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TMI Blog2024 (1) TMI 1344X X X X Extracts X X X X X X X X Extracts X X X X ..... ternational Airport Limited - GST on the invoice raised by the Applicant for reimbursement of the salary/ staff cost on M/s. Adani Thiruvananthapuram International Airport Limited - GST on the reimbursement claimed of Municipal tax, Property Tax and Water Charges by the Applicant from M/s. Adani Thiruvananthapuram International Airport Limited - reversal in accordance with section 17 (2)/(3) of CGST Act viz-a-viz KSGST Act. Whether the transfer of business by the Airport Authority of India to the M/s. Adani Thiruvananthapuram International Airport Limited be treated as Supply u/s. 7 of the Central Goods and Service Tax Act, 2017 ( CGST ) viz-a-viz Kerela State Goods and Service Tax Act, 2017 (KGST)? - HELD THAT:- The transaction involved herein is not the transfer of business by the applicant to the concessionaire. However, the concessionaire is supplying the service of developing the airport of the applicant and applicant is supplying the service of manpower, leasing etc., to the concessionaire and both constitutes supply under Section 7 of the GST Act. Whether the transfer of business by Airports Authority of India to M/s. Adani Thiruvananthapuram International Airport Limited is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SGST or 18% IGST as may be applicable under SAC 998519 . Whether GST is applicable on the reimbursement claimed of Municipal tax, Property Tax and Water Charges by the Applicant from M/s. Adani Thiruvananthapuram International Airport Limited? - If yes, at what rate? - HELD THAT:- It is opined that reimbursement of such taxes, being reimbursement of expenses, do not attract GST and therefore, GST is not applicable on the reimbursement of such charges. This ruling is applicable only if such taxes are reimbursed by the concessionaire to the applicant. If such taxes are embedded in the consideration for lease and cannot be identified, this ruling does not hold good. Whether any reversal is required in accordance with section 17 (2)/(3) of CGST Act viz-a-viz KSGST Act? - HELD THAT:- This ruling is requested without specifying the context or situation in which the same is put. Therefore, only a general ruling can be offered. If the applicant has inward supply of goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited by AAI. This was aimed at bringing efficiency in service delivery, expertise, enterprise and professionalism and to harness necessary investment for the Operations, Management and Development of Thiruvananthapuram International Airport for a lease period of 50 years ( Project). Request for Proposal (RFP) document for the Airport was issued on 14.12.2018. The Project was to be implemented in accordance with the terms and conditions stated in the RFP and Concession Agreement dated 14.02.2020 entered into between the Authority and the Concessionaire. The bid was later awarded to M/s Adani Thiruvananthapuram International Airport Limited (the Concessionaire ). For implementation of the project, Concessionaire agreed to pay the Applicant- a- Rs. 4,24,00,00,000/- towards Estimated Deemed Initial Regulatory Asset Base ( RAB ) i.e. estimated depreciated value of Investments made by the Applicant in the Aeronautical Assets at the airport as on 31st March 2018. (As per Clause 28.11.3 of the Concession Agreement which is subject to adjustment as per Clause 28.11.3(a) and 28.11.4). Rs. 7,15,00,000/- towards Estimated Initial Non-Aeronautical Investments i.e. estimated depreciated value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded to the jurisdictional officer as per provisions of section 98 (1) of the CGST Act. The Jurisdictional officer has not submitted any remarks and hence it is presumed that the jurisdictional officer has no specific comments to offer. It is also construed that no proceedings are pending on the issue against the applicant. 6. Personal hearing The applicant was granted opportunity for personal hearing on 20/12/2023 via virtual mode. Sri. Hem Mahesh Chhajed, Chartered Accountant represented for the applicant for personal hearing. The representative reiterated the contentions made in the application and requested to issue ruling on the basis of the submissions made in the application. 7. Discussion and findings. We have gone through the application in detail. The issues on which ruling is sought and the background of the issue are detailed above. The question wise discussions in this regard are as below. 1. Whether the transfer of business by the Airport Authority of India to M/s. Adani Thiruvananthapuram International Airport Limited be treated as Supply u/s. 7 of the Central Goods and Service Tax Act, 2017 ( CGST ) viz-a-viz Kerela State Goods and Service Tax Act, 2017 ( KGST )? We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice. Such sale of business as a whole will comprise comprehensive sale of immovable property, goods and transfer of unexecuted orders, employees, goodwill etc. Since the transfer in title is not merely a transfer in title of either the immovable property or goods or even both it may amount to service and has thus been exempted . This definition was upheld as applicable to GST statute as well, for example, as in the Advance Ruling in M/s Rajashri Foods Pvt. Ltd. by the authority at Karnataka. c- Now let us look at some clarifications available in international law. i- India is a member of OECD, the Organisation for Economic Co-operation and Development (OECD). OECD is an international inter-governmental organisation which sets global standards for trade and taxation policies. OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022, in the context of pricing, has given a write up on Transfer of activity (ongoing concern), which is as below. 9.68. Business restructurings sometimes involve the transfer of an ongoing concern, i.e. a functioning, economically integrated business unit. The transfer of an ongoing concern in this context means the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement in question satisfies these conditions. e- The relevant terms of the concession agreement were examined and the gist thereof annexed to this Ruling. We have also examined the annual report of the applicant, which is in public domain. What we discern from these documents is that- i- the Government of India had invited bids for undertaking the operations, management and development (henceforth referred to as the Project in terms of definition in Article 1 of the agreement) of certain airports of AAI on a public private partnership (PPP) basis. This was aimed to bring efficiency in service delivery, expertise, enterprise and professionalism, apart from harnessing necessary investments. After the due process, the concessionaire was selected to execute the project with regard to Trivandrum Airport, in accordance with the provisions of the Agreement, including all works, services and equipment relating to or in respect of the Scope of the Project. A concession agreement was signed between the applicant and the concessionaire. ii- As per the agreement, a master plan for the development of the airport would be made and the airport would be developed in a phased manner as per the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght, lease and authority were provided to the concessionaire for a period of 50 years to execute the project in a phased manner. The concessionaire, as per the agreement, is duty bound to undertake expansion or augmentation of the Aeronautical Assets and Non-Aeronautical Assets in accordance with the provisions of the Agreement. That is to say, the expansion or augmentation of assets is not an independent activity in itself, but part of the concessionaire s obligations under the agreement. At all times during concession period, the Concessionaire shall, no later than 10 days after the close of each quarter, furnish to the Authority a quarterly management report in this regard. Thus the nature of service is evident. The applicant, viz., AAI wants to implement the project through the concessionaire, and the concessionaire is actually supporting, cooperating with and facilitating the applicant in the implementation of the project. The Concessionaire shall undertake or cause to be undertaken the development and maintenance of infrastructure such as roads, electric supply, water supply, sewerage and drainage systems forming part of City Side Development at its cost. In case of failure, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommencement of construction Works, the concessionaire shall: (a) submit to the Authority and the Independent Engineer, its development plan, detailed design, drawings, construction methodology, quality assurance procedures, and the procurement, engineering and construction time schedule for Completion of the concerned Phase. The applicant also has the right to change the scope of the project, if necessary. The applicant may, after giving notice to the Concessionaire and considering its reply thereto, award any works or services forming part of the Change of Scope , to any person on the basis of open competitive bidding. Thus, the concessionaire is only a person entrusted with the task of constructing and developing the applicants Airport as per a master plan. vii- The concessionaire and their activities are subject to constant monitoring by the applicant. The Authority or its designated agency may, if require, inspect the Airport at least once a year with prior intimation to the Concessionaire. The Concessionaire shall ensure and procure compliance of each of the Key Performance Indicators specified in this Article 23 and for any shortfall in average performance during a quarter, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o inspect the records of the Concessionaire during office hours and require copies of relevant extracts of books of accounts, duly certified by the statutory auditors, to be provided to the applicant for verification of basis of payments, and in the event of any discrepancy or error being found, the same shall be rectified and such rectified account shall form the basis of payments by either party under this agreement. Even the day to day operations of the Concessionaire and the running of the airport continue to be closely monitored by the applicant. The concessionaire shall submit the reports in this regard to the Authority on regular basis. viii- The applicant and the concessionaire have titled the agreement in this regard as a concession agreement. We have looked into what a concession agreement means. Ind AS 115, vide appendix C, defines this term. Accordingly, Infrastructure for public services-such as roads, bridges, tunnels, prisons, hospitals, airports, water distribution facilities, energy, supply and telecommunication networks-has traditionally been constructed, operated and maintained by the public sector and financed through public budget appropriation. It further says ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h items also remains with the applicant. This is evident from the annual report of the applicant, which is in public domain. Para 38 (iv) (a) of the annual report of the applicant for the year 2022-23, states that The upfront payment received by AAI towards the Estimated Deemed Initial RAB should be accounted for as Operating Lease Income over the Lease Period. Asset will continue to appear in the books of AAI . Further, as per Para 38 (iv) (b) of the report, they have received an expert advice that whenever the concessionaire puts CWIP assets into use after completion, AAI should capitalize the value with expenditure incurred by AAI till COD and start claiming depreciation on such assets and this advice has been accepted by them. Thus, the assets in the possession of the applicant have not been transferred to the concessionaire. x- Now let us look at the limitations imposed on the concessionaire. As per the agreement, the Airport or any part thereof shall not be branded in any manner to advertise, display or reflect the name or identity of the Concessionaire or its shareholders. The Airport shall be known, promoted, displayed, advertised and branded by the name of Thiruvananthapur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erything related to the airport, the real estate, title, capital assets, installations, employees, goodwill and the brand remain with the applicant. The concessionaire is engaged to develop the airport for the applicant. The said activity of development is subject to approval and constant monitoring of the applicant. To this end, the operations and management has been handed over to the concessionaire. This does not fall under transfer as going concern . In order to facilitate the concessionaire for successful completion of the agreement, we find that the facilities of the airport have been leased to the concessionaire. We find that this lease is only an operating lease as admitted by the applicant in Para 38 (iv) (a) of the annual report of the applicant for the year 2022-23, wherein it is stated that The upfront payment received by AAI towards the Estimated Deemed Initial RAB should be accounted for as Operating Lease Income over the Lease Period. Asset will continue to appear in the books of AAI . An operating lease is a contract that allows for an asset s use but does not convey ownership rights of the asset. As per Ind AS 17, a lease is classified as an operating lease if it d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services rendered by the airport. Conversely, the applicant is supplying their employees to the concessionaire for a limited period and also leasing its facilities to the concessionaire for a consideration. Thus, both the conditions, viz., supply of service and consideration are satisfied in both the transactions. In other words, both the transactions fall squarely within the scope of supply. 3. Whether the transfer of business by M/s. Airports Authority of India to M/s. Adani Thiruvananthapuram International Airport Limited is covered under the Entry No. 2 of the exemption notification No. 12/2017-Central Tax (Rate) dated 28-06-2017 issued u/s Section 11 of CGST Act 2017 ? As elaborated earlier, as there is no transfer of business in this case, the question is void-ab-initio and does not merit to be answered. 4. The next question is, if the answer to above is negative, whether GST is leviable on the transfer of existing assets ( RAB ), aeronautical assets, non-aeronautical assets and capital work in progress by the applicant to the concessionaire? On an examination of the concession agreement, it is clear that the applicant has not transferred the existing assets, aeronautical ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for a consideration from the concessionaire and thus GST is applicable on the same. 8. The eighth question is whether GST is leviable on the invoice raised by the Applicant for reimbursement of the salary/ staff cost on the concessionaire, and if yes, at what rate? From clause 6.5.5 of the agreement, we find that this amount represents the emoluments payable by the applicant to select employees, i.e., employees of the applicant working for the concessionaire. In this regard, we find that the employees of the applicant are supplied to the concessionaire for a consideration, in pursuant to the agreement. This service falls under Other employment and labour supply services nowhere else classified viz. HSN 998519. The applicable tax rate for this SAC is 9% each towards CGST and SGST as applicable vide Notification No 11/2017 Central Tax (Rate) dated 28-06-2017. 9. The next question is whether GST is applicable on the reimbursement claimed of Municipal tax, Property Tax and Water Charges by the applicant from the concessionaire, and if yes, at what rate? In this regard, we are of the opinion that such taxes do not constitute the consideration received by the supplier, but are actuals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 4 of the CGST Act, 2017. The concept therein is that of Transfer as going concern . The transaction involved herein cannot be treated as a transfer as going concern. Question No. 3 Whether the transfer of business by M/s. Airports Authority of India to M/s. Adani Thiruvananthapuram International Airport Limited is covered under the Entry No. 2 of the exemption notification No. 12/2017-Central Tax (Rate) dated 28-06-2017 issued u/s Section 11 of CGST Act 2017? RULING : No. The said exemption does not cover the activity involved herein. The said entry covers Services by way of transfer of a going concern . Question No. 4 If the answer is negative, then whether GST is leviable on the transfer of Existing assets ( RAB ), Aeronautical Assets, non-aeronautical assets and Capital work in progress by M/s. Airport Authority of India to the M/s. Adani Thiruvananthapuram International Airport Limited? RULING: Since the assets mentioned have not been transferred to the concessionaire, the question per se is void-ab-initio. However, since the amounts are received as a consideration for leasing/supplying the assets to the concessionaire, GST is payable on the same. Question No. 5 Whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o reversal to be made under Section 17 (3) since 17 (3) only explains about the value of exempt supply. ANNEXURE RELEVANT CLAUSES OF THE CONCESSION AGREEMENT Sl.No. Clauses/Description of the Concession agreement Page 1. The Concession agreement is pursuant to the decision of the GOI to to invite bids for undertaking the operations, management and development of certain airports of AAI on a public private partnership basis to bring efficiency in service delivery, expertise, enterprise and professionalism apart from harnessing necessary investments . 4 2. The authority, prescribing the technical and commercial terms and conditions for operations, invited Request for Proposals (RFP) for the project. Project means the operations, management and development of the Airport in accordance with the provisions of this Agreement, and includes all works, services and equipment relating to or in respect of the Scope of the Project; -do- 3. The scope of the project is the operations, management and 25 development of the Airport covering (a) design, development, financing, construction, up gradation and expansion of the Airport in a phased manner...as per the requirements broadly set forth in Sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort. 36 12. Only select employees are transferred. Select Employees shall mean those employees of the Authority as set forth in Schedule S (of the rank of assistant general manager and below) who are posted at the Airport by the Authority and shall be deployed at the Airport for the duration of the Joint Management Period and Deemed Deputation Period. Deemed Deputation period shall mean the period commencing from the expiry of the Joint Management Period and ending on the date which is 2 (two) calendar years there from. With the exception of the Select Employees, the Concessionaire shall have no obligations in relation to the existing employees of the Authority serving in connection with the Airport. The concessionaire shall pay to the Authority, on a monthly basis, such amounts as may be indicated in an invoice to be raised by the Authority on the Concessionaire with regard to the emoluments payable by the Authority to the Select Employees (This means that the employees are not transferred). the concessionaire shall not be liable to bear any costs in respect of the Senior Personnel, which costs shall be borne entirely by the Authority. 39 13. The Concessionaire shall, for the perf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Plan. 58 23. In the event, the Concessionaire fails to achieve any milestone as per the Phase Milestone within a period of 90 (ninety) days from the date set forth for such Phase Milestone in Schedule F, unless such failure has occurred due to Force Majeure or for reasons attributable to the Authority, it shall pay Damages to the Authority in a sum calculated at the rate of. 59 24. During the Development Period, the Concessionaire shall, no later than 7 (seven) days after the close of each quarter, furnish to the Authority, a report on progress. During the Development Period, the Independent Engineer shall inspect the Airport works, considering the quarterly progress reports submitted by the Concessionaire, at least once a quarter and make a report of such inspection. 60 25. In the event, the Authority determining that a Change of scope is necessary, it shall issue to the Concessionaire a notice specifying in reasonable detail the works and services contemplated thereunder. 69 26. Notwithstanding anything to the contrary contained in this Article 17, the Authority may, after giving notice to the Concessionaire and considering its reply thereto, award any works or services forming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en) days after the close of each quarter, furnish to the Authority a quarterly management report 91 34. The Concessionaire shall submit the following reports to the Authority on regular basis: (a) quarterly activity report (Passenger Traffic, aircraft movements, cargo, etc.); (b) quarterly financial accounts; (c) annual budget; (d) latest update of business plan; (e) annual maintenance program; (I) other operating statistics as may be required by any Government Instrumentality, including Gol, State Government, Ministry of Civil Aviation, DGCA, the Authority, ICAO or IATA; and (g) such other reports/ information (or analysis thereon D in relation to the operations, management and development of the Airport and that the Authority may request from time to time. 92 35. The Concessionaire shall: by the 7th (seventh) day after the end of each quarter, provide to the Authority, a detailed report: (i) confirming that the levels of service at the Airport over the preceding quarter (or part thereof) never fell below IATA Level of Service Optimum or describing the dates on or periods of time during which the levels of service at the Airport fell below IATA Level of Service Optimum, and (ii) s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty may, in order to verify the international Passenger Throughput and/ or Domestic Passenger Throughput and/ or to ascertain the actual international Passenger Throughput and Domestic Passenger Throughput at the Airport, depute its representatives to the Airport and the offices of the Concessionaire, and undertake such other measures and actions as it may deem necessary. The Authority may call upon the Concessionaire to furnish any and all data, information, log, sheet, document or statement, as the Authority may deem fit and necessary for these purposes. 107 42. The Authority has the right, either through itself or through any of its authorised representative, to inspect the records of the Concessionaire during office hours and require copies of relevant extracts of books of accounts, duly certified by the Statutory Auditors, to be provided to the Authority for verification of basis of payments, and in the event of any discrepancy or error being found, the same shall be rectified and such rectified account shall form the basis of payments by either Party under this Agreement. 120 43. The Authority shall nominate a panel of six (6) Chartered Accountancy Firms ( Panel of Chartered A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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