GST on airport PPP concessions: operating lease and taxable service arrangement, not a transfer of going concern.

A PPP airport concession that leaves ownership, control, employees, goodwill and core assets with the grantor is treated as an operating lease and contractual service arrangement, not a transfer of business or going concern. The concessionaire's development, operation and maintenance services, and the grantor's leasing of facilities and supply of employees, are taxable supplies; GST applies to concession fee, annual concession fee and salary or staff-cost reimbursement. The going-concern exemption is unavailable because no transfer of going concern occurs. Reimbursement of municipal tax, property tax and water charges is not taxable if separately reimbursed as a pure pass-through. Input tax credit reversal is not required on the supplies discussed unless section 17(2) conditions are met.

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Issues: (i) whether the arrangement for operation, management and development of the airport constituted a transfer of business or a transfer of going concern; (ii) whether the arrangement, including lease of facilities and supply of manpower, amounted to supply under the GST law and whether GST was payable on concession fee, annual concession fee and reimbursement of salary/staff cost; (iii) whether the exemption for transfer of a going concern applied; (iv) whether GST was leviable on the so-called transfer of existing assets, aeronautical assets, non-aeronautical assets and capital work in progress; (v) whether reimbursement of municipal tax, property tax and water charges attracted GST; and (vi) whether input tax credit reversal was required under section 17.

Issue (i): whether the arrangement for operation, management and development of the airport constituted a transfer of business or a transfer of going concern.

Analysis: The concession agreement showed that the airport and its assets, employees, goodwill, title and control remained with the applicant, while the concessionaire only undertook development, operation and maintenance under strict supervision, reporting and approval requirements. The arrangement was found to be an operating lease and a contractual service arrangement for PPP-based development, not a slump sale or transfer of an independent business capable of being run separately by the concessionaire.

Conclusion: The transaction was not a transfer of business and did not amount to a transfer of going concern.

Issue (ii): whether the arrangement, including lease of facilities and supply of manpower, amounted to supply under the GST law and whether GST was payable on concession fee, annual concession fee and reimbursement of salary/staff cost.

Analysis: The authority held that the concessionaire's development and management activity was a service rendered to the applicant for consideration, with the concession fee representing remuneration for that service. The applicant's leasing of facilities and supply of select employees were also supplies for consideration. The reimbursement of salary and staff cost was treated as manpower/labour supply service classifiable under SAC 998519.

Conclusion: Both reciprocal transactions fell within the scope of supply and GST was leviable on the concession fee, annual concession fee and salary/staff reimbursement.

Issue (iii): whether the exemption for transfer of a going concern applied.

Analysis: The exemption was held to be confined to services by way of transfer of a going concern. Since the underlying transaction was not a transfer of going concern, the exemption could not be invoked.

Conclusion: The exemption did not apply.

Issue (iv): whether GST was leviable on the so-called transfer of existing assets, aeronautical assets, non-aeronautical assets and capital work in progress.

Analysis: The findings recorded that those assets had not been transferred to the concessionaire and continued to remain with the applicant, though they were leased for use in the project. The question of transfer was therefore rejected, but the leasing element was treated as a taxable supply for consideration.

Conclusion: There was no transfer of assets, but GST was payable on the leasing/supply element.

Issue (v): whether reimbursement of municipal tax, property tax and water charges attracted GST.

Analysis: Such reimbursements were treated as pure pass-through amounts paid to government departments without value addition, and therefore not forming part of taxable consideration. Reliance was placed on the GST circular clarifying that reimbursement of expenses without value addition is not taxable.

Conclusion: GST was not leviable on reimbursement of municipal tax, property tax and water charges, if separately reimbursed.

Issue (vi): whether input tax credit reversal was required under section 17.

Analysis: The answer depended on the nature of inward and outward supplies. On the supplies specifically examined, the services were not exempt, so reversal was not warranted in respect of those supplies. A general observation was made that reversal would arise only where the statutory conditions in section 17(2) were satisfied.

Conclusion: No reversal was required on the supplies discussed, though section 17(2) would apply where its conditions are otherwise met.

Final Conclusion: The ruling held that the airport arrangement was not a transfer of business or going concern, but the reciprocal services and leasing components were taxable supplies, while pure reimbursement of specified statutory outgoings was not taxable.

Ratio Decidendi: A PPP concession for airport development that leaves ownership, control and the core business with the grantor, and merely authorises the concessionaire to develop, operate and maintain the facility under close contractual supervision, is an operating lease and taxable service arrangement, not a transfer of going concern.

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