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TMI Blog2020 (11) TMI 1060X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of first instalment of lease premium in compliance of LOA which forms integral part of Lease Agreement - every agreement is independent in itself and conditions may vary from each other except the conceptual facts and principles. The Appellant has deposited the amount as lease premium after issuance of LOA. Furthermore, in the main portion of lease agreement which occurs on 18.11.2019, both parties i.e. RLDA and Appellant themselves has found it as 1st installment of the lease premium. It is a fact that RLDA has issued LOA on 26.09.2018 addressed to M/s H. S. Mehta Infra Pvt. Ltd. Lead Partner of consortium. As per condition of LOA the consortium was required to create a SPC, therefore, appellant company has been incorporated as SPC. The Appellant in pursuance to LOA has deposited first installment of lease premium of Rs.15,86,57,105/- by various RTGS on different dates from 16.02.19 to 22.02.19. Therefore, in view of above facts and provisions of law, it is observed that time of supply of service is 25.11.2018 which is after 60 days post to LOA and before the date of payment of premium. Even, the date of payment of lease premium is prior to 01.04.2019 - the exemption under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that the provisions of both the Central GST Act, 2017 and the Rajasthan GST Act, 2017 are same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the Central GST Act, 2017 would also mean a reference to the same provisions under Rajasthan GST Act, 2017. 2. The present appeal has been filed under Section 100 of the Central GST Act, 2017 (hereinafter also referred to as 'the CGST Act') read with Section 100 of the Rajasthan GST Act, 2017 (hereinafter also referred to as 'the RGST Act') by M/s Hazari Bagh Builders Private Limited, 104 LIC Colony, 1st Floor, Vaishali Nagar, Ajmer-305001 (hereinafter also referred to as 'the Appellant') against the Advance Ruling No. RAJ/AAR/2020-21/05 dated 30.06.2020 on 21.08.2020. BRIEF FACTS OF THE CASE 3.1. M/s Hazari Bagh Builders Pvt. Ltd., 104, LIC Colony, Vaishali Nagar, Ajmer-305001 is holder of GST Registration No. 08AAECH7175C1ZL. 3.2. Rail Land Development Authority (hereinafter referred to as RLDA ), a statutory authority under Ministry of Railway, Government of India having its office near Safdarjung Railway Station, Moti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed into a long term Lease Agreement of 99 years with RLDA for undertaking residential development as on 08.11.2019. 3.3 The appellant filed an application for Advance Ruling before the Rajasthan Authority for Advance Ruling seeking clarification for the following question: i. Whether the Lease Agreement between the Appellant Company i.e. the Lessee and RLDA for a period of 99 years is exempt from levy of GST in view of the Notification No. 04/2019-Central Tax (rate) dated 29.03.2019 or Notification No. 12/2017-Central Tax (rate) dated 28.06.2017? ii. Whether the amount of Rs. 158657105.00 which is transferred by the Appellant Company as Security Deposit in pursuance to the tender and lease agreement dated 08.11.2019 is exempt under GST in view of the Notification No. 04/2019-Central Tax (rate) dated 29.03.2019 or Notification No. 12/2017-Central Tax (rate) dated 28.06.2017? iii. Whether the amount of Rs.158657105.00 deposited during February, 2019 is exempt under Notification No. 04/2019-Central Tax (rate) dated 29.03.2019 or Notification No. 12/2017-Central Tax (rate) dated 28.06.2017? 3.4 The Rajasthan Authority for Advance Ruling, (hereinafter also referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount was paid only to confirm the execution of the contract and not as a premium. The learned authority misinterpreted the terms of Letter of Acceptance and wrongly held that the amount was premium and not security. (vi) As per the terms of the Lease Agreement by way of clause 26, certain conditions have been enlisted where the execution of lease agreement can be terminated if the same are not fulfilled. Clause 26.3 clearly states that any amount paid before the execution of the Lease agreement, is refundable in case of breach except the bid security submitted by the Applicant without prejudice to any other rights or remedies. This implies that amount which is paid in the month of February, 2019 before the execution of lease agreement i.e. 08.11.2019 is totally refundable and do not form part of the consideration and is only a deposit made for confirmation of contract and is in nature of Security. Therefore, it is not eligible to GST. (vii) The Appellant Company has entered into a long term Lease Agreement of 99 years with RLDA for undertaking residential commercial development along with development of financial infrastructure as on 08.11.2019. The Appellant Company paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the full value of only the bid security shall stand forfeited without prejudice to any other rights of remedies. (xi) It can be stated that the payment against the lease agreement paid before 31.03.2019 as additional security. In the present case it is security on which no GST is applicable. As per clause 26.3 of the tender bid and lease agreement page 400 the said amount is refundable after forfeiting the security bid submitted by bidder during the bid in case of any default from (a) to (e) as mentioned on page 399 before execution of lease agreement. As agreement was executed on 08.11.2019 and paid amount before this date is totally refundable in case default by bidder after only forfeiting the bids security it should be exempted from GST. (xii) The said amount is not a premium and only a security by way of which the contract is confirmed it cannot attract the liability of GST. The payment of premium would commence only after the said agreement has been entered into and not prior to that. Any amount paid before entering into the contract and where no services are provided it cannot be considered as premium. Such amount is only for confirmation by the parties to enter-into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Notification No. 12/2017- Central Tax(rate) date 28.06.2017. (xvii) As per Government of India, Ministry of Finance, Circular No. 101/20/2019-GT dated 30.04.2019 it has been clarified that GST had been exempted on the upfront amount payable whether paid in installments or otherwise for long term lease of plots (of thirty years, or more) under Notification No. 12/2017- Central Tax Rate, Serial No. 41 dated 28.06.2017. Upfront amount called as premium payable in respect of service by way of grant of long term lease (of 30 years or more) of plots for development of infrastructure for financial business provided by undertakings having 50% or more ownership of Central Government to the developers in financial business area. As such through this circular no GST is applicable on the RLDA land. (xviii) Authority for advance ruling has wrongly interpreted the Notification and the facts of the present case as all the condition of the said Notifications are fulfilled where along with residential plots, industrial plots and financial business area are also included and-therefore all the conditions of the Entry in the Circular are fulfilled and the Appellant squarely falls under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sub clause 4D (2) (ii) is important and it says to develop railway land for commercial use as may be entrusted by the Central Government for the purpose of Generating revenues by non tariff measures . (xxiv) The transaction for the railway is Commercial or financial business and hence covers it under entry no 41. The wrong interpretation has been taken by AAR of Residential contrary to the Railways ACT and the provisions contained in the lease agreement. Further it is in Financial business Area and hence also covered under it. (xxv) In the agreement at page 377 in para 1(i) it has been mentioned that it will be for commercial development of vacant railway land. In the next para it is mentioned that it is for developing any railway land for commercial use. (xxvi) It can therefore be seen on perusal of the Entries in the Notification and the nature of activity undertaken by the Applicant Company that the present transaction of long term lease is squarely covered under Entry No.- 41 of Notification No. 12/2017-CT (Rate) dated 28.06.2017 and is exempt from GST from the very inception of CGST Act, 2017. (xxvii) The questions posed by the appellant in their Application f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x (rate) dated 29.03.2019 and not regarding the time period. c. That the learned Authority for Advance Ruling did not take into consideration any contentions of the Appellant and ruled against the Appellant holding that the amount deposited by the Appellant is taxable under GST at the rate of 18%. The Order is illegal and bad in law. d. That the learned AAR has wrongly on Page 17 of the order on para 10 observed that it is a rental or leasing service and accordingly taxable as such and mentioned the HSN Code which is contrary to the facts of the case and the application given for AAR. The question was the Upfront amount being charged by the RLDA was taxable before 01.04.2019 which was deposited by the assessee as it was in the nature of refundable security as if the lease agreement condition were not fulfilled then in such case the complete amount was refundable. The agreement was entered after 01.04.2019 and hence it was covered by the later notification no. 04/2019 - CT (Rate) Dt. 29.03.2019 under entry no. 41 B which exempted or mentioned NIL rate for the upfront amount by any name. The relevant notification has not been considered while coming to conclusion. e. That fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al use . Similarly the other clause also narrates the same. Further reference may be made to clause G on page 3 of the Agreement regarding the description of the lease. That reference may be made to page 377 in clause 1, 1(i) and 1(ii) which talks about the commercial use of Railway Land. Further reference may be made to page 379 of clause j, k, n and o about the description the definition. Thereafter reference may be made to page 399 at clause 26 and then clause 26.3 regarding the refund and the conditions to the fulfilled for the execution of lease agreement. It states that in case of cancellation of lease agreement the amount would be refunded. Thereafter reference may be made to page 415 and clause 2.3, 2.3.1, 2.3.3 and 2.3.4 about the grant of lease rights. Further reference to be made to page 416 and clause Article 3 and particularly Article 3.1 to 3.3. l. That on perusal of the Long term lease agreement dated 08.11.2019 (enclosed herewith and marked as Annexure-1) Clause 26 enlists certain conditions on breach of which the contract would stand terminated and the bid security paid by the Company would stand forfeited. However, it is to be noted that the amount otherwise pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2019 has exempted any upfront amount payable for grant of long term lease of thirty years. Certain conditions have been prescribed in the said Notification which have not been violated by the Applicant and hence is squarely covered under the said Notification and is exempt from any GST liability for the amount paid in lieu of the agreement executed on 08.11.2019. q. That it is submitted here that the lease agreement has been entered into on 08.11.2019 and the said Notification covers any amount which becomes payable on or after 01.04.2019. In the present case as the agreement has been executed on 08.11.2019, the lease premium in pursuance to such an agreement is squarely covered under the said Notification and is totally exempt from the levy of GST. It is again submitted here that neither the agreement was executed nor any services of lease were extended by RLDA in the form of possession to the applicant therefore the amount if paid as premium was in pursuance to an agreement executed after the exemption Notification came into effect. r. That it is a well accepted fact that the Lease Agreement was entered into on 08.11.2019. Any amount paid before that was totally refundable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as entered after 01.04.2019 and hence it was covered by the later notification no. 04/2019 - CT (Rate) Dt. 29.03.2019 under entry no. 41 B which exempted or mentioned NIL rate for the upfront amount by any name. The relevant notification has not been considered while coming to conclusion. v. That the entry no 41 of the notification No. 12/2017 CT (Rate) Dt. 24.6.2017 squarely covers the issue and the transaction is exempt under it as the ownership is 100% of Central Government whereas the Notification mentions only 50% ownership Requirement. Further the said notification mentions that it should be in Financial Business Area and that condition is also satisfied. Reference may be made to the Railways Act 1989 and particularly Chapter IIA which deals with the RLDA who has leased the land to assessee. As per the provisions contained in Chapter IIA clause 4D defining Functions of Authority the sub clause 4D (2) (ii) is important and it says to develop railway land for commercial use as may be entrusted by the Central Government for the purpose of Generating revenues by non tariff measures . w. That the transaction for the railway is Commercial or financial business and hence cove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following order: i. The Lease Agreement between the Applicant Company i.e. the Lessee and RLDA for a period of 99 years is not exempted from levy of GST in view of the Notification No. 04/2019-Central Tax (rate) dated 29.03.2019 or Notification No. 12/2017-Central Tax (rate) dated 28.06.2017. ii. The amount of Rs. 158657105/- which is transferred by the Applicant/SPV in pursuance to the tender and lease agreement dated 08.11.2019 is not exempted under GST in view of the Notification No. 04/2019-Central Tax (rate) dated 29.03.2019 or Notification No. 12/2017-Central Tax (rate) dated 28.06.2017. iii. The amount of Rs.158657105/- deposited during February, 2019 is not exempted from GST vide Notification No. 04/2019-Central Tax (rate) dated 29.03.2019 or Notification No. 12/2017-Central Tax (rate) dated 28.06.2017. 6.3 The Appellant being not satisfied with the above Ruling has therefore, filed the present appeal before this forum. 6.4 The Appellant has contended that amount of Rs.158657105/-paid in the month of February, 2019 before the execution of lease agreement i.e. 08.11.2019 is security deposit and not an installment of lease premium. On perusal of Leas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the lease tenure, if the entire deposit or a part of it is withheld and not paid back, as a charge against damages, etc. then at that stage such amounts not returned back will be liable to GST as per the present GST laws' In view of above discussion, we find that the fact of the case is quite different from the instant appeal. 6.5 The appellant in his appeal memo has contended that as per the terms of the Lease Agreement by way of clause 26, certain conditions have been enlisted where the execution of lease agreement can be terminated if the same are not fulfilled. Clause 26.3 clearly states that any amount paid before the execution of the Lease agreement, is refundable in case of breach except the bid security submitted by the Applicant without prejudice to any other rights or remedies. This implies that amount which is paid in the month of February, 2019 before the execution of lease agreement i.e. 08.11.2019 is totally refundable and do not form part of the consideration and is only a deposit made for confirmation of contract and is in nature of Security. We observe that the appellant has totally misconstrued the clause 26.3 which provides for forfeiture of bid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 50 per cent or more ownership of Central Government, State Government, Union territory to the industrial units or the developers in any industrial or financial business area. NIL NIL We observe that following conditions are required to be fulfilled for availing exemption under this entry: - service by way of granting of long term lease (of thirty years, or more); - of Industrial plots or plots for development of infrastructure for financial business; - entity having 50 per cent, or more ownership of Central Government, State Government, Union territory; - to developers in any industrial or financial business area On perusal of document attached with Lease Agreement, we observe that, conditions regarding long term lease and entity having 50% or more of ownership of Central Government may be satisfied as lease is for 99 years and RLDA is the statutory body of Government of India and having 100% ownership of Central government. However, rest two conditions namely, industrial plots or plots for development of infrastructure for financial business and that to award such lease to developers in any industrial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that land has been leased for development of infrastructure for financial business. Therefore, we conclude that lease of land has been granted for development of land for residential purpose and Circular No. 101/20/2019-GST dated 30.04.2019 is also not applicable in this case. In view of above, we hold that lease agreement is not exempted under Entry No. 41 of exemption Notification No. 12/2017-Central Tax (rate) dated 28.06.2017. 6.7 The appellant has also contended that the amount paid is not taxable in light of the Notification No. 04/2019 dated 29.03.2019. We find that Entry No. 41B of exemption Notification No. 12/2017-Central Tax (rate) dated 28.06.2017 has been inserted vide Notification No. 04/2019 dated 29.03.2019 and effective w.e.f. 01.04.2019 which is reproduced as under: 41B Heading 9972 Upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable in respect of service by way of granting of long term lease of thirty years, or more, on or after 01.04.2019, for construction of residential apartments by a promoter in a project, intended for sale to a buyer, wholly or pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xemption Notification, it is clear that the Notification exempts upfront amount payable for construction of residential apartments in view of entry No. 41B. As we have already concluded in Para 6.6 above that the lease has been granted for development of land for residential purpose. It is fact that according to LOA dated 26.09.2018 the bidders having GSTIN shall, deposit the applicable GST under Reverse Charge Mechanism, therefore Appellant got registration under GST and liable to deposit the applicable GST under Reverse Charge Mechanism on the premium paid/payable to RLDA. The Appellant has also not disputed this fact anywhere in appeal memo that they are not liable to pay GST under RCM. As the said Notification has been made effective from 01.04.2019, therefore, to decide the applicability of exemption in this case 'Time of Supply of Services' is required to be determined. The 'Time of Supply of Services' for cases of Reverse Charge Mechanism, is defined in Section 13 (3) of the CGST Act, 2017 as under- (3) In case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be the earlier of the follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Services. On perusal of LOA, we noticed that in para 6 of LOA, it is clearly mentioned that LOA shall constitute a binding contract till the lease agreement and remaining paras of LOA tell about total premium and many other things about lease. Therefore, instead of lease agreement, LOA issued on 26.09.2018 should be treated 'the document' to determine the time of Supply of Services. The payment schedule has been prescribed in the para 3 of the LOA dated 26.09.2018 itself, according to which the first installment of lease premium of Rs. 14,36,67,891/- was required to be paid within 60 days of the date of issuance of LOA. Accordingly, the first installment was required to be paid by 25.11.2018. Our view is further strengthened from the fact that at the time of the payment through RTGS in the month of Feb. 2019, amount of Rs. 1,49,82,214/- has also been deposited as interest in addition to the lease premium installment of Rs. 14,36,67,891/-. It transpires that the LOA dated 26.09.2018 is the document vide which M/s RLDA has conveyed the amount and due date of payment of first installment of lease premium. Hence, in our view, in absence of invoice, the date of LOA shall be take ..... X X X X Extracts X X X X X X X X Extracts X X X X
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