2024 (9) TMI 41 - AAR - GST

AAR rules handover of building without land ownership rights constitutes service supply under Section 7(1) CGST Act, not sale

AAR Odisha ruled that handover of building and railway siding by applicant to new lessee does not constitute sale of building under Schedule III clause 5 ... Classification of supply - Sale of building and covered under clause no.5 to Schedule III of the CGST Act, 2017 or not - handover of Building and Civil Structure, including railway siding, by the applicant to OMCL - HELD THAT:- “Sale is a transfer of ownership in immovable property for a money consideration.” Further, Building structure and railway siding constructed on land is attached to it and is part of land. Without land, any building or any portion of building structure has no existence, and for transfer of ownership in building some rights in land is essential. Building is in nature of addition to land. After construction of building on land the property has to be sold as land and building. Building cannot be sold without appropriate claim in land. Therefore, for selling building or building structure or any portion/part of it, proportionate share in land is also to be transferred. In the instant case, the applicant has no right or ownership in the land. In view of the above, the interpretation of applicant that handover of Building structure and railway siding, by the applicant to OMCL tantamount sale of building and covered under clause no. 5 of Schedule -III of CGST Act, 2017, is not correct. Further, applicant has received consideration on handover of Building structure and railway siding. The applicant's other interpretation that consideration received from OMCL is merely a transaction in money, is also not correct. Whether the activity of handing over the possession of Building & Civil Structures, Railway siding constructed/erected by the applicant on the land belonging to the State Government, to the new lessee (OMCL) on “as is where is basis” for a monetary consideration vide the said deed dated 28.06.2023 between the applicant and OMCL constitute a supply or not? - HELD THAT:- The applicant has the obligation to remove the buildings/structures and railway siding within the time specified in the lease deed. However, in the event the buildings/structures and railway siding erected/set-up by the applicant are not removed by the applicant, the State Government have the liberty to sell or dispose of the same in such manner as deemed fit without having liability to pay any compensation to the applicant in respect of the said buildings/structures and railway siding. The contractual agreement between the applicant and OMCL for handing over Building and Civil Structure, including railway siding in lieu of consideration, by the applicant implies that the applicant effectively agrees to the obligation to refrain from removing the constructed/erected structures against receipt of consideration of Rs. 20,15,16,990/- for the benefit of OMCL is covered under the scope of supply under Section 7 (1) of the CGST Act and the said contractual agreement of agreeing to the obligation to refrain from an act is treated as a supply of Service as per entry SI. No. 5(e) of the Schedule-II of the CGST Act. It is a service classifiable under other miscellaneous service (SAC 999792) and taxable @18% under SL No. 35 of Notification no. 11/2017 CT (Rate) date 28.06.2017. Issues Involved:1. Whether the handover of Building and Civil Structure, including railway siding, by the applicant to OMCL tantamount to sale of building and is covered under clause no.5 to Schedule III of the CGST Act, 2017.Issue-wise Detailed Analysis:1. Whether the handover of Building and Civil Structure, including railway siding, by the applicant to OMCL tantamount to sale of building and is covered under clause no.5 to Schedule III of the CGST Act, 2017:Applicant's Submission:The applicant, a public limited company engaged in mining, constructed buildings, civil structures, and railway sidings on leased land from the Government of Odisha. After the lease expired, the Government decided to grant the mining lease to OMCL. The applicant and OMCL agreed that OMCL would take over these structures for a total consideration of Rs. 20,15,16,990/-. The applicant contended that the handover of the building and civil structures, including railway siding, is a sale of building as per clause no.5 of Schedule III of the CGST Act, 2017, and hence not liable to GST.Applicant's Interpretation:The applicant argued that the transaction qualifies as a sale of the building since the ownership of the building was transferred to OMCL. The applicant referred to Section 7 of the CGST Act, 2017, and several judicial precedents to support their claim that the transaction is a sale and not a supply of goods or services. They further argued that the railway siding should also be considered a building and thus outside the purview of GST.Authority's Discussion and Findings:The Authority examined the lease deed and the relevant provisions of the CGST Act. The lease deed allowed the applicant to construct buildings and other structures necessary for mining operations. Upon lease expiry, the applicant was obligated to remove these structures unless the State Government chose to retain them.Legal Provisions:- Section 7 of the CGST Act, 2017: Defines the scope of supply, including all forms of supply of goods or services for consideration.- Clause no. 5 of Schedule III to the CGST Act, 2017: Specifies that the sale of land and, subject to certain conditions, the sale of buildings is neither a supply of goods nor services.- Section 54 of the Transfer of Property Act: Defines 'sale' as a transfer of ownership in exchange for a price.Authority's Conclusion:The Authority concluded that the applicant did not have ownership rights in the land. Therefore, the handover of the building and civil structures, including railway siding, does not constitute a sale of the building. Instead, the transaction is a supply of service under Section 7(1) of the CGST Act, 2017, as it involves an obligation to refrain from removing the structures for a consideration. This service is classifiable under other miscellaneous services (SAC 999792) and taxable at 18% under SI. No. 35 of Notification no. 11/2017 CT (Rate) dated 28.06.2017.Ruling:The handover of Building and Civil Structure, including railway siding, by the applicant to OMCL does not tantamount to the sale of the building and is not covered under clause no.5 to Schedule III of the CGST Act, 2017. Instead, it is treated as a supply of service.Appeal Provision:The applicant or jurisdictional officer, if aggrieved by the ruling, may appeal to the Odisha State Appellate Authority for advance ruling under Section 100 of the CGST/OGST Act, 2017 within 30 days from the date of receipt of the advance ruling.