Leasehold land and hotel project contribution to an LLP treated as taxable GST service supply.

Contribution of developed leasehold land, a constructed hotel project and associated infrastructure to an LLP in exchange for partnership interest and profit-sharing rights was treated as a taxable supply of service under GST. The AAR reasoned that the transfer involved valuable rights between distinct taxable persons, and that non-monetary benefits received in return constituted consideration. Looking to the substance of the arrangement, it characterised the transaction as a structured commercial exploitation model rather than a mere capital contribution. Schedule III was found inapplicable, while Schedule II was applied to treat the activity as a supply of service, making GST leviable.

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Issues: Whether the proposed contribution of the developed leasehold land, constructed hotel project and associated infrastructure to an LLP in return for partnership interest and profit-sharing rights constitutes a taxable supply of service under GST.

Analysis: The arrangement involved transfer of valuable rights in leasehold land and the constructed project by one taxable person to another distinct person, namely the proposed LLP. Consideration under GST includes non-monetary benefits, and the partnership interest and profit-sharing rights received in return were treated as consideration. The transaction was found to be a structured commercial arrangement undertaken for business purposes, and its true character was determined by its substance rather than its nomenclature as capital contribution. Schedule III did not apply to protect the transaction because the transfer was not treated as a simple sale of completed immovable property; rather, it involved leasehold rights and construction-related elements within a pre-arranged commercial exploitation model. Schedule II was applied to treat the activity as a supply of service.

Conclusion: The contribution to the LLP was held to be a taxable supply of service, and GST was leviable on the transaction.

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