2021 (8) TMI 731 - AAR - GST

Levy of GST - transfer of leasehold rights in respect of the consideration of ₹ 15 Crores received by them from M/s. INOX Air products Private Limited for the land allotted by SIPCOT - Subsequent transfer of SIPCOTs allotted land from the Applicant to M/s. Inox Air Products Private Limited - Scope of 'Supply' as defined under Section 7 of the Goods and Services Act 2017 - HELD THAT - IPL was allotted and were holding lease of 15.34 acres of land in the SIPCOT Industrial Complex at Hosur(phase-II). The Original lease was entered into for a period of 99 years and the lease was entered into vide lease deed dt. 07.07.1993. INOX had approached them to transfer un-utilized portion of the allocated land to the extent of 5.00 acres for setting up a state of the art Ultra High Purity Cryogenic Liquid Medical and Industrial Oxygen Plant. A Memorandum of Understanding (MOU) has been entered into between the applicant and INOX on 20.11.2020 for transfer of leasehold rights for the remaining period of lease from IPL to INOX subject to the approval of SIPCOT in respect of the land measuring 5.00 acres. In the case at hand, it is seen that IPL had been allocated a certain land originally by SIPCOT for lease of 99 years. IPL had taken possession of the land for the purposes meant for allotment - The applicant while entitled to use the land for the purposes agreed upon, i.e., setting up manufacturing facility, is restrained to sub-let or transfer or permit occupation of any other person in the land allotted to them. However, the applicant can part with its interest in the leasehold held by them with the approval of SIPCOT, who may or may not grant the request with or without any further conditions. From the above facts of the case, it is evident that SIPCOT who owns the land has leased the allocated land to IPL for a period of 99 years. IPL by virtue of the lease conditions, do not possess the right to sub-let any part or whole of the property leased to them. However, IPL may transfer the leasehold rights to any other person with the approval of SIPCOT, who may or may not grant such approval. Thus, it is clear that the applicant holds the leasehold rights which he may agree to transfer to any other person but the applicant cannot per-se transfer the leasehold rights to such person - in the case at hand, IPL had agreed to transfer the leasehold rights held by them in respect of the land required by INOX to their favour for a consideration and requested SIPCOT to approve the same. SIPCOT has approved the request and stipulated the payment of differential cost of land processing fees by INOX and thereupon to execute the modified lease deed by both IPL and INOX for their respective leaseholds. In the case at hand, IPL vide the MOU has agreed to part with their interests in the leasehold rights held by them, on the land required by INOX; Since as per the lease deed executed between SIPCOT and IPL, IPL can part with their interests in the land leased to them only with the approval of SIPCOT, IPL has sought the approval of SIPCOT - The activity of IPL as seen from the Memorandum of Understanding executed between IPL and INOX and the approval letter of SIPCOT, is only a transaction in which IPL agrees to part with the leasehold interests it possess for the remaining lease period in favour of INOX with the approval of SIPCOT in respect of the land required by INOX. Therefore the activity is not transfer of leasehold rights by IPL to INOX but is an activity of agreeing to part with the leasehold interests IPL hold on the land to be leased to INOX by SIPCOT. If it were a transfer of leasehold rights, there should be an agreement for such transfer between IPL and INOX. It is stated by IPL that apart from the Memorandum of Understanding, there is no agreement between IPL and INOX. The activity undertaken by IPL in agreeing to part with the interests of the leasehold rights in the land required by INOX for furtherance of their business, against a consideration is an activity of 'agreeing to do an act', which is a taxable service classifiable under 'Other Miscellaneous Services', with SAC 9997.

Summary

Issues Involved:
1. Whether GST is payable on the transfer of leasehold rights for a consideration of ?15 Crores received by the applicant from M/s. INOX Air Products Private Limited.
2. Whether the subsequent transfer of SIPCOT's allotted land from the applicant to M/s. INOX Air Products Private Limited falls within the ambit of 'Supply' as defined under Section 7 of the Goods and Services Act 2017.

Detailed Analysis:

Issue 1: GST on Transfer of Leasehold Rights

The applicant, M/s. India Pistons Limited, sought an advance ruling on whether GST is payable on the ?15 Crores received for transferring leasehold rights to M/s. INOX Air Products Private Limited. The ruling examined the nature of the transaction, noting that the applicant was allotted land by SIPCOT and had entered into a Memorandum of Understanding (MOU) with INOX to transfer the leasehold rights for the remaining lease period, subject to SIPCOT's approval. The applicant argued that the transaction did not constitute a 'Supply' under GST as it was contingent on SIPCOT's approval and did not involve a voluntary agreement between the applicant and INOX. The ruling, however, determined that the activity of agreeing to part with leasehold interests for consideration falls under the definition of 'Supply' as per Section 7 of the CGST Act, 2017. The compensation received was considered 'Consideration' under Section 2(31) of the CGST Act, 2017. Thus, GST is payable on the ?15 Crores received.

Issue 2: Transfer of SIPCOT's Allotted Land and 'Supply' Definition

The second issue concerned whether the transfer of SIPCOT's allotted land to INOX falls within the definition of 'Supply' under Section 7 of the CGST Act, 2017. The ruling examined the lease deed between SIPCOT and the applicant, which prohibited sub-letting or transferring the land without SIPCOT's approval. The applicant had agreed to transfer the leasehold rights to INOX, subject to SIPCOT's approval, and SIPCOT had approved the transfer with conditions. The ruling concluded that the applicant's activity of agreeing to part with leasehold interests for consideration constitutes a 'Supply' under GST. The transaction was not a direct transfer of leasehold rights but an agreement to part with the interests, with SIPCOT's approval being a necessary condition. The ruling emphasized that the relationship between the applicant and INOX was that of a service provider and recipient, making the activity taxable under 'Other Miscellaneous Services' with SAC 9997.

Conclusion:

The ruling determined that the activity of agreeing to part with leasehold interests held by the applicant in favor of M/s. INOX Air Products Private Limited is a 'Supply' under Section 7 of the CGST Act, 2017. Consequently, GST is liable to be paid on the ?15 Crores consideration received by the applicant.