The Maharashtra Authority for Advance Ruling ( AAR ) has in its recent ruling in the case of Forest Development Corporation Of Maharashtra Limited (FDCM Ltd) held that relinquishing of lease right over lease hold land is a supply of service and liable to GST.
Facts of the Case:
- The applicant Forest Development Corporation Of Maharashtra Limited (FDCM Ltd) is Maharashtra State Government undertaking, primarily engaged in plantation and harvesting of trees, predominantly Teak.
- Land was given to FDCM under lease by Maharashtra State Forest and Revenue Department (MSFR) and FDCM Ltd does not own the land.
- The leased land is now being diverted towards a minor irrigation project under the Maharashtra State Irrigation Department. FDCM Ltd is being compensated by the user agency and a No Objection Certificate will be issued for usage of land subject to payment of compensation determined by FDCM Ltd on the date of transfer.
Issue on which ruling was sought:
A ruling is sought on whether the transfer of land held under lease by FDCM Ltd for the Kolsapada Minor Irrigation Project to the Irrigation Department of Maharashtra is a supply of service.
Ruling of AAR:
The AAR noted that the applicant will be relinquishing its lease right on said land in favour of Irrigation Department on the directions of the owner i.e. MSFR Department and compensation thereof is received directly from irrigation Department.
The Coram Sri Rajiv Magoo, Member Central Tax and Sri T.R. Ramnani, Member State Tax held that as per 5 (e) of Schedule II of the CGST Act 2017, agreeing to the obligation to do an act amounts to supply of services. In the subject case, the applicant has agreed to do an act i.e. the applicant has agreed to relinquish its lease right on the said land in favour of Irrigation Department on the directions of the owner of the land i.e. MSFR Department. Thus the said action of the applicant is nothing but supply of services under the GST Laws and the said supply is to MSFR department for which compensation is received from the Irrigation department.
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
