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 infrastructure for financial business, satisfying conditions under Notification 12/2017-CT (Rate) Entry 41. The AAR held that long-term leases constitute supply of services under Schedule II para 2(a) of CGST Act, not sale of land, as lessor retains ownership and parties maintain lessor-lessee relationship. For other commercial uses not meeting exemption criteria, 18% GST applies on leasing services.

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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 NOIDA

The 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 GST

The 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.

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