Liability of GST for transfer of leasehold rights- AAR Tamil Nadu
Case Details: |
India Pistons Limited |
Appeal No.: |
Order No. 26/AAR/2021 |
Ruling pronounced by: |
GST AAR Tamil Nadu |
Date of Ruling: |
30-07-2021 |
Brief Facts:
The applicant (IPL) was allotted land owned by the State Industrial Promotion Corporation of Tamil Nadu (SIPCOT) for the lease of 99 years. IPL had taken possession of the land for the purposes meant for allotment. According to the lease deed, IPL shall not directly or indirectly transfer, assign, sell, or part with the interest in any manner without the approval of SIPCOT. The applicant later entered into MOU with M/s INOX Air Products Private Limited for transfer of the remainder of the leasehold rights for a consideration of Rs. 15 crores @ Rs. 3 crore per acre. Necessary approvals were obtained from SIPCOT permitting transfer of balance period of leasehold rights to INOX for setting up the oxygen plant with the conditions that the processing fee to be paid by INOX, modified lease deed to be executed by INOX and IPL etc. |
The contention of the applicant is that:
And therefore, has claimed that the transaction is not a ‘Supply’ under GST. |
The applicant sought advance ruling on the following two questions:
|
Observations of Authority:
The Authority referred to the definition of ‘Supply’ under section 7(1) of the CGST Act read with the term ‘Business’ as per section 2(17) of the Act. From the above statutory provisions, it is evident that an activity in any form effected for consideration and made in the furtherance of business is a ‘Supply’. |
In the instant case, IPL vide the MOU has agreed to part with their interests in the leasehold rights held by them, on the land required by the INOX. In the subject MOU, the conditions of supply are made exclusively only by IPL and INOX. As IPL can part with their interests only with the approval of SIPCOT, the same in mentioned in the MOU and this in no way can be construed that the conditions of the supply stands dictated by a third party. Therefore, there is no merit in the contention of the applicant that there is no agreement/ contract wherein conditions of supply are made by the supplier/ recipient but by the third party i.e. SIPCOT. |
From the MOU which is the agreement entered into between IPL and INOX for the activity of agreeing to part with the leasehold rights held by IPL in favor of INOX, it is seen that IPL assures to undertake certain activities and INOX acknowledges the same which clearly exhibits the relationship between IPL and INOX as a service provider and recipient. The compensation for parting with the interests is definitely a consideration for agreeing to part with the interests held by IPL in the leasehold. |
The activity of IPL as seen from the MOU executed between IPL and INOX and the approval letter of SIPCOT is only a transaction in which IPL agrees to part with the leasehold interests it possesses for the remaining lease period in favor of INOX with the approval of SIPCOT. Therefore, the activity is not the transfer of leasehold rights by IPL to INOX but is an activity of agreeing to part with the leasehold interests. If it were a transfer of leasehold rights, there should be an agreement for such transfer between IPL and INOX. It is stated by IPL that apart from the MOU, there is no agreement between IPL and INOX. |
Ruling:
The activity undertaken by IPL in agreeing to part with the interests of the leasehold rights in the land required by INOX for the furtherance of their business, against a consideration is an activity of ‘agreeing to do an act' which is a taxable service classifiable under ‘Other Miscellaneous Services’ with SAC 9997 and GST is liable to be paid on the consideration of Rs. 15 crores received by them.