Does IT/ITeS Constitute Industry or Industrial Activity as per Entry 41 of Notification 12/2017

[Mith Moh]

Entry 41 of Notification No. 12/2017-Central Tax (Rate) states that:

Upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable in respect of service by way of granting of long term lease of thirty years, or more) of industrial plots or plots for development of infrastructure for financial business, provided by the State Government Industrial Development Corporations or Undertakings or by any other entity having 20 per cent. or more ownership of Central Government, State Government, Union territory to the industrial units or the developers in any industrial or financial business area:

Provided that the leased plots shall be used for the purpose for industrial or financial activity.

A wholly state-government-owned company grants 50-year leases of land at an IT park to IT/ITES developers and units, for an upfront premium. The park's land was declared an "Industrial Area" by the state government under a state Industrial Areas Development-type statute, and a Single Window Clearance Board was constituted for it. The lease deeds restrict use strictly to IT/ITES purposes (with limited scope for ancillary "commercial facilities" complementing that use)

At the 38th GST Council's GoM on Real Estate (Nov 2019), when specifically asked whether "industrial activity" for this entry covers hospital/hotel construction or only factories, JS TRU-II is recorded as stating that land use/industrial activity is a State subject, each State has its own statutory framework, and "so long a state declares such areas as industrial park, these area are presently covered under the exemption."

• No CGST provision defines Industry or Industrial Activity
• The state's own Industrial statute and other Industrial Acts are arguably wide enough which raises its own over-inclusiveness problem (would a hotel or a pub inside the same declared area equally qualify?).

Will IT/ITeS be considered Industry or Industrial Activity for Entry 41?

AI Summary

Industrial activity classification under GST determines whether long-term IT park land leases may qualify for upfront-premium exemption.
Entry 41 covers upfront consideration for leases of at least thirty years of industrial plots or financial-business infrastructure, subject to use for industrial or financial activity. For IT/ITeS leases in a State-declared industrial IT park, relevant considerations include the State industrial-area declaration, lease restrictions to IT/ITeS use, and limited ancillary commercial facilities. The absence of a CGST definition leaves the scope of industrial activity dependent on State classification, with uncertainty about broad non-industrial uses within declared areas.