2021 (1) TMI 549 - AAR - GST

Levy of tax on one time long term lease premium payable/paid by the Jinmangal Corporation to Ahmedabad Urban Development Authority - supply or not - long term lease for a period exceeding 30 years - applicant is of the view that a long term lease for a period exceeding 30 years tantamount to Sale of the immovable property since the lessor is deprived of the right to use, enjoy and possess the property once the said lease has been granted - reverse charge mechanism - annual lease premium payable/paid by the applicant, supply or not - Whether Jinmangal Corporation is required to discharge/tax under Reverse Charge Mechanism in accordance to Section 9(3) on one time lease premium payable to AUDA in light of Notification No. 13/2017 as amended by Not. No. 05/2019? HELD THAT - The agreement made between the applicant and the lessee for long term of 99 years is for lease with many restrictions and has right to further sell/convey/transfer to the unit holder(s)/occupant(s) along with sub-lease/ assignment of undivided leasehold rights in the land for residue period of lease only ; the lessee cannot mortgage or transfer or sublet the premises or apportion there or without the permission of AUDA; that in case there is violation of any condition by lessee the lease deed will automatically be treated as cancelled. Whereas, when person purchase the commercial plot/land purchaser becomes the absolute owner of the plot and there is sale deed between seller and purchaser. On purchase of land, there is no requirement of renewal or extension of the sale period. The owner of the commercial plot/land is not required to pay any type of salami or annual lease premium for the plot/land. Also purchaser/owner of the land can sell the land to any body and no permission is required from seller as such purchaser have an absolute right of possession on land - the lease of plot for the 99 years by the applicant is not sale of land but is a lease of plot/land and therefore, does not get covered under clause 5 of Schedule III of CGST Act, 2017. Hence, it is concluded that this activity i.e. lease of plot and payment of one time lease premium / salami and annual premium paid by the applicant for lease of commercial plot/land is a supply and covered under Section 7(1) of CGST Act, 2017, which defines supply as all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business read with clause 2 of Schedule II of CGST Act, 2017, which specifies that lease of a land or building is a supply. The Onetime premium/salami and annual lease premium paid by the applicant to the AUDA for leasing of commercial plot/land is covered under supply of service in terms of Section 7 (1) of CGST Act, 2017 - the said Onetime premium/salami and annual lease premium paid by the applicant to the Ahmedabad Urban Developmet Authority (AUDA) are taxable under GST in terms of the Notification No. 11/2017-CT (Rate) dated 28.06.2017. Liability of GST under Reverse Charge Mechanism under Section 9(3) of CGST Act, 2017 - HELD THAT - In view of the Notification No.05/2019-CT (Rate) dated 29.03.2019, applicant is liable to pay GST under reverse charge mechanism on the Onetime premium/salami and annual lease premium paid by the applicant to the AUDA.

Summary

Issues Involved:
1. Whether the one-time long-term lease premium payable/paid by the applicant to Ahmedabad Urban Development Authority (AUDA) is a supply and thus liable to pay tax under Section 7 of the CGST Act, 2017.
2. Whether the applicant is required to discharge/pay tax under Reverse Charge Mechanism (RCM) in accordance with Section 9(3) of the CGST Act, 2017 on the one-time lease premium payable to AUDA.
3. Whether the annual lease premium payable/paid by the applicant is a supply.
4. Whether the applicant is required to discharge/pay tax under RCM on the annual lease premium payable to AUDA in light of Notification No. 13/2017 as amended by Notification No. 05/2019.

Issue-Wise Detailed Analysis:

1. One-Time Long-Term Lease Premium as Supply:
The applicant contended that a long-term lease exceeding 30 years is akin to the sale of immovable property and should not attract GST. They cited various legal definitions and judgments to support their claim that such transactions are treated as conveyance under the Gujarat Stamp Duty Act. However, the authority observed that the lease agreement for 99 years with AUDA includes several restrictions and does not transfer absolute ownership. Therefore, the lease of the plot for 99 years is not considered a "sale of land" but a lease of plot/land, making it a supply under Section 7(1) of the CGST Act, 2017. The authority concluded that the one-time lease premium/salami and annual premium paid by the applicant for the lease of the commercial plot/land is a 'supply' and covered under Section 7(1) of the CGST Act, 2017.

2. Tax Liability under Reverse Charge Mechanism (RCM):
To determine the applicability of RCM, the authority referred to Section 9(3) of the CGST Act, 2017, and Notification No. 13/2017-CT (Rate) dated 28.06.2017, as amended by Notification No. 05/2019-CT (Rate) dated 29.03.2019. The relevant entry specifies that the long-term lease of land (30 years or more) by any person against consideration in the form of an upfront amount or periodic rent for construction of a project by a promoter is subject to GST under RCM. The term "promoter" is defined under the Real Estate (Regulation and Development) Act, 2016. The authority concluded that the applicant, being a promoter, is liable to pay GST under RCM on the one-time premium/salami and annual lease premium paid to AUDA.

3. Annual Lease Premium as Supply:
The authority reiterated that the lease of the plot for 99 years is not a sale but a lease, making the annual lease premium paid by the applicant a supply under Section 7(1) of the CGST Act, 2017. This is further supported by Schedule II of the GST Act, 2017, which specifies that any lease, tenancy, easement, or license to occupy land is a supply of services. Therefore, the annual lease premium is considered a supply and is taxable under GST.

4. Tax Liability on Annual Lease Premium under RCM:
Similar to the one-time lease premium, the annual lease premium payable to AUDA is also subject to GST under RCM as per Notification No. 13/2017-CT (Rate) dated 28.06.2017, as amended by Notification No. 05/2019-CT (Rate) dated 29.03.2019. The applicant, being a promoter, is required to discharge/pay tax on the annual lease premium under RCM.

Ruling:
1. The one-time long-term lease premium payable/paid by the applicant to AUDA is a supply and thus liable to pay tax under Section 7 of the CGST Act, 2017.
2. The applicant is required to discharge/pay tax under RCM on the one-time lease premium payable to AUDA in light of Notification No. 13/2017 as amended by Notification No. 05/2019.
3. The annual lease premium payable/paid by the applicant is a supply.
4. The applicant is required to discharge/pay tax under RCM on the annual lease premium payable to AUDA in light of Notification No. 13/2017 as amended by Notification No. 05/2019.