GST exemption for long-term lease denied where land was used for commercial office development, not industrial or financial business.

An upfront lease premium for a long-term lease of land for a proposed commercial office complex did not satisfy the conditions of entry 41 of Notification No. 12/2017-Central Tax (Rate). Exemption required, among other things, use of the plot for industrial or financial business purposes and a lessor meeting the specified Government ownership condition. The proposed use was treated as commercial, not industrial, and the asserted financial activity was only internal corporate record-keeping, not financial services or financial business. Audit and administrative control were held insufficient to prove the required 20% or more Government ownership. The lease premium was therefore held taxable and not exempt.

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Issues: Whether the upfront amount payable for the grant of a long term lease of land by SMPK for setting up a commercial office complex falls within entry 41 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 and is therefore exempt from GST.

Analysis: Entry 41 grants exemption only where the lease is for thirty years or more, the plots are industrial plots or plots for development of infrastructure for financial business, the lessor is a State Government industrial development corporation or undertaking or an entity having 20% or more ownership of the Central Government, State Government or Union territory, and the lessee is an industrial unit. The lease period and the recipient's status were not in dispute. The decisive question was whether the leased land was being used for industrial or financial activity and whether SMPK satisfied the ownership condition. The allotment letter and tender documents described the use as setting up a commercial office complex, which was treated as a commercial use and not industrial activity. The claimed financial activity was only the maintenance of corporate accounts and records, which does not amount to rendering financial services or carrying on financial business. On the ownership condition, audit by the Comptroller and Auditor General and administrative control by the Ministry were held insufficient to establish 20% or more Government ownership within the meaning of the exemption entry. The conditions of the notification were therefore not cumulatively satisfied.

Conclusion: The long term lease did not qualify for exemption under entry 41, and the taxable character of the supply was upheld against the appellant.

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