In re Gujarat Hira Bourse (GST AAR Gujarat)
Supply of services even by unincorporated association to its members for consideration is supply under GST Scheme of law, as enacted by Competent legislature. Thus GHB reliance on Service tax era case law is misplaced in the subject matter. Even if we want to delve into the provision Section 7(1)(aa) CGST Act, which reads as: the activities or transactions, by a person, other than an individual, to its members or constituents or vice cersa, for cash, deferred payment or other valuable consideration is Supply. So what we find is, with this new insertion of clause (aa), the Pre Budget 2021 status of section 7(1) and post budget status of Section 7(1) CGST Act has not undergone change, but the said provision of law has been fortified and clarified even further.
FULL TEXT OF THE ORDER OF AUTHORITY OF ADVANCE RULING, GUJARAT
BRIEF FACTS:
M/s. Gujarat Hira Bourse (hereinafter referred to as GHB for sake of brevity) submits that it is Not-for-Profit Company incorporated under Section 25 of the erstwhile Companies Act, 1956 which is now the Section 8 of the Companies Act, 2013 and that it is registered under Section 12A of the Income Tax, 1961, engaged in the development of Gems and Jewellery Park.
2. GHB submits that its main object is to establish a Bourse for promotion of exports of Diamond, Gems, Pearl and Jewellery from India and provide for this purpose, an infrastructure and other facilities in India for Indian and overseas buyers and sellers of Diamond, Gems, Pearl and Jewellery; that within its objects, to develop India as Modern and sophisticated Diamond market, GHB has taken the activity of developing a superlative Gem and Jewellery park in Surat, which has traditionally been the head-quarter of Diamond polishing, trading and export industry in Gujarat; that for the fulfilment of its objects, GHB has acquired pieces of land within the village limits of Ichchapore-Bhatpore of Surat District vide Lease Deed executed between the Gujarat Industrial Development Corporation (GIDC) as owner and GHB as Lessee, for a period of 99 years which is further sub-leased based on plots allotted to its members/applicants; that to achieve the intended purpose, GHB receives contribution from its members who are well known Gem and Jewellery exporters which is used towards the Infrastructure cost of the facilities like road, drainage, park, water supply, etc. for the members/applicants as per their booked area; that the members’ contribution towards the infrastructure cost includes building of roads, storm water drainage, water distribution network, sewage network, landscape infrastructure, cable network, ESR water tank, sump, pump house, control room, sub-station, minor bridge on canal, approach road, electrical and power installation and fittings and street light infrastructure, Administrative cum Custom House Building, Compound wall etc.
3. GHB further submits that the amendment to Section 7(1) of the CGST Act, 2017 by insertion of new sub-clause(aa) through Finance Budget, 2021, has culminated the essence of Doctrine of Mutuality and upturned the hypothesis that the income which falls within the purview of the doctrine of mutuality is exempt from taxation; that this is despite of perpetuity of the right to use the land and other allied conditions that form part of the agreement between GIDC, which bestows sufficient justification for the amount of infrastructure cost contributed by the members to be exempt from tax under Central GST Act, 2017, the perceptible state of affairs has hauled this Not-for-Profit Company towards payment of GST with retrospective effect from 1st July, 2017 till date; that pursuant to the above, GHB has paid GST along with interest, under Protest on the contribution by members towards Infrastructure cost with retrospective effect.
4. GHB has submitted as follows:-
(i) GHB being a not-for-profit company incorporated under Section 8 of the Companies Act, 2013(section 25 of erstwhile Companies Act, 1956), is a body Corporate, Limited by Guarantee, which collects one time infrastructure cost from its members to develop infrastructure for its members to achieve its intended purpose as mentioned under the facts of the case.
(ii) This immovable property leased by GIDC to GHB is subject to conversion into freehold land but has been leased by the GIDC with an option to convert the leasehold land into freehold land subject to an obligation for the company to operate for 15 years continuously and then only the demised premises can be converted into freehold land. It is to be noted that after this conversion to free hold superior rights shall accrue to GHB and GHB will become the owner of the land. This shall be subject to payment of premium which shall be 30% of the amount determined by the GIDC at the time of allotment of land or the value fixed as per new ‘Jantri’ (a ready reckoner for stamp duty being used by the revenue department of the state) whichever is higher. Considering the above, the ownership of the demised land shall be transferred to GHB and ultimately the ownership of the demised land shall be transferred to the respective members. Consequently, it indicates that there shall be complete and total transfer of all rights in the property and the seller shall retain no rights in the transferred property.
(iii) As per the MOU executed with GIDC, the land is to be transferred to GHB after 15 years, for which the process is already initiated. Therefore, it can be inferred that the initial transaction can be termed as pre-sale arrangement. Like in any executed sale transaction, there are two steps viz., Agreement to sale and actual sale through conveyance deed, by whatever name called, in the current transaction too, the activity of allotment of land initially, subject to permanent transfer after 15 years was one of the condition of sale/transfer of the land and not a separate transaction. Hence, it is clear that it is a sale/transfer of land and not leasing of the land.
(iv) The transaction between GIDC and GHB was of ‘Conditional sale of land’ and the intention was not lease of land for earning rent income. Here it is significant to look at the substance of the transaction rather than just the legal form.
(v) The said long term lease and sublease for the long term period is taxed under Gujarat Stamp Duty Act, 1958 at prevailing stamp duty rates equivalent to the sale of property (calculated on the ‘Jantri value’ of the land or consideration whichever is higher) treating the long term lease transaction as transfer of immovable property at the stamp duty amount. Consequently, it is construed that Stamp Duty is levied on the transaction and this is not a transaction registration or documentation procedure fee. The registration fees are paid separately for registration of the said transaction. Hence, it can be construed that the law treats the transaction of long term lease similar to the sale of property and consequently, the treatment under GST law should be similar to that of sale of property only. Considering the said transaction as supply of service and taxing the same would be a case of double taxation.
(vi) Attention is drawn towards doctrine of part performance in English law. It is also known as ‘equity of part-performance which is defined under section 53A of the Transfer of Property Act, 1882 and has been a decided principle under section 2(47) of the Income Tax Act, 1961.
Section 2(47) in The Income- Tax Act, 1961.-
” Transfer”, in relation to a capital asset, includes,-
(i) the sale, exchange or relinquishment of the asset; or
(ii) the extinguishment of any rights therein; or
(iii) the compulsory acquisition thereof under any law; or
(iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock- in- trade of a business carried on by him, such conversion or treatment;] 6 or]
(iva) the maturity or redemption of a zero coupon bond or
(v) 7 any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882 ); or
(vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co- operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.
Explanation 1.- For the purposes of sub- clauses (v) and (vi),” immovable property” shall have the same meaning as in clause (d) of section 269UA;]
Explanation 2 – For the removal of doubts, it is hereby clarified that disposing of or partying with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, not withstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India.
Transfer of Property Act, 1882
[53A. Part performance.- Where any person contracts to transfer for consideration any immoveable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has. in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then, notwithstanding that 2 ***, or, where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed there for by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract: Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof.]
(vii) It is a settled principle that the long term lease shall be considered as transfer of property and has been adjudicated on similar principle.
(viii) Without prejudice to the above, the Contribution by members towards Development Cost of Bourse for the promotion of Exports of Gem and Jewellery would be exempt under Entry No.41 (Heading 9972) of Notification No. 12/2017-Central Tax(Rate) dated 28-6-2017:-
(a) It is onetime upfront payment towards Infrastructure Development.
(b) The lease is for industrial development of infrastructure or finance business.
(c) The demised land is located in industrial or finance business area.
As per Gujarat Industrial Development Act, 1962 the definition of Industrial area or Industrial Estate is reproduced as follows:-
Section 2(g)
‘Industrial area’ means any area declared to be an industrial area by the State Government by notification in the Official Gazette, which is to be developed and where industries are to be accommodated;
Section 2(h)
‘Industrial estate’ means any site selected by the State Government, where the Corporation builds factories and other buildings and makes them available for any industry or class of industries.
(d) The demised premises is owned by GIDC which has been leased to GHB vide Principal lease executed between GIDC and GHB. This demised premises is developed by GHB from the funds received from the members to whom the land has been sub-leased in accordance with the plots allocated to each of the members.
(ix) GHB is not a developer, but merely an SPV, which has been constituted for and on behalf of the members of Gems and Jewellery industry. The intention of Government is to provide a land to the business units, but it is not practically feasible for the Government to deal with each businessman separately. Consequently, just to facilitate the Government and businesses, GHB-as SPV has been incorporated.
(x) In furtherance to point no.(9) above, it is to state here that the sublease of demised property by the GHB to its property members is in accordance with the terms and conditions set forth in principal deed with GIDC shall mutatis mutandis apply to sub-lease creating a deeming fiction as if the deed is being executed between GIDC and sub-lease. The purpose of the Government to promote the industry can endure and sustain only if intention of the legislature to exempt certain category of persons (State Government Industrial Development Corporations or undertakings or by any other entity having 20% or more ownership of Central Government, State Government, Union territory) from tax for a specific purpose is to be applied to other person with similar purpose as well. Pursuant to the above, the supplier of land for all purpose is deemed to be GIDC.
(xi) The word ‘lease’ and/or ‘sub-lease’ mentioned in various agreements/documents in relation to these transactions are merely for the understanding of the common public. However, it does not reflect the true character or essence of the transaction. Consequently, the transaction is between businesses and the GIDC, wherein the GHB is merely a facilitator or ‘collective voice’ of entire business community holding/desirous of holding the land in this park.
(xii) Taxing the contribution received from the property member would be akin to cascading effect where the funds received for the purpose of development of infrastructure from members would be taxed and again when these funds would be utilized, GST shall be paid on the material that would be used for the said development purpose. This contribution received from the property members is the financial support to the Not-for profit company to develop the infrastructure of the Bourse and manage its affairs for the members.
(xiii) Without prejudice to the above, the one-time infrastructure cost collected by GHB from its members being applied towards development of infrastructure cost for the members, the rule of doctrine of mutuality/principle of mutuality is applicable and since the infrastructure cost so collected is applied as contribution towards the project of developing Bourse. The doctrine of mutuality is established on the concept that a person cannot make a profit from himself. An amount received from oneself, therefore, cannot be regarded as supply and taxable.
(xiv) The contribution towards infrastructure cost by the property members of GHB has been applied by the Company towards the Project and the same has never been recognized as revenue in the books of accounts of the Bourse. The contribution has been sitting as liabilities in the Balance Sheet while the infrastructure developed by application of these funds form part of the Fixed Assets in the Balance Sheet. Consequently, this is a reimbursement of expenses incurred by GHB for its property members.
(xv) GHB submits that contribution received from the property members is for acquisition of access to the land and is not a rental, hence not perpetual in nature. Moreover, this is procurement of access to the immovable property supplied by GIDC by the property members of GHB to develop the premises for their own business purpose.
(xvi) The indenture between GHB and its members is merely for allotment of Industrial plots/premises to grant occupancy rights of the land supplied by GIDC to the property member of the company.
5. GHB has submitted the copies of the following documents:-
(a) Registration Certificate issued to Gujarat Hira Bourse u/s. 12A of the Income Tax Act.
(b) Memorandum & Articles of Association of Gujarat Hira Bourse along with license u/s. 25 of the Companies Act, 1956.
(c) Section 7 of the CGST Act, 2017.
(d) Relevant Extracts of the Finance Act, 2021.
(e) Advance Ruling decision dated 22-4-2021 given by the Karnataka Advance Ruling Authority in the matter of M/s. Bowring Institute.
(f) State of West Bengal & Others vs. Calcutta Club Limited and Chief Commissioner of Central Excise and Service & Others [2019(29) GSTL.545 (SC)].
(g) Entry No.41 of the Notification No. 12/2017-CGST (Rate) dated 28-62017 as amended from time to time.
(h) Extract of the Additional Agenda of the 22nd GST Council Meeting.
6. GHB has submitted the following:-
i. Lease Deed between GIDC and GHB on 27-3-08 for Plot Nos.X2, X2A & X3 (totally admeasuring 2,30,970 sq. Mtrs. Land), known as DTA at Ichchapore, Surat, Gujarat. The cost of land has been worked out at Rs.225/- per sq.mtr. and accordingly the total cost of the land has been worked out to Rs.5,19,68,250/- and on payment of the said amount of Rs,5,19,68,250/-, the demised land has been leased to GHB for a term of 99 years computed from 22-4-04. As per the lease deed, the land is allotted on ‘as it is where it is’ basis for the purpose of setting up the Gem & Jewellery Park on the demised premises. GHB has also been given the mandate to sub lease parts of developed plots to the actual users and GHB shall make available to GIDC, a list of actual users of developed plots in the industrial park. GHB is also required to pay to the GIDC, an amount of Rs.277/- annually on or before the 31st day of March in each year towards rent of the demised land.
ii. Lease Deed between GIDC and GHB on 30-4-07 for Plot Nos.X3A (totally admeasuring 7,38,797 sq. Mtrs. Land, at Ichchapore, Surat, Gujarat. The cost of land has been worked out at Rs.225/- per sq.mtr. and accordingly the total cost of the land has been worked out to Rs.16,62,29,325/- and on payment of the said amount of Rs.16,62,29,325/-, the demised land has been leased to GHB for a term of 99 years computed from 22-4-04. As per the lease deed, the land is allotted on ‘as it is where it is’ basis for the purpose of setting up the Gem & Jewellery Park Special Economic Zone on the demised premises. GHB can also sub lease parcels of developed plots to the entrepreneurs for setting up their units in the SEZ/Industrial park. GHB is also required to pay to the GIDC, an amount of Rs.884/- annually on or before the 31st day of March in each year towards rent of the demised land.
(i) Allotment of Industrial plot/premises made between GHB and M/s. P. Hirani Exports LLP, Mumbai made on 1-6-21: A plot measuring 1680 square metres has been sub leased/allotted to M/s. P.Hirani Exports LLP, Mumbai by GHB in the Gem and Jewellery Park (referred to in Lease Deed detailed at (i) above and referred to as principal lease deed herein) for a price of Rs.45,57,553/-(Price Rs.2,712.83 per square metre) subject to the terms of the Principal lease) but not in any case beyond the period of principal lease deed. M/s P.Hirani Exports LLP is also required to pay an annual lease rent at the rate of Rs.2/- per square metre to GHB.
(ii) Allotment of Industrial plot/premises made between GHB and M/s. Sonani Jewels pvt.ltd., Surat made on 2-6-2021: A plot measuring 837 square metres has been sub leased/allotted to M/s. Sonani Jewels pvt.ltd., Surat by GHB in the Gem and Jewellery Park (referred to in Lease Deed detailed at (ii) above above and referred to as principal lease deed herein) for a price of Rs.1,00,10,500/-(Price Rs.11,960/- approx. per square metre) subject to the terms of the Principal lease) but not in any case beyond the period of principal lease deed. M/s Sonani Jewels pvt.ltd., Surat is also required to pay an annual lease rent at the rate of Rs.2/- per square metre to GHB.
7. Question on which Advance Ruling sought?
a. Whether the contribution paid/payable by the members towards Development Cost of the Bourse amounts to supply liable to Goods and Service Tax?
b. Whether the said Contribution by members towards Development Cost of Bourse for the promotion of Exports of Gem and Jewellery would be exempt under Entry No.41(Heading 9972) of Notification No. 12/2017-Central Tax(Rate) dated 28-6-2017 (hereinafter referred to as the said Notification)?
