Case Law Details
In re Airport Authority of India (GST AAR Kerala)
In the case of Airport Authority of India (GST AAR Kerala), the Authority for Advance Rulings (AAR) addressed multiple GST implications concerning the Airport Authority of India (AAI) and its concession agreement with Adani Thiruvananthapuram International Airport Limited. The AAR ruled that the arrangement between AAI and Adani does not constitute a “transfer of business.” Instead, the agreement involves a supply of services, such as manpower and leasing, between the parties, thereby attracting GST under Section 7 of the CGST Act, 2017. The AAR clarified that “transfer as going concern” is not applicable in this context, and the exemption under Notification No. 12/2017-Central Tax does not apply, as it pertains only to transfers of a going concern. Consequently, GST applies to specific transactions, including concession fees and reimbursements of salaries. However, GST is not applicable on reimbursements of municipal taxes, property taxes, or water charges, provided these are distinct from the lease consideration. Additionally, AAI is required to make a reversal under Section 17(2) of the CGST Act if its purchases serve both taxable and exempt supplies. This ruling provides clarity on the tax treatment of services and fees within concession agreements under GST.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, KERALA
1. The applicant, M/s Airports Authority of India (the `AAI’) is the authority created under the Airports Authority of India Act, 1994 (the ‘AAI Act’) with registered office at administrative building Shangumugam, Vallakkadavu P.O., Thiruvananthapuram-695008. They carry out the functions specified in Section 12 of AAI Act and paragraph 5 of the application, and are not reproduced.
2. A reference in this ruling to the provisions of the CGST Act, Rules and Notifications issued there under shall include a reference to the corresponding provisions of the KSGST Act, Rules and the Notifications issued there under.
3. The issues on which advance ruling is sought are detailed above and are not being reproduced. In this regard, para 2 of the ‘statement of relevant facts’ indicate that the bid was for Operations, Management and Development of `Mani Thiruvananthapuram International Airport’. It is presumed that the same is a typographical error and that ‘Mani International Airport Limited’ took over such operations only on execution of the agreement. Further, para 3 mentions `M/s Adani Enterprises Limited’ as the concessionaire, whereas the agreement mentions that the concessionaire is ‘Mani Thiruvanananthapuram International Airport Ltd’. This ruling is issued on the presumption that the correct concessionaire is ‘Mani Thiruvanananthapuram International Airport Ltd’, as evident from the agreement, and that the reference to `M/s Adani Enterprises Limited’ as concessionaire is a typographical error.
4. The statement of facts connected to the application, as submitted by the applicant, is as follows. Section 12-A of Airports Authority of India Act allows AAI, in public interest or in the interest of better management of airports, make a lease of the premises of an Airport (including building and structures thereon and appertaining thereto) to carry out some of its functions under Section 12 as the AAI may deem fit. Accordingly, bids for undertaking the operation, management and development of certain airports, on a public private partnership basis, was invited by AAI. This was aimed at bringing efficiency in service delivery, expertise, enterprise and professionalism and to harness necessary investment for the Operations, Management and Development of Thiruvananthapuram International Airport for a lease period of 50 years (“Project). Request for Proposal (RFP) document for the Airport was issued on 14.12.2018. The Project was to be implemented in accordance with the terms and conditions stated in the RFP and Concession Agreement dated 14.02.2020 entered into between the Authority and the Concessionaire. The bid was later awarded to M/s Adani Thiruvananthapuram International Airport Limited (the “Concessionaire”). For implementation of the project, Concessionaire agreed to pay the Applicant-
a. Rs. 4,24,00,00,000/- towards Estimated Deemed Initial Regulatory Asset Base (“RAB”) i.e. estimated depreciated value of Investments made by the Applicant in the Aeronautical Assets at the airport as on 31st March 2018. (As per Clause 28.11.3 of the Concession Agreement which is subject to adjustment as per Clause 28.11.3(a) and 28.11.4). Rs. 7,15,00,000/- towards Estimated Initial Non-Aeronautical Investments i.e. estimated depreciated value of investments made by the applicant towards development of the Non-Aeronautical Assets at the Airport as on 31st March 2018 as onetime payment.
b. Actual amount incurred by AAI in respect of contracts relating to Work-in-Progress as on the Commercial operation Date (“COD”).
c. Reimbursement of salaries inclusive. of other cost paid to employees of AAI having designation of Asst. General Manager and below during the Joint Management Period and deemed deputation period. Subject to the select employee cost the concessionaire shall pay the amount as indicated in invoice raised by applicant towards emoluments of the select employees as per clause 6.5.5 of the Concession Agreement.
d. Monthly concession Fee during the concession period shall be paid to the applicant as a share of passenger fee and passenger throughput for the month for both international and domestic passengers.
e. Monthly Concession Fee as consideration for granting lease right of land, building and the immovable assets.
As per the agreement, the concessionaire will be forming Special Purpose Vehicle Company (‘SPV’). This SPV and the AAI will be entering into concessionaire agreement for operation, management and development of the airport which include civil, mechanical, electrical works, terminal buildings,
cargo facilities, runway and all other project assets. The SPV will be undertaking the operations, management and development of the airport for a period of 50 years subject to the compliance of various terms and conditions as set forth in the concessionaire agreement. AAI will cease to operate, manage and develop the airport as per this agreement from a prescribed date.
The applicant has placed the copy of the concession agreement entered into in this regard. From clause 28.1 of the said agreement, we find that on and from COD and till the transfer date (i.e., the date of expiry of agreement), the concessionaire has the sole and exclusive right to demand, collect and appropriate fees from the users of aeronautical/non-aeronautical provisions, including from passengers. We find that this amount constitutes the consideration received by the concessionaire against the activity of ‘operation, management and development of the airport’. The relevant portion of the agreement shall be cited as and when relevant to the discussions.
5. Comments of the Jurisdictional Officer
The application was forwarded to the jurisdictional officer as per provisions of section 98 (1) of the CGST Act. The Jurisdictional officer has not submitted any remarks and hence it is presumed that the jurisdictional officer has no specific comments to offer. It is also construed that no proceedings are pending on the issue against the applicant.
6. Personal hearing
The applicant was granted opportunity for personal hearing on 20/12/2023 via virtual mode. Sri. Hem Mahesh Chhajed, Chartered Accountant represented for the applicant for personal hearing. The representative reiterated the contentions made in the application and requested to issue ruling on the basis of the submissions made in the application.
7. Discussion and findings.
We have gone through the application in detail. The issues on which ruling is sought and the background of the issue are detailed above. The question wise discussions in this regard are as below.
1. Whether the transfer of business by the Airport Authority of India to M/s. Adani Thiruvananthapuram International Airport Limited be treated as Supply u/s. 7 of the Central Goods and Service Tax Act, 2017 (“CGST”) viz-a-viz Kerela State Goods and Service Tax Act, 2017 (“KGST”)?
We find that this is a goaded question’, .i.e., in asking whether the activity involved is to be treated as supply under the GST Act, the applicant presumes that the activity is ‘transfer of business’. This is a feature of some of the other questions as well. Such a presupposition would negate the objectivity of the ruling.. Hence, it is imperative to first examine the nature of the transaction before determining whether or not it is a supply under the GST law.
2. Whether the transfer of business by Airports Authority of India to M/s. Adani Thiruvananthapuram International Airport Limited is treated as supply as going concern and covered in clause 4 of schedule II of CGST Act viz-a-viz KGST?
a- In addition to presuming that ‘transfer of business’ is involved, this question wrongfully quotes Schedule II. Schedule II does not speak of ‘supply as going concern’ as mentioned by the applicant, but ‘transfer of going concern’ or being ‘transferred as a going concern’.
b. In order to ascertain whether the transactions involve ‘transfer as going concern’, we first have to find out what constitutes a transfer of going concern. The CGST Act or Rules do not define the concept of transfer as a going concern. Based on accounting practices in vogue, the concept of going concern has been discussed by the High Court of New Delhi, in Indo Rama Textiles case (2013) 4 Comp 141 (Del). Accordingly, an enterprise is normally viewed as a Going Concern, if it is continuing in operation for the foreseeable future. It is assumed that the enterprise has neither the intention nor the necessity of liquidation or of curtailing materially the scale of the operations. In the same case, the Hon’ble Court observed “To ensure that it is a going concern, the Court while sanctioning a Scheme can certainly examine whether essential and integral assets like plant, machinery and manpower without which it would not be able to run as an independent unit have been transferred to the demerged company”. Another clarification on transfer of going concerns is available in paragraph 7.11.15 of ‘Taxation of Service An Education Guide’ dated June 20, 2012 issued by CBEC, wherein it is clarified that “Transfer of a going concern means transfer of a running business which is capable of being carried on by the purchaser as an independent business, but shall not cover mere or predominant transfer of an activity comprising a service. Such sale of business as a whole will comprise comprehensive sale of immovable property, goods and transfer of unexecuted orders, employees, goodwill etc. Since the transfer in title is not merely a transfer in title of either the immovable property or goods or even both it may amount to service and has thus been exempted”. This definition was upheld as applicable to GST statute as well, for example, as in the Advance Ruling in M/s Rajashri Foods Pvt. Ltd, by the authority at Karnataka.
c. Now let us look at some clarifications available in international law.
i- India is a member of OECD, the Organisation for Economic Co-operation and Development (OECD). OECD is an international inter-governmental organisation which sets global standards for trade and taxation policies. OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022, in the context of pricing, has given a write up on Transfer of activity (ongoing concern), which is as below.
9.68. Business restructurings sometimes involve the transfer of an ongoing concern, i.e. a functioning, economically integrated business unit. The transfer of an ongoing concern in this context means the transfer of assets, bundled with the ability to perform certain functions and assume certain risks. Such functions, assets and risks may include, among other things: tangible property and intangibles; liabilities associated with holding certain assets and performing certain functions, such as R&D and manufacturing; the capacity to carry on the activities that the transferor carried on before the transfer; and any resource, capabilities, and rights.
ii- As per the United Kingdom’s His Majesties Revenue and Customs manual Transfer of a going concern (TOGC) is when a business, or part of a business, is sold and meets certain criteria which mean it is deemed to be a TOGC rather than a transfer of assets. In this scenario, no VAT applies to the value of the transaction, and it is ‘outside the scope’ of VAT (no output VAT is charged). The guidelines in this regard, issued by HMRC are as follows.
1.4 TOGC for VAT purposes, all of the following must apply:
- the assets, such as stock-in-trade, machinery, goodwill, premises, and fixtures and fittings, must be sold as part of the TOGC.
- the buyer must intend to use the assets in carrying on the same kind of business as the seller-this does not need to be identical to that of the seller, but the buyer must be in possession of a business rather than simply a set of assets.
- where the seller is a taxable person, the buyer must be a taxable person already or become one as the result of the transfer.
- in respect of land or buildings which would be standard-rated if it were supplied, the buyer must notify HMRC that they have opted to tax the land by the relevant date, and must notify the seller that their option has not been disapplied by the same date.
- where only part of the business is sold it must be capable of operating separately
- there must not be a series of immediately consecutive transfers of the business
d. From the above, it emerges that in order to be ‘transfer of going concern’, a going concern or an independent vertical of a going concern should be transferred to another person, such that transferee is able to carry on with the business of the transferred going concern independently. To so enable the transferee, the essential and integral assets like plant, machinery and manpower without which it would not be able to run as an independent unit should be transferred. Now we have to verify whether the concession agreement in question satisfies these conditions.
e. The relevant terms of the concession agreement were examined and the gist thereof annexed to this Ruling. We have also examined the annual report of the applicant, which is in public domain. What we discern from these documents is that-
i. the Government of India had invited bids for undertaking the operations, management and development (henceforth referred to as the ‘Project’ in terms of definition in Article 1 of the agreement) of certain airports of AAI on a public private partnership (PPP) basis. This was aimed to bring efficiency in service delivery, expertise, enterprise and professionalism, apart from harnessing necessary investments. After the due process, the concessionaire was selected to execute the project with regard to Trivandrum Airport, in accordance with the provisions of the Agreement, including all works, services and equipment relating to or in respect of the Scope of the Project. A concession agreement was signed between the applicant and the concessionaire.
ii- As per the agreement, a master plan for the development of the airport would be made and the airport would be developed in a phased manner as per the master plan. As per definition in the agreement, ‘Master Plan’ means the plan for construction of the Airport, prepared by the Concessionaire, covering Aeronautical Services and Non-Aeronautical Services. The guidelines for preparing the Master Plan are provided in Annex II to Schedule A of the agreement. From Annexure II, we find that “Thiruvananthapuram international Airport is proposed to be developed into a state-of-the-art airport serving tourism and business markets and keeping pace with the growth in air travel demand in India”. Hence, we find that the basic activity involved here is construction of the Airport, so that it is developed into a state-of-the-art Airport. The master plan is to provide the drawings and detailed mode of development. The commercial and technical terms and conditions for operations were prescribed by the applicant. The scope of the project includes design, development, financing, construction, upgradation and expansion of the Airport in a phased manner and also operations, maintenance and management of the Airport in accordance with the provisions of the agreement. These activities can be summed up as performance and fulfilment of obligations of the concessionaire. We find that all these activities are subsidiary or ancillary to the guidelines to the master plan viz., ‘construction of the Airport, so that it is developed into a state-of-the-art Airport’.
iii The exact role of the concessionaire is evident from Article-5 of the concession agreement which explains the obligations of the concessionaire. This article, inter-alia, clarifies that (5.1.7) the concessionaire shall (1) support, cooperate with and facilitate the Authority in the implementation and operation of the Project in accordance with the provisions of this agreement, applicable laws and applicable permits including… (m) transfer the project assets to the Authority upon termination of the agreement, in accordance with the provisions thereof and (n) operate, maintain, and refurbish (if necessary) the existing Airport assets including but not limited to the terminal Building, Runway, cargo terminal, car park, apron, taxiway and other Airport assets as provided in Annex I of Schedule A.
iv- From the agreement, it is evident that the concessionaire is obliged to execute and fulfil the project in a time bound manner and in accordance with the agreement. The exclusive right, lease and authority were provided to the concessionaire for a period of 50 years to execute the project in a phased manner. The concessionaire, as per the agreement, is duty bound to undertake expansion or augmentation of the Aeronautical Assets and Non-Aeronautical Assets in accordance with the provisions of the Agreement. That is to say, the expansion or augmentation of assets is not an independent activity in itself, but part of the concessionaire’s obligations under the agreement. At all times during concession period, the Concessionaire shall, no later than 10 days after the close of each quarter, furnish to the Authority a quarterly management report in this regard. Thus the nature of service is evident. The applicant, viz., AAI wants to implement the project through the concessionaire, and the concessionaire is actually supporting, cooperating with and facilitating the applicant in the implementation of the project. The Concessionaire shall undertake or cause to be undertaken the development and maintenance of infrastructure such as roads, electric supply, water supply, sewerage and drainage systems forming part of City Side Development at its cost. In case of failure, the applicant can take action against the concessionaire. The proposed annual program of preventive, urgent, and other scheduled maintenance has to be submitted by the concessionaire to the applicant. The operations of the developed airport go back to the applicant on termination of the project and the interim operation, maintenance and refurbishment of the airport is the liability of the concessionaire.
v- The concessionaire is set up solely for the purpose of exercising the rights and observing and performing its obligations and liabilities under this Agreement, i.e., the execution of the project. It has no free hand in executing the project. The Concessionaire is to undertake construction at the Airport in conformity with Schedule A, Schedule B, the specifications and standards set forth in Schedule C, and the Master Plan. The Concessionaire shall at all times procure and ensure that the Airport is constructed and developed in accordance with the Master Plan. The Concessionaire shall operate the Airport such that it achieves or exceeds the performance indicators specified in Article 23 and service quality requirements specified in Schedule H (“Key Performance Indicators”). Thus, operating and managing the airport is not the end activity, but are only the means to the end, viz., construction and development of the airport so as to achieve or exceed the performance indicators. The core activity is ‘development’ of the Airport. This is also evident from Section 12A of the Airport Authority Act, 1994, which empowers the authority to ‘make a lease of the premises of an airport (including buildings and structures thereon and appertaining thereto) to carry out some of its functions under section 12 of the Authority Act’. Hence, even the lease is not an end activity, but is only a means to carry out its functions under Section 12 of the Act, which includes, inter alia, the plan to ‘develop, construct and maintain runways, taxiways, aprons and terminals and ancillary buildings at the airports and civil enclaves’.
vi. The guidelines for preparing the Master Plan are provided in Annex II to
Schedule A and the concessionaire is bound to prepare the master plan accordingly and further, should obtain the concurrence of the applicant, prior to finalization of the master plan. The Concessionaire further agrees to update the Master Plan periodically, every 5 years. Prior to commencement of construction Works, the concessionaire shall: (a) submit to the Authority and the Independent Engineer, its development plan, detailed design, drawings, construction methodology, quality assurance procedures, and the procurement, engineering and construction time schedule for Completion of the concerned Phase. The applicant also has the right to change the scope of the project, if necessary. The applicant may, after giving notice to the Concessionaire and considering its reply thereto, award any works or services forming part of the ‘Change of Scope’, to any person on the basis of open competitive bidding. Thus, the concessionaire is only a person entrusted with the task of constructing and developing the applicants Airport as per a master plan.
vii. The concessionaire and their activities are subject to constant monitoring by the applicant. The Authority or its designated agency may, if require, inspect the Airport at least once a year with prior intimation to the Concessionaire. The Concessionaire shall ensure and procure compliance of each of the Key Performance Indicators specified in this Article 23 and for any shortfall in average performance during a quarter, the concessionaire shall be liable to pay damages to the applicant. Any such damages will be determined in consultation with the Regulator and adjusted against Aeronautical charges for the specified period. The applicant shall, from time to time, have the right to access the drafts of all project agreements, or any amendments or replacements thereto and call for any document related to the execution of the project. The implementation of each phase of the project is subject to execution of irrevocable unconditional performance guarantee by the concessionaire. In case of default from the concessionaire, the applicant shall be entitled to appropriate the performance guarantee. The performance guarantee shall remain in force till the end of the entire concession period and shall be released only three months after the period. For each phase, additional performance guarantee is also required. If the concessionaire fails to achieve any milestone, damages shall be paid to the applicant. During the development Period, the Concessionaire shall, no later than 7 days after the close of each quarter, furnish to the Authority, a report on progress. The independent engineer shall inspect the Airport works, considering the quarterly progress reports submitted by the Concessionaire, at least once a quarter and make a report of such inspection and make a report to the applicant. If in the reasonable opinion of the Authority, the Concessionaire is in material breach of its obligations under this Agreement and such breach is causing or likely to cause material hardship or danger to the users, the Authority can take appropriate action including suspension/ termination of the agreement. Even the revenue of the concessionaire is subject to constant monitoring by the applicant. The applicant is empowered to verify the international/ domestic passenger throughput and to ascertain the actual throughput at the Airport. For this purpose, the applicant can depute its representatives to the Airport and the offices of the Concessionaire, and undertake such other measures and actions as it may deem necessary. The applicant can also call upon the concessionaire to furnish any and all data, information, log, sheet, document or statement, as they may deem fit and necessary for these purposes. The applicant has the right, either through itself or through any of its authorized representative, to inspect the records of the Concessionaire during office hours and require copies of relevant extracts of books of accounts, duly certified by the statutory auditors, to be provided to the applicant for verification of basis of payments, and in the event of any discrepancy or error being found, the same shall be rectified and such rectified account shall form the basis of payments by either party under this agreement. Even the day to day operations of the Concessionaire and the running of the airport continue to be closely monitored by the applicant. The concessionaire shall submit the reports in this regard to the Authority on regular basis.
viii- The applicant and the concessionaire have titled the agreement in this regard as a concession agreement. We have looked into what a ‘concession agreement’ means. Ind AS 115, vide appendix C, defines this term. Accordingly, Infrastructure for public services-such as roads, bridges, tunnels, prisons, hospitals, airports, water distribution facilities, energy, supply and telecommunication networks-has traditionally been constructed, operated and maintained by the public sector and financed through public budget appropriation. It further says that in recent times, governments have introduced contractual service arrangements to attract private sector participation in the development, financing, operation and maintenance of such infrastructure. The infrastructure may already exist, or may be constructed during the period of the service arrangement. An arrangement within the scope of this Appendix typically involves a private sector entity (an operator) constructing the infrastructure used to provide the public service or upgrading it (for example, by increasing its capacity) and operating and maintaining that infrastructure for a specified period of time. The operator is paid for its services over the period of the arrangement. The arrangement is governed by a contract that sets out performance standards, mechanisms for adjusting prices, and arrangements for arbitrating disputes. Such an arrangement is often described as a ‘build-operate-transfer’, a ‘rehabilitate-operate-transfer’ or a ‘public-to-private’ service concession arrangement. Thus, from the name ‘concession agreement’ itself, it is evident that the transaction does not involve a transfer of business or going concern, but involves only a contractual service arrangement to attract private sector participation in the development, financing, operation and maintenance of such infrastructure.
ix. On an examination of the above facts, we find that the Airport or its activities are not transferred to the concessionaire. Though for a limited period, the project shall be jointly run by the applicant and the concessionaire. The employees of the applicant are not transferred to the concessionaire, but select employees alone will be posted to the Airport by the applicant. The employees still belong to the applicant and the liability for paying the employees are also with the applicant, though there is a provision to collect the expense from the concessionaire. The concessionaire shall have no obligation with regard to the employees of the applicant, other than the select employees. The property including the trees and mining, archaeological and geological rights on the property is with the applicant. The concessionaire has the right to operate the installations and capitalized items at the airport. However, these items have not been transferred to them. The existing assets of the Airport remain with the applicant and the right to claim depreciation on such items also remains with the applicant. This is evident from the annual report of the applicant. which is in public domain. Para 38 (iv) (a) of the annual report of the applicant for the year 2022-23, states that “The upfront payment received by AAI towards the Estimated Deemed Initial RAB should be accounted for as Operating Lease Income over the Lease Period. Asset will continue to appear in the books of AAI”. Further, as per Para 38 (iv) (b) of the report, they have received an expert advice that “whenever the concessionaire puts CWIP assets into use after completion, AAI should capitalize the value with expenditure incurred by AAI till COD and start claiming depreciation on such assets” and this advice has been accepted by them. Thus, the assets in the possession of the applicant have not been transferred to the concessionaire.
x. Now let us look at the limitations imposed on the concessionaire. As per the agreement, the Airport or any part thereof shall not be branded in any manner to advertise, display or reflect the name or identity of the Concessionaire or its shareholders. The Airport shall be known, promoted, displayed, advertised and branded by the name of “Thiruvananthapuram International Airport” only at all times. They cannot employ any contractor in connection with the execution of the project, without the permission of the applicant. As per the agreement, the concessionaire agrees and acknowledges that selection or replacement of any or all EPC Contractors or O&M Contractors and execution of all EPC Contracts or O&M Contracts shall be subject to the prior approval of the applicant. The Concessionaire shall not license or sublet the whole or any part of the site, save and except as may be expressly set forth in this Agreement. They also cannot make any material modification in the airport except as per agreement. All these show that nothing has been ‘transferred’ by the applicant to the concessionaire and the agreement does not amount to transfer of going concern.
f. From the above discussions, we come to the conclusion that neither the going concern, i.e., the Airport Authority of India nor any of its verticals have been ‘transferred’ to the Concessionaire either through Slump Sale, lease or in any other discernible manner, so as to enable the concessionaire to carry out the business of the concern independently.
g. The next question is then to find out the exact nature of the activity or transaction involved. The nature of transaction is evident from Section 12A of the AAI Act, 1994 and also from the Concession agreement. It is limited to bringing in of private partnership to carry out the activities in Section 12 of the Airport Authority Act, 1994. As per the concession agreement, the bids are for “undertaking the operations, management and development of certain airports of AAI on a public private partnership basis”. The applicant wants to develop the airport on a PPP basis to bring efficiency in service delivery, expertise, enterprise and professionalism apart from harnessing investments, and invited the partnership of the concessionaire in the said activity. The annual report of the AAI for 2022-23 also includes this airport under its airports operating under PPP scheme (page 150). That being the case, it cannot be equated to `transfer’ of the Airport or any of its vertical. From the facts on record, in the transaction, it is _evident that there is no transfer of any property or rights. All the rights and leases granted to the concessionaire are part and parcel of this development activity only. Nothing stands transferred. Everything related to the airport, the real estate, title, capital assets, installations, employees, goodwill and the brand remain with the applicant. The concessionaire is engaged to develop the airport for the applicant. The said activity of development is subject to approval and constant monitoring of the applicant. To this end, the operations and management has been handed over to the concessionaire. This does not fall under transfer as going concern’. In order to facilitate the concessionaire for successful completion of the agreement, we find that the facilities of the airport have been leased to the concessionaire. We find that this lease is only an operating lease as admitted by the applicant in Para 38 (iv) (a) of the annual report of the applicant for the year 2022-23, wherein it is stated that “The upfront payment received by AAI towards the Estimated Deemed Initial RAB should be accounted for as Operating Lease Income over the Lease Period. Asset will continue to appear in the books of AAI”. An operating lease is a contract that allows for an asset’s use but does not convey ownership rights of the asset. As per Ind AS 17, a lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership, as against a finance lease which transfers substantially all the risks and rewards incidental to ownership. From the nature of the transaction, we find that the lease involved herein is of the category of ‘operating lease’ since no transfer of assets is involved.
h- In this background, we now seek to examine whether the transfer of business by the Airport Authority of India to the M/s. Adani Thiruvananthapuram International Airport Limited is to be treated as Supply u/s. 7 of the Central Goods and Service Tax Act, 2017 (“CGST”) viz-a-viz Kerela State Goods and Services Tax Act, 2017 (“KGST”)?.
- As elaborated supra, the transaction in question cannot be classified as a transfer of business , but is only an operating lease.
- Though no transfer of going concern is involved, there are two transactions taking place. One is the ‘operation, development and management’ of the airport which includes design, development, financing, construction, up gradation and expansion of the Airport in a phased manner in accordance with the provisions of the agreement. This service is provided by the concessionaire to the applicant. No fee is specifically prescribed for this service. However, during the agreement period, the concessionaire is empowered to collect the entire fee for all operations at the airport, which otherwise would be due to the applicant, and this amount has to be construed to be remuneration to the concessionaire, for the services rendered by them to the applicant.
- The second is the set of services is provided by the applicant to the concessionaire. This includes leasing of the facilities, providing employees etc. for which a remuneration is fixed. In both these cases, both supply and consideration are involved.
As per Section 7 of the CGST Act, 2017, Supply includes “(a) 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”. Here, the concessionaire is constructing the Airport of the applicant to develop it “into a state-of-the-art airport serving tourism and business markets and keeping pace with the growth in air travel demand in India”. Further, they are receiving consideration in the forms of fee collected for all services rendered by the airport. Conversely, the applicant is supplying their employees to the concessionaire for a limited period and also leasing its facilities to the concessionaire for a consideration. Thus, both the conditions, viz., supply of service and consideration are satisfied in both the transactions. In other words, both the transactions fall squarely within the scope of supply.
3. Whether the transfer of business by M/s. Airports Authority of India to M/s. Adani Thiruvananthapuram International Airport Limited is covered under the Entry No. 2 of the exemption notification No 12/2017 — Central Tax (Rate) dated 28-06-2017 issued u/s Section 11 of CGST Act 2017″?
As elaborated earlier, as there is no transfer of business in this case, the question is void-ab-initio and does not merit to be answered.
4. The next question is, if the answer to above is negative, whether GST is leviable on the transfer of existing assets (“RAB”), aeronautical assets, non-aeronautical assets and capital work in progress by the applicant to the concessionaire?
On an examination of the concession agreement, it is clear that the applicant has not transferred the existing assets, aeronautical assets and non-aeronautical assets to the concessionaire. These are still with the applicant and applicant avails depreciation on them. Hence, this question becomes void-ab-initio and does not merit to be answered. However, it is also evident that the above has been leased to the concessionaire, though such lease does not merit to be called ‘transfer’ as discussed against question 2 above. The said lease is against a consideration. Thus GST is leviable on the same.
5. The fifth question is whether the aforesaid transfer of asset is to be treated as services and the classification for the same?
As for the above questions, we find that there is no transfer of assets involved and therefore, this question is also void-ab-initio.
6. The next question is whether the concession fees paid by the concessionaire to the applicant are to be treated as consideration for transfer of business?
There is no transfer of business involved. However, in order to find an answer to this question, we have to look into the reasons for payment of concession fee by the concessionaire to the applicant. As per Article 10.2.2 of the agreement, it is seen that ‘In consideration of the Monthly Concession Fee, this Agreement and the covenants and warranties on the part of the Concessionaire herein contained, the Authority, in accordance with the terms and conditions set forth herein, shall grant to the Concessionaire, commencing from the COD, lease rights in respect of all the land (along with any buildings, constructions or immovable assets, if any, thereon) comprising the Site which is described, delineated and shown in Schedule A hereto, free of any Encumbrances, to develop operate and maintain the Site’. As already elaborated above, this lease does not empower the concessionaire to operate independently and thus does not qualify to be treated as ‘transfer of going concern.’ However, this lease is a supply against consideration, the consideration being concession fee. The supplier in this regard is the applicant and recipient of supply is the concessionaire. Thus the concession fee paid to the applicant by the concessionaire is a consideration for supply and is taxable.
7. The seventh question is whether GST is applicable on Monthly/Annual concession fees charged by the Applicant on the concessionaire?
For the reasons in the above paragraph, the transaction constitutes supply made by the applicant for a consideration from the concessionaire and thus GST is applicable on the same.
8. The eighth question is whether GST is leviable on the invoice raised by the Applicant for reimbursement of the salary/ staff cost on the concessionaire, and if yes, at what rate?
From clause 6.5.5 of the agreement, we find that this amount represents the `emoluments payable by the applicant to select employees, i.e., employees of the applicant working for the concessionaire. In this regard, we find that the employees of the applicant are supplied to the concessionaire for a consideration, in pursuant to the agreement. This service falls under “Other employment and labour supply services nowhere else classified” viz. HSN 998519. The applicable tax rate for this SAC is 9% each towards CGST and SGST as applicable vide Notification No 11/2017 Central Tax (Rate) dated 2806-2017.
9. The next question is whether GST is applicable on the reimbursement claimed of Municipal tax, Property Tax and Water Charges by the applicant from the concessionaire, and if yes, at what rate?
In this regard, we are of the opinion that such taxes do not constitute the consideration received by the supplier, but are actlaals payable to government departments and we are of the opinion that reimbursement of such taxes does not attract GST. This view is in tune with the view upheld by Circular No 206/18/2023-GST dated 31-10-23, which states that reimbursement of expenses without value addition is not taxable under GST. This is applicable only if such taxes are ‘reimbursed’ by the concessionaire to the applicant independent of the lease.
10. The last question is whether any reversal is required in accordance with section 17 (2)/(3) of CGST Act viz- a-viz KSGST Act?
This question is asked without specifying the context and without explaining the details under which the same is put. If the applicant has inward supply of goods or services or both which are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, then reversal is to be made as per Section 17 (2). There is no reversal to be made under Section 17 (3), since 17 (3) only explains about the value of exempt supply. With regard to the supply made by the applicant to the concessionaire which are specifically discussed above, we find that the services are not exempted and hence, no GST reversal is warranted in respect of those supplies.
In view of the observation stated above, the following rulings are issued;
RULING
Question No. 1 Whether the transfer of business by the Airport Authority of India to the M/s. Adani Thiruvananthapuram International Airport Limited be treated as Supply u/s. 7 of the Central Goods and Service Tax Act, 2017 (“CGST”) viz-a-viz Kerala State Goods and Service Tax Act, 2017 (“KGST”)?
RULING: The transaction involved herein is not the transfer of business by the applicant to the concessionaire. However, the concessionaire is supplying the service of developing the airport of the applicant and applicant is supplying the service of manpower, leasing etc., to the concessionaire and both constitutes supply under Section 7 of the GST Act.
Question No. 2 Whether the transfer of business by Airports Authority of India to M/s. Adani Thiruvananthapuram International Airport Limited is treated as supply as going concern and covered in clause 4 of schedule II of CGST Act viz-a-viz. KGST?
RULING: There is no concept of ‘Supply as going concern’ in Schedule 4 of the CGST Act, 2017. The concept therein is that of ‘Transfer as going concern’. The transaction involved herein cannot be treated as a transfer as going concern.
Question No. 3 Whether the transfer of business by M/s. Airports Authority of India to M/s. Adani Thiruvananthapuram International Airport Limited is covered under the Entry No. 2 of the exemption notification No 12/2017 Central Tax (Rate) dated 28-06-2017 issued u/s Section 11 of CGST Act 2017?
RULING: No. The said exemption does not cover the activity involved herein. The said entry covers ‘Services by way of transfer of a going concern’.
Question No. 4 If the answer is negative, then whether GST is leviable on the transfer of Existing assets (“RAB”), Aeronautical Assets, non-aeronautical assets and Capital work in progress by M/s. Airport Authority of India to the M/s. Adani Thiruvananthapuram International Airport Limited?
RULING: Since the assets mentioned have not been transferred to the concessionaire, the question per se is void-ab-initio. However, since the amounts are received as a consideration for leasing/supplying the assets to the concessionaire, GST is payable on the same.
Question No. 5 Whether the aforesaid transfer of asset be treated as services and the classification for the same?
RULING: There is no transfer of asset and the question is void-ab-initio.
Question No. 6 Whether the concession fees paid by M/s. Adani Thiruvananthapuram International Airport Limited to M/s. Airports Authority of India be treated as consideration for transfer of business?
RULING: No. It is not consideration for transfer of business.
Question No. 7 Whether GST is applicable on Monthly/Annual concession fees charged by the Applicant on the M/s. Adani Thiruvananthapuram International Airport Limited?
RULING: Yes. GST is applicable on annual concession fees charged by the applicant on the concessionaire.
Question No. 8 Whether GST is leviable on the invoice raised by the Applicant for reimbursement of the salary/ staff cost on M/s. Adani Thiruvananthapuram International Airport Limited? If yes, at what rate?
RULING: Yes. GST is leviable on the invoices raised by the applicant for reimbursement of salary/ staff cost on the concessionaire. It is to be paid at 9% each towards CGST and SGST or 18% IGST as may be applicable under SAC `998519′.
Question No. 9 Whether GST is applicable on the reimbursement claimed of Municipal tax, Property Tax and Water Charges by the Applicant from M/s. Adani Thiruvananthapuram International Airport Limited? If yes, at what rate?
RULING: We are of the opinion that reimbursement of such taxes, being reimbursement of expenses, do not attract GST and therefore, GST is not applicable on the reimbursement of such charges. This ruling is applicable only if such taxes are ‘reimbursed’ by the concessionaire to the applicant. If such taxes are embedded in the consideration for lease and cannot be identified, this ruling does not hold good.
Question No. 10 Whether any reversal is required in accordance with section 17 (2)/(3) of CGST Act viz- a-viz KSGST Act?
RULING: This ruling is requested without specifying the context or situation in which the same is put. Therefore, only a general ruling can be offered. If the applicant has inward supply of goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, then reversal is to be made as per Section 17 (2). There is no reversal to be made under Section 17 (3) since 17 (3) only explains about the value of exempt supply.
