2020 (8) TMI 251 - AAR - GST

Input tax credit - Levy of GST on Transfer Fee - Assignment of leasehold rights on land - HELD THAT - The applicant, apart from the conditional possession of the Demised Premises, enjoys no title or ownership, which is central to sale of any immovable property within the meaning of section 54 of the Transfer of Property Act, 1882. The applicant s interest in the benefits arising out of the Demised Premises is limited to sub-leasing in terms of the Deed, and he is capable of transferring the benefits only to that extent. The assignment, therefore, does not amount to transfer of any benefit other than leasehold rights in terms of the Deed for the unexpired period of the lease and is no transfer of any immovable property in the context of the GST Act. The activity of assignment is in the nature of agreeing to transfer one s leasehold rights. It does not amount to further sub-leasing, as the applicant s rights as per the Deed stands extinguished. Neither does it create fresh benefit from land other than the leasehold right. It is like a compensation for agreeing to do the transfer of the applicant s rights in favour of the assignee. It is a service classifiable under Other miscellaneous service (SAC 999792) and taxable @ 18% under Sl No. 35 of Notification No. 11/2017 CT (Rate) dated 28/06/2017 (State Notification No. 1135-FT dated 28/06/2017), as amended from time to time (hereinafter collectively called the Rate Notification). Similarly, the transfer fee charged by the Sub-lessor is in the nature of a consideration for tolerating an act that the applicant is otherwise refrained from doing in terms of clause 12.28 of the Deed. It is also a service classifiable under Other miscellaneous service (SAC 999794) and taxable @ 18% under Sl No. 35 of the Rate Notification. It is the consideration payable to the Sub-lessor for providing a service in the course or furtherance of business, more specifically because business includes supply or acquisition of goods or services in connection with the closure of a business in terms of section 2 (17) (d) of the GST Act. The GST to be paid on such transfer fee is, therefore, admissible as input tax credit.

Summary

Issues:
1. Admissibility of the Application
2. Submissions of the Applicant
3. Submissions of the concerned officer from the revenue
4. Observations and findings of the Authority

Issue 1: Admissibility of the Application
The applicant was admitted by the Authority for Advance Ruling as the Liquidator sought clarification on the GST implications of assigning leasehold rights of a factory unit. The Liquidator inquired about the GST applicability on the consideration received from such an assignment and the input tax credit eligibility for the GST paid on the transfer fee. The questions raised were deemed admissible under the GST Act, and the application was accepted as the concerned revenue officer did not object.

Issue 2: Submissions of the Applicant
The applicant argued that the assignment of leasehold rights should not attract GST as it is akin to the sale of immovable property. Referring to legal precedents, the applicant contended that the assignment transfers possession and title for a price, qualifying as a sale of the building. Additionally, the applicant claimed that input tax credit for the GST paid on the transfer fee should be allowed as it is a consideration for a service provided in connection with business closure.

Issue 3: Submissions of the concerned officer from the revenue
The revenue officer did not address the applicant's arguments but classified the assignment of sub-lease as a service under 'Other Miscellaneous Services,' subject to taxation accordingly.

Issue 4: Observations and findings of the Authority
The Authority analyzed the definitions under the General Clauses Act and the GST Act to determine the nature of the assignment. It concluded that the assignment of leasehold rights does not constitute a transfer of immovable property but a service under the GST Act. The Authority ruled that the assignment activity falls under 'Other miscellaneous service' and is taxable at 18%. Furthermore, the transfer fee charged by the Sub-lessor was deemed a consideration for a service provided in connection with business closure, making the GST paid on it eligible for input tax credit.

In conclusion, the Authority ruled that the assignment of leasehold rights and the transfer fee are taxable under the GST Act, with the activity classified as a service and the GST paid on the transfer fee considered admissible as input tax credit.