2025 (4) TMI 1047 - AAR - GST

Asset Purchase Agreement transfers face 18% GST on leasehold rights as services, plant machinery as goods

In Re: M/s. General Motors India Private Limited

In Re: M/s. General Motors India Private Limited - TMI Issues Presented and ConsideredThe core legal questions considered by the Authority for Advance Ruling (AAR) were:a) Whether the assignment of leasehold rights of land by the Applicant under the Asset Purchase Agreement (APA) qualifies as a taxable supply of services under the Goods and Services Tax (GST) laws, and if so, whether GST applies on the agreed transfer price.b) Whether the transfer by way of sale of buildings by the Applicant to Hyundai Motor India Limited (HMI) under the APA qualifies as 'neither a supply of goods nor a supply of services' under Section 7 read with entry 5 of Schedule III of the GST laws.c) Whether the sale of items of plant and machinery under the APA qualifies as taxable supply of individual goods under GST laws, and if so, whether GST applies on the agreed price for each item as per their classification and applicable rate.Issue-wise Detailed Analysis1. Assignment of Leasehold Rights of Land as Taxable Supply of ServicesLegal Framework and Precedents: The GST Act defines 'supply' under Section 7 to include all forms of supply of goods or services or both, including lease or transfer made for consideration in the course or furtherance of business. Schedule II clarifies that lease or tenancy or license to occupy land is treated as supply of services. The General Clauses Act, 1897 defines immovable property including land and things attached thereto. Section 105 and 108 of the Transfer of Property Act, 1882 define lease and lessee rights. Entry 41 of Notification No. 12/2017 exempts upfront amount for long-term lease by State Industrial Development Corporations but not subsequent transfers by lessees.Relevant Advance Rulings from Tamil Nadu, West Bengal, Uttar Pradesh, and Maharashtra were cited, establishing that assignment of leasehold rights with approval of lessor is a taxable supply of service under GST.Supreme Court and Bombay High Court rulings confirmed that leasehold rights transfers are taxable services and not sale of immovable property.Court's Interpretation and Reasoning: The Applicant held leasehold rights in land leased by MIDC for 95 years, including buildings and erections. The lease deed required MIDC approval for assignment. The assignment to HMI was subject to MIDC's approval and payment of transfer premium. The Applicant had no ownership rights over the land or buildings but only leasehold rights.The AAR held that the assignment of leasehold rights is a supply of service under Schedule II paragraph 2(a) and Section 7(1) of the CGST Act. The transaction is not a sale of immovable property but an agreement to transfer lease rights, which is taxable. The exemption for upfront lease premium payable to State Industrial Development Corporations does not apply here as the Applicant is not such an entity.The assignment is a compensation for agreeing to transfer lease rights, classified under 'Other Miscellaneous Services' (SAC 999792), taxable at 18% under Notification No. 11/2017.Key Evidence and Findings: The lease deed, MIDC approval letter, Deed of Assignment, and relevant statutory provisions were examined. The lease included land and buildings, but ownership remained with MIDC. The Applicant's rights were limited to leasehold interests. Precedent rulings and judicial decisions supported the service classification.Application of Law to Facts: The assignment of leasehold rights with MIDC approval is a taxable service. The Applicant correctly discharged GST on the agreed price for the transfer of leasehold rights under the APA.Treatment of Competing Arguments: The Applicant argued that the transaction is a supply of service; the jurisdictional officer concurred. The Applicant's contention that the exemption under Entry 41 applies was rejected as the Applicant is not a State Industrial Development Corporation. The argument that the transaction is transfer of immovable property was rejected based on lease deed terms and judicial precedents.Conclusion: Assignment of leasehold rights qualifies as taxable supply of services under GST laws, and GST applies on the agreed transfer price.2. Transfer of Buildings: Whether It Is Neither Supply of Goods Nor ServicesLegal Framework and Precedents: Section 7(2)(a) read with Entry 5 of Schedule III of the CGST Act excludes certain transactions from being treated as supply of goods or services, including sale of buildings subject to clause (b) of paragraph 5 of Schedule II. Clause (b) of paragraph 5 of Schedule II treats construction of buildings intended for sale as supply of service, except where the entire consideration is received after issuance of completion certificate or first occupation.Section 108 of the Transfer of Property Act, 1882, and lease deed provisions govern ownership and rights over buildings on leased land.Court's Interpretation and Reasoning: The Applicant contended that the buildings were constructed for its own use, supported by completion certificates, and transferred by way of sale, thus outside GST scope as per Schedule III Entry 5.The jurisdictional officer argued that ownership of buildings was not established with the lessee; the buildings are inseparable from the leased land and hence the transaction is a lease service taxable under GST.The AAR analyzed the lease deed which expressly included buildings and erections as part of the leased premises. The lessee's rights were limited to possession and use; ownership of buildings remained with MIDC. The lessee had no right to transfer ownership of buildings separately from the leasehold rights.Legal provisions and judicial precedents, including the Bombay High Court and Supreme Court decisions, were examined. The courts held that leasehold rights include buildings and erections on the land, and transfer of such rights is a supply of service, not sale of immovable property.The conveyance deed executed by the Applicant did not establish ownership independent of the leasehold rights. Ownership requires clear title, mutation records, encumbrance certificates, and other evidence beyond conveyance deed alone.Key Evidence and Findings: Lease deed clauses, completion certificates, Deed of Conveyance, and relevant statutory provisions were scrutinized. The lease included land and buildings; the lessee had possessory rights only. The Applicant's claim of ownership was found untenable.Application of Law to Facts: Transfer of buildings by the Applicant is not a sale of immovable property but part of assignment of leasehold rights. The transfer is taxable as supply of service under 'Other Miscellaneous Services' (SAC 999792) at 18% GST.Treatment of Competing Arguments: The Applicant's reliance on completion certificates and conveyance deed was rejected as insufficient to establish ownership. The Department's view that the transaction is a lease service was accepted. The Applicant's contention that the transaction falls under Schedule III and is not taxable was rejected.Conclusion: The transfer of buildings does not qualify as 'neither supply of goods nor supply of services' under Section 7 read with Schedule III. It is a taxable supply of service as assignment of leasehold rights including buildings.3. Sale of Plant and Machinery as Taxable Supply of Individual GoodsLegal Framework and Precedents: Section 7(1)(a) of the CGST Act defines supply to include sale of goods. Section 2(52) defines goods as movable property excluding money and securities. Section 2(19) defines capital goods. Entry 4(a) of Schedule II treats transfer or disposal of business assets as supply of goods.Section 15 of the CGST Act defines value of supply as transaction value where parties are unrelated and price is sole consideration. Section 18(6) provides special valuation for capital goods on which input tax credit has been taken.Relevant Advance Rulings confirm that sale of plant and machinery by liquidators or businesses is taxable supply of goods at applicable HSN rates.Court's Interpretation and Reasoning: The Applicant sold 9,664 items of plant and machinery at individually agreed prices, intending itemized sale. The assets were capital goods used in business and capitalized in books. The sale fulfilled conditions of supply: goods, consideration, two parties, and course of business.The value of supply is transaction value as per Section 15, being the agreed price for each item. If input tax credit was availed, valuation rules under Section 18(6) apply. GST is payable at applicable rates based on HSN classification.Key Evidence and Findings: The APA listed individual assets with prices, invoices issued accordingly, and GST paid on these transactions. The assets are undisputedly goods and capital goods for business use.Application of Law to Facts: Sale of plant and machinery is taxable supply of goods. GST applies on individual asset prices as per classification and rates notified.Treatment of Competing Arguments: The Applicant and Department agreed on taxability. No contrary arguments were raised.Conclusion: Sale of items of plant and machinery qualifies as taxable supply of individual goods. GST applies on agreed prices per item as per applicable HSN classification and rate.Significant Holdings1. 'Assignment of Lease Hold Rights of land by the Applicant in terms of the Asset Purchase Agreement qualifies as taxable supply of services under GST Laws. GST would apply on the price agreed for transfer of Lease Hold Rights under the Asset Purchase Agreement. The activity of assignment is in the nature of agreeing to do the transfer of the applicant's leasehold rights in favour of the assignee. It is a service classifiable under 'Other miscellaneous service' (SAC 999792) and taxable at 18% under SI No.35 of Notification No. 11/2017-CT (Rate) dated 28/06/2017, as amended from time to time.'2. 'The transfer by way of sale of building by the Applicant to HMI in terms of the Asset Purchase Agreement does not qualify as 'neither a supply of goods nor a supply of services' under Section 7 read with entry 5 of Schedule III of the GST Laws. Transfer of building does not constitute sale of building. Transfer is in the nature assignment of leasehold rights in the building. The activity of assignment is in the nature of agreeing to do the transfer of the applicant's leasehold rights in favour of the assignee. It is a service classifiable under 'Other miscellaneous service' (SAC 999792) and taxable at 18% under SI.No. 35 of Notification No. 11/2017-CT (Rate) dated 28/06/2017, as amended from time to time.'3. 'The sale of items of plant and machinery in terms of the Asset Purchase Agreement qualifies as taxable supply of individual goods under GST Laws. GST would apply on the price agreed between the parties for the sale of each such item under the Asset Purchase Agreement or the amount of input tax credit availed, if any, on such capital goods reduced by such percentage points as may be prescribed, whichever is higher, as provided under Section 18 (6) of the CGST Act, as per classification and rate applicable to each item.'Core Principles Established:- Assignment of leasehold rights in land and buildings leased from a government entity, with approval, is a taxable supply of service under GST, not a sale of immovable property.- Buildings constructed on leased land are part of the leasehold interest; ownership remains with the lessor, and transfer of such buildings without ownership is transfer of leasehold rights, taxable as supply of service.- Sale of plant and machinery, being movable capital goods, is taxable supply of goods, with GST payable on itemized prices as per applicable HSN classification and rates.- The value of supply is the transaction value agreed between unrelated parties, subject to valuation rules where input tax credit is involved.Final Determinations on Each Issue:1. Assignment of leasehold rights of land is a taxable supply of services under GST; GST applies on the agreed transfer price.2. Transfer of buildings does not qualify as neither supply of goods nor services; it is part of leasehold rights assignment and taxable as supply of service under GST.3. Sale of plant and machinery qualifies as taxable supply of individual goods; GST applies on the agreed price per item as per classification and applicable rates.