2025 (4) TMI 1047 - AAR - GST

Taxable supply of services - assignment of Lease Hold Rights of land by the Applicant in terms of the Asset Purchase Agreement (APA) - transfer of building by way of sale by the Applicant to HMI in terms of the APA - sale of items of plant and machinery in terms of the APA. Whether assignment of Lease Hold Rights of land by the Applicant in terms of the Asset Purchase Agreement qualifies as taxable supply of services under GST Laws? If yes whether GST would apply on the price agreed for transfer of Lease Hold Rights under the Asset Purchase Agreement? - HELD THAT - In the instant case the applicant agrees to transfer the lease rights with the approval of MIDC. After the approval from MIDC the lease rights get assigned to HMI. The leasehold rights in land are deemed to be services under paragraph 2(a) of Schedule II of CGST Act 2017. Hence agreeing to assign such services which were being received by the Applicant from MIDC to the assignee i.e. HMI is a service. Service of leasing of land is provided by the MIDC. Now original recipient of this service i.e. applicant has agreed to assign those service to HMI - This agreement results in transfer of leasehold rights to HMI after the approval of MIDC. As the resultant activity of leasehold rights of land getting transferred is a deemed service under para 2 of Schedule 2 the Act of pecasioning such resultant services squarely falls into the definition of Services 2 (102) of the GST Act. The activity of assignment is in the nature of agreeing to transfer one s leasehold rights. It is in the nature of 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 at 18% under SI No. 35 of Notification No. 11/2017-CT (Rate) dated 28/06/2017 as amended from time to time. Whether the transfer by way of sale of building by the Applicant to HMI in terms of the Asset Purchase Agreement qualifies as neither a supply of goods nor a supply of services under Section 7 read with entry 5 of Schedule III of the GST Laws? - HELD THAT - The Lease Deed dated 03.07.2010 clearly stipulates that the lease would be of 300 acres of plot of land together with the buildings and erections now or at any time hereafter and being thereon. The lease also includes any buildings and structures currently present or built in the future along with all associated rights and access except for any underground mines and minerals which remain with the Lessor. As the lease includes the lease of buildings currently present or built in the future the lessee holds only the leasehold rights towards the buildings and not the ownership rights of buildings built on leased land with the approval of MIDC - lease is transfer of the right to use property for a specific period of time in exchange for rent or consideration as agreed upon. The Hon ble Supreme Court in the case of Raghunath Ors Vs. Radha Mohan Ors 2020 (10) TMI 1362 - SUPREME COURT held that a conveyance deed is an important document to prove the transfer of ownership from seller to the buyer. However the conveyance deed alone is not conclusive proof of ownership. It must be supported by other evidence such as proof of sellers title to the property evidence of possession absence of encumbrances or competing claims etc. Further possession itself is a relevant factor but not conclusive. Possession must be supported by a valid title to be legally recognized. A clear and marketable title is essential to proving ownership. The transfer/ assignment of leasehold rights are liable to tax under GST Act being the service provided in terms of agreeing to assign leasehold rights in the building. As building is part of the Lease there cannot be sale of the building as the applicant does not hold ownership rights in the buildings constructed on the plot. Thus though the consideration for transfer of building has been shown separately it is integral part of the total consideration received for agreeing to assign the leasehold rights in the Lease and is liable to tax under GST Act under Other miscellaneous service (SAC 999792) and taxable at 18% under SI No.35 of Notification No. 11/2017-CT (Rate) dated 28/06/2017 as amended from time to time. Whether the sale of items of plant and machinery in terms of the Asset Purchase Agreement qualifies as taxable supply of individual goods under GST Laws? - If yes whether GST would apply on the price agreed between the parties for the sale of each such items under the Asset Purchase Agreement as per classification and rate applicable to each item? - HELD THAT - In the instant case the Applicant has sold to HMI the plant and 33 machinery which are undisputedly goods. These goods were capitalised in GMI books. Thus the plant and machinery to be sold in the present case qualify as a supply of goods in the present case and are liable to tax under GST Act - If the applicant has taken input tax credit on the said capital goods the value of the goods shall be determined in terms of Section 18 (6) of the CGST Act 2017. Conclusion - i) The assignment of Lease Hold Rights of land by the Applicant in terms of the Asset Purchase Agreement qualifies as taxable supply of services under GST Laws. GST would apply on the price agreed for transfer of Lease Hold Rights under the Asset Purchase Agreement. The activity of assignment is in the nature of agreeing to do the transfer of the applicant s leasehold rights in favour of the assignee. It is a service classifiable under Other miscellaneous service (SAC 999792) and taxable at 18% under SI No.35 of Notification No. 11/2017-CT (Rate) dated 28/06/2017 as amended from time to time. ii) The transfer by way of sale of building by the Applicant to HMI in terms of the Asset Purchase Agreement does not qualify as neither a supply of goods nor a supply of services under Section 7 read with entry 5 of Schedule III of the GST Laws. Transfer of building does not constitute to be sale of building . Transfer is in the nature assignment of leasehold rights in the building. The activity of assignment is in the nature of agreeing to do the transfer of the applicant s leasehold rights in favour of the assignee. It is a service classifiable under Other miscellaneous service (SAC 999792) and taxable at 18% under SI.No. 35 of Notification No. 11/2017-CT (Rate) dated 28/06/2017 as amended from time to time. iii) The sale of items of plant and machinery in terms of the Asset Purchase Agreement qualifies as taxable supply of individual goods under GST Laws. GST would apply on the price agreed between the parties for the sale of each such items under the Asset Purchase Agreement or the amount of input tax credit availed if any on such capital goods reduced by such percentage points as may be prescribed which ever is higher as provided under Section 18 (6) of the CGST Act as per classification and rate applicable to each item.

Summary

Issues Presented and Considered

The core legal questions considered by the Authority for Advance Ruling (AAR) were:

a) Whether the assignment of leasehold rights of land by the Applicant under the Asset Purchase Agreement (APA) qualifies as a taxable supply of services under the Goods and Services Tax (GST) laws, and if so, whether GST applies on the agreed transfer price.

b) Whether the transfer by way of sale of buildings by the Applicant to Hyundai Motor India Limited (HMI) under the APA qualifies as 'neither a supply of goods nor a supply of services' under Section 7 read with entry 5 of Schedule III of the GST laws.

c) Whether the sale of items of plant and machinery under the APA qualifies as taxable supply of individual goods under GST laws, and if so, whether GST applies on the agreed price for each item as per their classification and applicable rate.

Issue-wise Detailed Analysis

1. Assignment of Leasehold Rights of Land as Taxable Supply of Services

Legal Framework and Precedents: The GST Act defines 'supply' under Section 7 to include all forms of supply of goods or services or both, including lease or transfer made for consideration in the course or furtherance of business. Schedule II clarifies that lease or tenancy or license to occupy land is treated as supply of services. The General Clauses Act, 1897 defines immovable property including land and things attached thereto. Section 105 and 108 of the Transfer of Property Act, 1882 define lease and lessee rights. Entry 41 of Notification No. 12/2017 exempts upfront amount for long-term lease by State Industrial Development Corporations but not subsequent transfers by lessees.

Relevant Advance Rulings from Tamil Nadu, West Bengal, Uttar Pradesh, and Maharashtra were cited, establishing that assignment of leasehold rights with approval of lessor is a taxable supply of service under GST.

Supreme Court and Bombay High Court rulings confirmed that leasehold rights transfers are taxable services and not sale of immovable property.

Court's Interpretation and Reasoning: The Applicant held leasehold rights in land leased by MIDC for 95 years, including buildings and erections. The lease deed required MIDC approval for assignment. The assignment to HMI was subject to MIDC's approval and payment of transfer premium. The Applicant had no ownership rights over the land or buildings but only leasehold rights.

The AAR held that the assignment of leasehold rights is a supply of service under Schedule II paragraph 2(a) and Section 7(1) of the CGST Act. The transaction is not a sale of immovable property but an agreement to transfer lease rights, which is taxable. The exemption for upfront lease premium payable to State Industrial Development Corporations does not apply here as the Applicant is not such an entity.

The assignment is a compensation for agreeing to transfer lease rights, classified under 'Other Miscellaneous Services' (SAC 999792), taxable at 18% under Notification No. 11/2017.

Key Evidence and Findings: The lease deed, MIDC approval letter, Deed of Assignment, and relevant statutory provisions were examined. The lease included land and buildings, but ownership remained with MIDC. The Applicant's rights were limited to leasehold interests. Precedent rulings and judicial decisions supported the service classification.

Application of Law to Facts: The assignment of leasehold rights with MIDC approval is a taxable service. The Applicant correctly discharged GST on the agreed price for the transfer of leasehold rights under the APA.

Treatment of Competing Arguments: The Applicant argued that the transaction is a supply of service; the jurisdictional officer concurred. The Applicant's contention that the exemption under Entry 41 applies was rejected as the Applicant is not a State Industrial Development Corporation. The argument that the transaction is transfer of immovable property was rejected based on lease deed terms and judicial precedents.

Conclusion: Assignment of leasehold rights qualifies as taxable supply of services under GST laws, and GST applies on the agreed transfer price.

2. Transfer of Buildings: Whether It Is Neither Supply of Goods Nor Services

Legal Framework and Precedents: Section 7(2)(a) read with Entry 5 of Schedule III of the CGST Act excludes certain transactions from being treated as supply of goods or services, including sale of buildings subject to clause (b) of paragraph 5 of Schedule II. Clause (b) of paragraph 5 of Schedule II treats construction of buildings intended for sale as supply of service, except where the entire consideration is received after issuance of completion certificate or first occupation.

Section 108 of the Transfer of Property Act, 1882, and lease deed provisions govern ownership and rights over buildings on leased land.

Court's Interpretation and Reasoning: The Applicant contended that the buildings were constructed for its own use, supported by completion certificates, and transferred by way of sale, thus outside GST scope as per Schedule III Entry 5.

The jurisdictional officer argued that ownership of buildings was not established with the lessee; the buildings are inseparable from the leased land and hence the transaction is a lease service taxable under GST.

The AAR analyzed the lease deed which expressly included buildings and erections as part of the leased premises. The lessee's rights were limited to possession and use; ownership of buildings remained with MIDC. The lessee had no right to transfer ownership of buildings separately from the leasehold rights.

Legal provisions and judicial precedents, including the Bombay High Court and Supreme Court decisions, were examined. The courts held that leasehold rights include buildings and erections on the land, and transfer of such rights is a supply of service, not sale of immovable property.

The conveyance deed executed by the Applicant did not establish ownership independent of the leasehold rights. Ownership requires clear title, mutation records, encumbrance certificates, and other evidence beyond conveyance deed alone.

Key Evidence and Findings: Lease deed clauses, completion certificates, Deed of Conveyance, and relevant statutory provisions were scrutinized. The lease included land and buildings; the lessee had possessory rights only. The Applicant's claim of ownership was found untenable.

Application of Law to Facts: Transfer of buildings by the Applicant is not a sale of immovable property but part of assignment of leasehold rights. The transfer is taxable as supply of service under 'Other Miscellaneous Services' (SAC 999792) at 18% GST.

Treatment of Competing Arguments: The Applicant's reliance on completion certificates and conveyance deed was rejected as insufficient to establish ownership. The Department's view that the transaction is a lease service was accepted. The Applicant's contention that the transaction falls under Schedule III and is not taxable was rejected.

Conclusion: The transfer of buildings does not qualify as 'neither supply of goods nor supply of services' under Section 7 read with Schedule III. It is a taxable supply of service as assignment of leasehold rights including buildings.

3. Sale of Plant and Machinery as Taxable Supply of Individual Goods

Legal Framework and Precedents: Section 7(1)(a) of the CGST Act defines supply to include sale of goods. Section 2(52) defines goods as movable property excluding money and securities. Section 2(19) defines capital goods. Entry 4(a) of Schedule II treats transfer or disposal of business assets as supply of goods.

Section 15 of the CGST Act defines value of supply as transaction value where parties are unrelated and price is sole consideration. Section 18(6) provides special valuation for capital goods on which input tax credit has been taken.

Relevant Advance Rulings confirm that sale of plant and machinery by liquidators or businesses is taxable supply of goods at applicable HSN rates.

Court's Interpretation and Reasoning: The Applicant sold 9,664 items of plant and machinery at individually agreed prices, intending itemized sale. The assets were capital goods used in business and capitalized in books. The sale fulfilled conditions of supply: goods, consideration, two parties, and course of business.

The value of supply is transaction value as per Section 15, being the agreed price for each item. If input tax credit was availed, valuation rules under Section 18(6) apply. GST is payable at applicable rates based on HSN classification.

Key Evidence and Findings: The APA listed individual assets with prices, invoices issued accordingly, and GST paid on these transactions. The assets are undisputedly goods and capital goods for business use.

Application of Law to Facts: Sale of plant and machinery is taxable supply of goods. GST applies on individual asset prices as per classification and rates notified.

Treatment of Competing Arguments: The Applicant and Department agreed on taxability. No contrary arguments were raised.

Conclusion: Sale of items of plant and machinery qualifies as taxable supply of individual goods. GST applies on agreed prices per item as per applicable HSN classification and rate.

Significant Holdings

1. "Assignment of Lease Hold Rights of land by the Applicant in terms of the Asset Purchase Agreement qualifies as taxable supply of services under GST Laws. GST would apply on the price agreed for transfer of Lease Hold Rights under the Asset Purchase Agreement. The activity of assignment is in the nature of agreeing to do the transfer of the applicant's leasehold rights in favour of the assignee. It is a service classifiable under 'Other miscellaneous service' (SAC 999792) and taxable at 18% under SI No.35 of Notification No. 11/2017-CT (Rate) dated 28/06/2017, as amended from time to time."

2. "The transfer by way of sale of building by the Applicant to HMI in terms of the Asset Purchase Agreement does not qualify as 'neither a supply of goods nor a supply of services' under Section 7 read with entry 5 of Schedule III of the GST Laws. Transfer of building does not constitute sale of building. Transfer is in the nature assignment of leasehold rights in the building. The activity of assignment is in the nature of agreeing to do the transfer of the applicant's leasehold rights in favour of the assignee. It is a service classifiable under 'Other miscellaneous service' (SAC 999792) and taxable at 18% under SI.No. 35 of Notification No. 11/2017-CT (Rate) dated 28/06/2017, as amended from time to time."

3. "The sale of items of plant and machinery in terms of the Asset Purchase Agreement qualifies as taxable supply of individual goods under GST Laws. GST would apply on the price agreed between the parties for the sale of each such item under the Asset Purchase Agreement or the amount of input tax credit availed, if any, on such capital goods reduced by such percentage points as may be prescribed, whichever is higher, as provided under Section 18 (6) of the CGST Act, as per classification and rate applicable to each item."

Core Principles Established:

- Assignment of leasehold rights in land and buildings leased from a government entity, with approval, is a taxable supply of service under GST, not a sale of immovable property.

- Buildings constructed on leased land are part of the leasehold interest; ownership remains with the lessor, and transfer of such buildings without ownership is transfer of leasehold rights, taxable as supply of service.

- Sale of plant and machinery, being movable capital goods, is taxable supply of goods, with GST payable on itemized prices as per applicable HSN classification and rates.

- The value of supply is the transaction value agreed between unrelated parties, subject to valuation rules where input tax credit is involved.

Final Determinations on Each Issue:

1. Assignment of leasehold rights of land is a taxable supply of services under GST; GST applies on the agreed transfer price.

2. Transfer of buildings does not qualify as neither supply of goods nor services; it is part of leasehold rights assignment and taxable as supply of service under GST.

3. Sale of plant and machinery qualifies as taxable supply of individual goods; GST applies on the agreed price per item as per classification and applicable rates.