2021 (4) TMI 933 - AAAR - GST

Levy of GST - leasing of pathway to a person to her/his dwelling unit by CMRL - Challenge to AAR decision - Original Authority has ruled that leasing of pathway by the appellant to Dr. Prema (lessee) by way of shared access of the Non-residential property held by the appellant is taxable under GST. HELD THAT - The appellant had initially acquired the property (including the land for which shared access is extended to the land owner) for public purpose from the land owner and paid the considerations. The land owner had disputed the settlement before Civil Court and thereupon the appellant had entered into an MOU for out-of-court settlement. One of the claims accepted by the appellant is to extend the shared access of the pathway to the land owner for a consideration for a specific period. The issue is on this activity of grant of shared access for a consideration by the appellant - easement is a right one possesses over certain other land for the beneficial enjoyment of his land, to do and continue to do something or to prevent and continue to prevent something being done on such land, on parting of the said other land. Thus easement' is a right a person holds on the land which is not his but a necessity for enjoyment of his property and is not granted but acquired. In the case at hand the appellant had acquired the land of the landowner and compensated monetarily along with agreeing to grant the shared access to the pathway for a specific period on payment of lease rentals. In respect of right-to-way as easement, it is the right of the landowner, held with him on account of sale of the land appurtenant to the pathway and such right flows automatically on sale. In the case at hand, however based on the Memorandum of Understanding, the landowner is granted shared-access of the pathway from the acquired land for a specific period of 35 years on payment of lease rentals and is also termed as 'lease' in the said MOU. Therefore, the shared access granted by the appellant to the land owner against lease rentals is not 'easement' acquired/held by the landowner on account of the sale of land. Once it is held that the nature of shared access is not an easement held by the land owner, the contention of the appellant does not hold any merit. The land once acquired for business purposes becomes a non-residential property. The Landowner has been granted the right of shared access enabling the land owner access to the road. This right to use the pathway being common to both the appellant and the landowner, the pathway cannot be termed as land appurtenant to the residential dwelling as claimed by the appellant - Transfer of right to use the space without the transfer of space per-se also conveys the right to occupy. In the instant case, it is not a lease of the pathway but only rights are granted to the land owner by the appellant for the shared access. It is seen that the grant of access to the pathway is a right given by them to the landowner. This activity of agreeing to grant rights for shared access of the pathway is an act of agreeing to tolerate an act and is classifiable under SAC 999794 under other miscellaneous services/Agreeing to tolerate an act' and is taxable to 9% CGST and 9% SGST as per SI.No.35 of Notification 11/2017 CT(Rate) dated 28.06.2017 as rightly held by the Lower Authority.

Summary

Issues Involved:
1. Taxability of leasing pathway access under GST.
2. Classification of the transaction as an easement or license.
3. Applicability of composite supply provisions.
4. Interpretation of relevant statutory provisions.

Issue-wise Analysis:

1. Taxability of Leasing Pathway Access under GST:
The appellant, a registered entity under GST, acquired land for public purposes and provided a shared access pathway to the original landowner for a consideration. The Original Authority ruled that this leasing of the pathway is taxable under GST. The appellant contested this decision, arguing that the pathway access was a covenant running with the land and inseparable from the sale and purchase of the land, which is not subject to GST. They also claimed that leasing residential property is exempt under Notification 12/2017.

2. Classification of the Transaction as an Easement or License:
The appellant argued that the right to pathway is an easement, which is ancillary to the sale of land and not a separate supply liable to GST. They cited Section 4 of the Indian Easement Act, 1882, defining an easement as a right for the beneficial enjoyment of land. However, the Authority found that the shared access granted for a specific period on payment of lease rentals does not constitute an easement but a license as per Section 52 of the Indian Easement Act, 1882. The pathway was used by both the appellant and the landowner, indicating no transfer of possession, which is essential for a lease under Section 105 of the Transfer of Property Act, 1882.

3. Applicability of Composite Supply Provisions:
The appellant contended that the transaction was a composite supply with the principal supply being the sale of land, which is exempt from GST. The Authority rejected this argument, stating that the sale of land and the grant of shared access are two separate transactions involving different suppliers and recipients. Therefore, it does not qualify as a composite supply under GST law.

4. Interpretation of Relevant Statutory Provisions:
The Authority referred to Schedule II of the CGST/TNGST Act, which categorizes any lease, tenancy, easement, or license to occupy land as a supply of services. The appellant's interpretation that only transfers involving possession are covered was dismissed. The Authority clarified that the right to use the space without transferring possession still constitutes a right to occupy. Consequently, the shared access granted by the appellant is classified as a license to occupy land, making it a taxable service under SAC 9997.

Conclusion:
The Authority concluded that the shared access pathway granted by the appellant is not an easement but a license, and the activity is an "act of agreeing to tolerate an act," classifiable under SAC 999794. This transaction is taxable under GST at the rate of 9% CGST and 9% SGST. The appeal was disposed of accordingly, upholding the Original Authority's ruling.