Long-term lease services for industrial land don't qualify for tax exemption under entry 41 of Notification 12/2017

AAR West Bengal ruled that long-term lease services for industrial land at Taratala Road for thirty years to establish a commercial office complex do not qualify for tax exemption under entry 41 of Notification No. 12/2017 Central Tax (Rate). The Authority determined that the leasing arrangement failed to satisfy all specified conditions for exemption, making the supply taxable rather than exempt under GST provisions.

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Issues Involved:
1. Lease period of thirty years or more.
2. Property leased should be industrial plots or plots for development of infrastructure for financial business.
3. Service provider must be a state Government Industrial Development Corporation or Undertaking or any other entity having 20 percent or more ownership of Central Government, State Government, or Union territory.
4. Service recipient must be an Industrial Unit.

Issue-wise Detailed Analysis:

1. Lease Period of Thirty Years or More:
The applicant entered into a leasing agreement with SMPK for a period of thirty years for setting up a commercial office complex. The first condition for exemption under entry 41 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 is satisfied as the lease period is for thirty years, as evident from the allotment letter dated 21.09.2022.

2. Property Leased Should be Industrial Plots or Plots for Development of Infrastructure for Financial Business:
The applicant contends that the leased property is an industrial plot for setting up a commercial office complex. However, the revenue officer points out that the allotment letter mentions the land use for "setting up commercial office complex," which may not necessarily include industrial activity. Furthermore, the applicant did not provide evidence that the plot is in an industrial or financial business area as required by the notification. The lease agreement and tender documents indicate that GST is applicable on the upfront premium, contradicting the exemption claim. Thus, the second condition is not satisfied.

3. Service Provider Must be a State Government Industrial Development Corporation or Undertaking or Any Other Entity Having 20 Percent or More Ownership of Central Government, State Government, or Union Territory:
The applicant argues that SMPK, being under the Ministry of Ports, Shipping and Waterways, qualifies as an entity with 20 percent or more ownership by the Central Government. However, the revenue officer and the authority find that SMPK operates as an autonomous body with administrative and financial independence, without direct control from the Central Government. SMPK's own clarification states that the Central Government has no ownership in SMPK. Therefore, the third condition is not fulfilled.

4. Service Recipient Must be an Industrial Unit:
There is no dispute regarding the applicant being an industrial unit. The fourth condition is satisfied.

Conclusion:
The services provided by SMPK by way of granting a long-term lease of land for setting up a commercial office complex do not satisfy all conditions specified in entry 41 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. Specifically, the second and third conditions are not met. Consequently, the upfront premium payable by the applicant is not exempt from GST.

Ruling:
The upfront premium payable by the applicant towards the services of granting a long-term lease of thirty years or more of industrial plots or plots for development of infrastructure for financial business by SMPK is not exempted under entry 41 of Notification No. 12/2017-CGST (Rate) dated 28.06.2017. Therefore, it cannot be treated as an exempt supply.

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