of lessor and lessee, not seller and buyer. Consequently, the long-term lease of land is not outside the scope of GST.Ruling:1. The upfront amount charged by the applicant for long-term lease of ninety years for plots in NOIDA is exempt from GST if the lease is for industrial plots or for the development of infrastructure for financial business and the conditions of the notification are satisfied. Otherwise, it is taxable under GST.2. The upfront amount charged for granting long-term lease of ninety years is not in the nature of a transaction for the sale of land and is therefore not outside the scope of GST.This 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.