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2020 (3) TMI 1042 - AAR - GSTSupply or not - levy of GST - sub-leasing of land - collection of LAD Fund alongwith rent - amount collected towards Local Area Development Fund, which is kept separately and used for development of the affected area as per the guidelines of MNRE - Classification of supply - rate of tax - benefit of exemption as per SI.No.3 or 3A of Notfn.12/2017-CT (R). HELD THAT - It is clearly evident from section 15(2)(a) of the CGST Act 2017 that any amount of any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than the GST related Acts are includible in the value of supply. In the instant case the amount is collected by the applicant from the SPDs under guidelines, issued by Ministry of New Renewable Energy , Government of India. Further, there is no doubt that the amounts payable, by the SPDs, towards LAD fund are on account of supply made by the applicant are directly linked to the rent/lease payable and thus are includable in the value of the rental/lease service, being provided by the applicant - t is an admitted fact that in case of non-payment of amount towards LAD fund, under clause 8 of the agreement, the applicant has right of termination of lease agreement. The amounts towards the LAD fund are paid by the SPDs to the applicant, though the usage of the same is decided by the Committee formed by the Government of Karnataka for local area development. The service of lease/rent, being provided by the applicant, is a single service and the consideration is payable under two different heads and if any one of these payments is not made, the applicant has the right of termination of the said lease agreement. Hence the amount collected by the applicant, from the SPDs, towards LAD fund forms the value of supply under Section 15 of the CGST Act 2017 and the usage of the said amount would only amount to application of the said amount and still would form the value of taxable services. Therefore, the said amount, so collected, is taxable along with rental income, under forward charge mechanism. Classification of the service under which the collection of amounts towards LAD funds would fall, if said activity is treated as supply - HELD THAT - The amounts collected by the applicant towards LAD fund form part of value of the rent/lease service, as discussed in the foregoing paras. The classification of the said activity is nothing but the classification of rent/lease service having SAC 997212. Eligibility of the activity of collection of amounts towards LAD funds, if treated as supply of service, for exemption under SI.No.3 or 3A of Notification 12/2017-Central Tax (Rate) - HELD THAT - It is pertinent to mention here that the collection of amount towards LAD fund by the applicant is not a separate transaction but linked to the supply of rental/lease service, as discussed in the foregoing paras. Further the exemption under Sl.No.3 or 3A of the notification supra are applicable to only pure services provided to the Central Government, State Government or Union Territory or Local Authority or a Government Entity by way of any activity in relation to any function under article 243 G or 243 W of the Constitution of India - In the instant case the impugned amounts are part of the value of rental/ leasing service and are not provided to any Central Government, State Government or Union Territory or Local Authority or a Government Entity, but by the applicant to the SPDs. Therefore the exemption supra is not applicable to the instant case. Whether the payments made at the direction of the Committee, formed for Local Area Development, be considered as service rendered by Government to Applicant and subject to payment of GST, under Reverse Charge Mechanism (RCM), under Entry No.5 of Notification No. 13/2017-CentraI Tax (Rate) dated 28.06.2017, if the activity of collection of amounts towards LAD fund, by the applicant, is treated as supply or otherwise? - HELD THAT - In the instant case, the applicant, collects and accounts the amounts collected towards Local Area Development, which form part of value of lease/rental services provided by the applicant to the SPDs. The said Committee merely decides the usage of said fund for the specific intended purpose and the applicant makes the payments accordingly - It is observed in the instant case that the Committee merely gives direction to the applicant which is not a transaction involving a supply of goods or services or both, such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made. Further the committee is not in receipt of any consideration for the said directions and is not in the course or furtherance of business. Therefore the activity of giving direction by the Committee does not amount to in terms of Section 7 (I)(a) of the CGST Act 2017. Therefore utilization of the LAD fund amount under the direction of Committee, for the intended purposes does not involve in supply of any service by the Committee. Further, the Committee is formed under the orders of Government of Karnataka, only for utilization of the LAD fund for local area development. The Committee is not involved in any activity but only decides the utilization of the said fund and hence there is no service involved. Therefore the entry number 5 of the notification is not applicable to the instant case.
Issues Involved:
1. Whether the amount collected towards Local Area Development Fund (LAD Fund) is considered a supply under CGST/KGST/IGST Act 2017 and subject to tax. 2. Classification of the service if the LAD Fund collection is treated as a supply. 3. Eligibility of the LAD Fund collection for exemption under SI.No.3 or 3A of Notification 12/2017-Central Tax (Rate). 4. Applicability of GST under Reverse Charge Mechanism (RCM) on payments made at the direction of the Committee for Local Area Development. Detailed Analysis: Issue 1: Whether the LAD Fund Collection is Considered a Supply and Subject to Tax - The applicant, a joint venture company formed to establish a solar park, collects an amount towards LAD Fund from Solar Power Developers (SPDs) as per the guidelines of the Ministry of New & Renewable Energy (MNRE). - The applicant argues that the LAD Fund is not related to any supply made by them to the SPDs and is intended for local area development. - However, the ruling states that the amount collected towards the LAD Fund is directly linked to the rent/lease payable by the SPDs and is part of the value of the rental/lease service provided by the applicant. - According to Section 15(2)(a) of the CGST Act 2017, any amount collected under any law other than GST-related Acts is includible in the value of supply. - Therefore, the amount collected towards the LAD Fund forms part of the value of the rental/lease service and is taxable under forward charge mechanism. Issue 2: Classification of the Service if LAD Fund Collection is Treated as a Supply - The amounts collected towards the LAD Fund are considered part of the value of the rent/lease service. - The applicable Service Accounting Code (SAC) for the rental/lease service is 997212. Issue 3: Eligibility for Exemption under SI.No.3 or 3A of Notification 12/2017-Central Tax (Rate) - The exemption under SI.No.3 or 3A of Notification 12/2017-Central Tax (Rate) applies to pure services provided to the Central Government, State Government, Union Territory, Local Authority, or a Government Entity by way of any activity in relation to any function under Article 243 G or 243 W of the Constitution of India. - In this case, the LAD Fund collection is part of the value of the rental/lease service provided by the applicant to the SPDs and not to any government entity. - Therefore, the exemption is not applicable to the LAD Fund collection. Issue 4: Applicability of GST under Reverse Charge Mechanism (RCM) on Payments Directed by the Committee - The applicant questioned whether payments made at the direction of the Committee for Local Area Development should be considered as a service rendered by the Government to the applicant, subject to GST under RCM. - The ruling clarifies that the Committee merely gives directions for the usage of the LAD Fund and does not involve a transaction of supply of goods or services. - The Committee does not receive any consideration for its directions and is not engaged in the course or furtherance of business. - Therefore, the activity of giving directions by the Committee does not amount to a supply as per Section 7(1)(a) of the CGST Act 2017. - Consequently, the entry number 5 of Notification No. 13/2017-Central Tax (Rate) is not applicable, and the payments made at the direction of the Committee are not subject to GST under RCM. Ruling: 1. The amount collected towards the LAD Fund forms part of the value of the rental/leasing service and is taxable under the forward charge mechanism. 2. The applicable SAC for the activity is 997212. 3. The exemption under SI.No.3 or 3A of Notification 12/2017-Central Tax (Rate) is not applicable as the activity does not qualify as a pure service provided to a government entity. 4. GST under RCM on payments directed by the Committee for Local Area Development is not applicable, as the Government of Karnataka/Local Authority are not involved in the provision of any service.
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