Agreeing to obligation to do an act amounts to supply of services

Forest Development Corporation of Maharashtra Limited (GST AAR Maharashtra)

We observe that, the land belongs to the MSFR Department who is the owner. As an owner, MSFR Department has leased the land to the applicant. The applicant is not the owner of the land. Now, the MSFR Department has asked the applicant to hand over a part of the land to the Irrigation Department as mentioned in the application. Thus, in respect of the land to be transferred to the Irrigation Department, as and when the transfer is done it would have the effect of making MSFR Department as the lessor and the Irrigation Department as the lessee (with the applicant being nowhere in the picture) and presumably the lease rent if any, would be paid by the Irrigation Department to MSFR Department.

In view of the scenario mentioned in 5.7 above, we need to find out whether the subject transaction is a supply of service by the applicant. Prima facie, we find that the land will not be leased by the applicant to the Irrigation Department. In fact, the applicant will be relinquishing 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.

As per 5 (e) of Schedule mentioned above, 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.

The applicant has submitted that the impugned supply is to the Irrigation department. However, it is seen that the applicant is agreeing to do an act as per the directions of the MSFR department and not the Irrigation department and the applicant has not brought anything on record to show that the impugned services are provided to MSFR department by way of an activity in relation to any function covered under Article 243G or 243W of The Constitution of India.

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