In re Indian Institute of Information Technology And Management (GST AAR Kerala)
Kerala Authority for Advance Ruling (AAR) considered whether the cancellation of lease agreements signed before the GST regime constitutes a “supply” under the CGST Act. The applicant, Indian Institute of Information Technology Management-Kerala (IIITMK), had entered into two long-term lease agreements with Technopark—one in 2009 and another in 2011—for land parcels to construct campus buildings. Both agreements were executed in the pre-GST era, and lease amounts were capitalised and amortised in the institute’s books. Due to statutory developments and the establishment of the Kerala University of Digital Sciences, Innovation and Technology (KUDSIT), IIITMK proposed to cancel the leases to transfer land ownership to the university, a requirement for regulatory compliance. Technopark agreed to refund IIITMK proportionate lease amounts for the unexpired lease period, adjusted against pending dues.
IIITMK sought a ruling on whether the lease cancellation and the resulting financial adjustments would trigger GST liability. The applicant contended that the lease agreements, being from the pre-GST period, do not attract GST. It argued that surrendering a lease is not a taxable “supply” under Section 7 of the CGST Act or Schedule II, which defines active lease or occupancy as a supply of service. The refund of proportionate lease payments is a return of advance consideration and not income. The applicant also submitted that there was no agreement to “tolerate” the cancellation or to perform any act in return for consideration, a key requirement for something to be classified as a taxable supply under GST.
