The Tamil Nadu Authority of Advance Ruling (AAR) in its recent ruling in the case of India Pistons Limited has ruled that transfer of leasehold rights is an activity of ‘agreeing to do an act’, which is a taxable service classifiable under ‘Other Miscellaneous Services’, with SAC 9997 and thus is subject to GST @18%.
Facts of the case:
The applicant, India Pistons Limited has stated that they are engaged in manufacturing of goods and was allotted land measuring to an extent of 15.34 acres by the State Industrial Promotion Corporation of Tamilnadu (SIPCOT). SIPCOT had allotted land measuring 19.04 acres. Thereafter SIPCOT had further allotted land measuring 1.30 acres.
Subsequent to the above allotment, there were certain lands allotted to them and remained un-utilized.
In view of Covid-19 pandemic, the Government of Tamilnadu entered into a MOU with M/s. INOX Air Products Private Limited for setting up a state of the art Ultra High Purity Cryogenic Liquid Medical and Industrial Oxygen Plant.
INOX had approached them for transfer of the un-utilized portion of the allocated land by SIPCOT and they, vide MOU dated 20.11.2020 had transferred the leasehold rights in respect of the un-utilized portion of land subject to approval by SIPCOT.
As per this MOU, they agreed to transfer the property admeasuring 5 acres to INOX for Rs. 15 Crores for the leasehold rights and Rs. 24 lakhs for superstructures.
Subsequently, SIPCOT accorded approval for the transfer of balance period of lease hold rights measuring 5.00 acres of land along with existing shed/super structures, out of 15.34 acres at SIPCOT Industrial Complex, Hosur Phase-II from them to INOX.
Issue on which ruling was sought:
The applicant has sought the advance ruling on the following issues:
1. As to whether GST is payable on the transfer of leasehold rights in respect of the consideration of Rs. 15 Crores received by them from M/s. INOX Air products Private Limited for the land allotted by SIPCOT?
2. Whether the Subsequent transfer of SIPCOTs allotted land from the Applicant to M/s. Inox Air Products Private Limited would fall within the ambit of ‘Supply’ as defined under Section 7 of the Goods and Services Act 2017?
Order of AAR: Deliberation and Ruling
AAR observed that 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 leasehold.
AAR noted that on going through Section 7 (supply) and Section 2(17) (business) of the CGST Act,2017, it is evident that an activity in any form effected for a consideration and made in the furtherance of business is a ‘supply’.
AAR observed that the activity is not transfer of leasehold rights by IPL to INOX but is an activity of agreeing to partwith 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 clearly established that the activity undertaken by IPL in agreeing to partwith 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.
In view of the above deliberations, the coram of members T.Padmavathi and B.Senthilvelan held that the activity of agreeing to part with the leasehold interests held by the applicant in favour of M/s. INOX Air Products Private Limited is ‘Supply’ as defined under Section 7 of the Goods and Services Act 2077 and GST is liable to be paid on the consideration of Rs. 15 Crores received by them.
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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.
