Introduction: In a recent decision, the Authority for Advance Ruling (AAR) in Uttar Pradesh has dismissed an application submitted by S.K. Foods Equipment’s Private Limited. The application sought clarity on the GST implications of a transaction involving the sale of leasehold land and the requisite permissions for such a sale. The AAR’s decision, based on the legal framework under the Goods and Services Tax (GST) Act, underscores the procedural limitations and the specific criteria that applicants must meet to be eligible for seeking an advance ruling.
Detailed Analysis: S.K. Foods Equipment’s Private Limited, engaged in purchasing an industrial plot from Fena Private Limited, sought an advance ruling to ascertain whether the said transaction, along with obtaining permission for sale, would be taxable under GST. The applicant provided a detailed interpretation of the law, differentiating between leasehold and freehold properties and the applicability of GST on such transactions.
The AAR, after careful examination, determined that the applicant, being the recipient of services rather than the supplier, does not qualify to file an application for an advance ruling under the CGST Act, 2017. This conclusion is rooted in the definitions provided in Section 95 of the CGST Act, which explicitly identifies an applicant for advance ruling as a person who undertakes or proposes to undertake the supply of goods or services. The Act’s stipulation that advance rulings are intended for suppliers and not recipients played a crucial role in the rejection of the application.
Conclusion: The AAR’s ruling clarifies the procedural aspects and eligibility criteria for seeking advance rulings under the GST framework. This decision not only highlights the importance of understanding the legal provisions but also emphasizes the need for potential applicants to ensure their eligibility before filing. For businesses and individuals involved in similar transactions, this ruling serves as a reminder of the GST Act’s specific requirements for advance ruling applications, particularly the necessity of being a supplier of goods or services. This outcome underscores the procedural rigour and the structured approach adopted by the AAR in adjudicating applications based on the precise legal framework governing GST in India.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, UTTAR PRADESH
1. M/s S K Food Equipment’s Private Limited, A-49, Sector-8, Noida Gautam Bodh Nagar, Uttar Pradesh, 201301 (here in after referred to as the applicant) is a registered assessee under GST having GSTN: 09AAUCS2879N1Z4. The applicant intends to purchase an industrial plot at A-65 sector-8 Noida, from M/s Fena Private Limited. A-237, Okhla Industrial complex Phase -I, New Delhi.110020, which has originally been allotted by Noida Authority under the 99 years lease deeds and duly registered under GST Law i.e. under the Jurisdiction of Assistant Commissioner, Gautambudha Nagar (A), Sector-4, SGST Department, Gautambudha Nagar.
2. The applicant has submitted an application for Advance Ruling dated 16.03.2023 enclosing dully filled Form ARA-01 (the application form for Advance Ruling) along with annexure and attachments. The applicant in his application has sought advance ruling on following question-
1. Under the GST provisions, whether above activity relating to sale of leasehold land and also to obtain permission for such sale would be taxable?
3. As per declaration given by the applicant in Form ARA-01, the issue raised by the applicant is neither pending nor decided in any proceedings under any of the provisions of the Act, against the applicant.
Applicant through this application wish to get the clarification under Advance Ruling as follows;
1. Seller has been allotted an industrial plot by (New Okhla Industrial Development Authority) Noida on long term lease for 99 years on payment of lump sum upfront premium and on annual lease charges vide lease deed dated 09.12.1982.
Seller intends to sell such industrial land for certain consideration to some buyer. Buyer has to pay transfer charges to Noida for permission for such sale.
4. The applicant has submitted their interpretation of law as under-
Legal Provisions pertaining to the Case:
a. At the outset, it is important to note that immovable property like plot (industrial or residential) are of two kinds-one lease hold and other freehold. Lease hold property is that property where ownership is not transferred but property is allowed to be used for a certain period and in case of freehold, ownership is transferred on permanent basis.
b. Under GST, Section 9 of the CGST Act, 2017, tax is leviable on ‘supply’ of goods and services. Term ‘supply’ is explained under Section 7 of the CGST Act, 2017 as all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business except activities notified under Schedule-III of the CGST Act. Under Schedule-III, ‘sale of land’ has been specifically included. Thus, sale of land is not in the ambit of GST.
c. As per Schedule-(2)(a) of the CGST Act, 2017, lease of land activity is a supply of service. Long term lease of land is also a kind of lease where lessee holds the possession of property for a long period.
d. Further, it is pertinent to mention here that under The Income Tax Act, 1961 as clarified by the Central Board of Direct Taxes vide Circular No.35/16 dated13.10.16, long term lease of land constitutes character of ‘deemed sale’ meaning thereby it is a sale. In our opinion once long-term lease of land is treated as sale, no GST would be chargeable on such activity. Emphasis is relied upon:
e. 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.]
It is a settled principle that the long-term lease shall be considered as transfer of property and has been adjudicated on similar principle. However, there is no specific provision in GST to deem long term lease as sale. Hence, the whole issue is under dispute and pending in different courts of the country.
f. Further, to elaborate the issue it is also relevant to mention that under notification No.12/17-Central Tax(Rate) dated 28.06.17, SI.No.41, leasing of industrial plot by Government Industrial Development Corporation or Undertakings to industrial units for a period of thirty years or more is exempted from GST. The transfer of industrial plot in current case is from one industrial unit (seller) to another industrial unit (buyer) intended for industrial purpose only. However, to affect such transfer, charges are to be paid to NOIDA authority in the form of transfer charges. Hence, in our opinion the above exemption would be available in the case of industrial plots.
5. As per declaration given by the applicant in Form ARA-01, the issue raised by the applicant is neither pending nor decided in any proceedings under any of the provisions of the Act, against the applicant.
6. The application for advance ruling was forwarded to Deputy Commissioner, Central Goods & Service Tax, Division-IV Noida vide letter dated 11.07.2023 to offer their comments/views/verification report on the matter. No views/comments has been offered till date.
7. The applicant was granted a personal hearing on 04.08.2023 which was attended by Shri Praveen Sharma, Advocate, the authorized representative of the applicant during which he reiterated the submissions made in the application of advance ruling.
DISCUSSION AND FINDING
8. At the outset, we would like to make it clear that the provisions of both the CGST Act and the UPGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the UPGST Act. Further for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / UPGST Act would be mentioned as being under the CGST Act’.
9. We have gone through the Form GST ARA-01 filed by the applicant and observed that the applicant has ticked following issues on which advance ruling required-
(1) Applicability of a notification issued under the provisions of the Act.;
10. We would like to examine whether the issue raised in the application is squarely covered under Section 97(2) of the CGST Act 2017 or not. For this we would like to examine this matter in light of definitions of Advance Ruling under section 95 of the CGST Act 2017 and the same is reproduced as under:
Section 95. Definitions of Advance Ruling.— In this Chapter, unless the context otherwise requires,-
(a) —advance ruling means a decision provided by the Authority or the Appellate Authority to an applicant on matters or on questions specified in sub-section (2) of section 97 or sub-section (1) of section 100, in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant;
(b) —Appellate Authority means the Appellate Authority for Advance Ruling referred to in section 99;
(c) —applicant means any person registered or desirous of obtaining registration under this Act;
The above clause (a) of section 95 clearly provides that the applicant of Advance Ruling should be related to a taxpayer who supplies the goods or services or both or who proposes to make supplies in future. As the wording says the “supply of goods or series or both” and not the “receipt of goods or services, or both”, it is implied that the applicants seeking Advance Rulings should be the suppliers and not the recipients.
The meaning of the applicant defined at Point No. (c) should be derived only in consonance with Point No. (a) of Section 95 of the CGST Act 2017.
11. Further, we find that the scope of supply as provided in section 7 of the CGST Act, the expression “supply” includes the following
(a) all forms of supply of goods or services or both such a sale, transfer barter, exchange, licence, rental, lease or disposal made or agreed to be made for consideration by a person in the course of furtherance of business.
(aa) the activities or transaction, by a person, other than individual, to its members or constituents or vice versa, for cash, deferred payment or other valuable consideration
(b) import of services for a consideration whether or not in the course or furtherance of business; and
(c) the activities specified in Schedule I, made or agreed to be made without a consideration,
The conjoint reading of both the above paras 10 and 11, it clarifies that activities of the taxpayer being a recipient, are not related to the supply being undertaken or proposed to be undertaken by him.
12. Further, reference needs to be made to section 103 of CGST Act, 2017 which provides for applicability of the advance ruling. Clause (a) of sub-section (1) of the said section clearly provides that the advance ruling is binding only upon the applicant.
13. We find after examining the AAR application dated 16.03.2023(Received in office on 03.07.2023) of Applicant M/s S K Food Equipment’s Private Limited that it is receiver of the Goods/Services provided by the M/s Fena Private Limited. Therefore, it falls under category of Service recipient. In light of point provided under Section 95 of CGST Act 2017, only supplier of the services/Goods can file Application for Advance Ruling. Accordingly, we do not admit the application for consideration/ruling on merits as applicant does not fall under the definition of supplier under Advance Ruling and cannot get the Advance Ruling under the Act.
14. Accordingly, we pass the ruling as under:
No ruling can be given in the matter as discussed above.
15. This ruling is valid only within the jurisdiction of Authority for Advance Ruling Uttar Pradesh and subject to the provisions under Section 103(2) of the CGST Act, 2017 until and unless declared void under Section 104(1) of the Act.