2018 (11) TMI 280 - AAR - GST

Classification - rate of GST - quit rent or lease rent paid to Government through Forest Department - Whether quit rent / lease rent paid to Kerala Government on the land used for agricultural purpose (Coffee Plantation) be classified under HSN 9986 or HSN 9973? Held that - In the instant case vacant land was given by erstwhile Cochin State to the applicant for cultivation on lease rent. Accordingly the petitioner converted the vacant land to Coffee Plantation. Therefore the lease rent collected by Government through Forest Department is exempted from GST vide Heading 9986 of Notification No.12/2017- Central Tax (Rate) / SRO.No.371/2017. The lease rent received in relation to agricultural activities was also exempted under Service Tax regime also. Held that - The quit rent / lease rent paid to Kerala Government on the land used for agricultural purpose ie, Coffee Plantation be classified under HSN 9986 and eligible for exemption under GST.

Summary

Issues involved: Classification of lease rent for agricultural land under HSN 9986 or HSN 9973

Analysis:
The applicant, holding vacant land on perpetual lease for coffee plantation, paid quit rent to the Government, which was subjected to 18% GST by the Forest Department. The applicant argued that since land is immovable property, it cannot be classified as goods under HSN 9973, which applies to the transfer of rights in goods without the transfer of title. The applicant contended that leasing land for agricultural purposes should fall under HSN 9986, which exempts renting or leasing of vacant land for cultivation from tax. The key issue was whether the lease rent for agricultural land should be classified under HSN 9986 or HSN 9973.

The GST laws define 'supply' as covering all forms of supply of goods or services, including lease transactions made for a consideration in the course of business. While the sale of land is exempt from GST due to stamp duty and registration fees, leasing land constitutes a supply of services for consideration. Quit rent, a tax imposed on occupants of leased land, is considered a supply of services under GST.

Notification No. 12/2017 exempts intra-state supply of services under Heading 9986, specifically services related to cultivation of plants on vacant land. The lease rent collected by the Government for the land leased for agricultural activities, such as coffee plantation in this case, falls under the exemption provided by Heading 9986. This exemption was also applicable under the Service Tax regime. Therefore, the lease rent paid for land used for agricultural purposes, like Coffee Plantation, is classified under HSN 9986 and is eligible for exemption under GST.

In conclusion, the Authority for Advance Rulings ruled that the quit rent or lease rent paid to the Kerala Government for land used for agricultural purposes, specifically for Coffee Plantation, should be classified under HSN 9986 and is eligible for exemption under GST.