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 of CGST Act, 2017, as applicant lacked land ownership rights. Since buildings are attached to land and cannot be sold without proportionate land rights, the transaction was classified as supply of service. The contractual agreement where applicant refrained from removing structures for monetary consideration constitutes service supply under Section 7(1) CGST Act, classifiable as miscellaneous service (SAC 999792) taxable at 18%.

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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.

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