Handing over of Building and Civil Structure, including railway siding, “as is where is basis” consideration towards “agrees to the obligation” and therefore taxable under GST-AAR-ODISHA
In re Essel Mining Industries Limited (GST AAR Odisha), Order No. 01/ODISHA-AAR/2024-25, 28/08/2024
Summary: In the AAR Odisha ruling (Order No. 01/ODISHA-AAR/2024-25), Essel Mining Industries Limited’s transfer of buildings, civil structures, and railway sidings to Odisha Mining Corporation Ltd (OMCL) was deemed a taxable service under GST. Although the transfer was considered a lease extension where the buildings and infrastructure were handed over to OMCL, the applicant’s argument that this should be classified as a sale under Clause 5 of Schedule III of the CGST Act, 2017 was rejected. The ruling clarified that since Essel Mining did not hold rights to the land, the transfer was not a sale but rather a service. Under the contractual agreement, where Essel Mining agreed not to remove the structures in exchange for consideration, the transaction falls under the scope of supply as per Section 7(1) of the CGST Act. This arrangement was categorized as a service under entry SI. No. 5(e) of Schedule II, taxable at 18% GST as per Notification No. 11/2017 CT (Rate).
In case of Essel Mining and Industries Ltd – AAR-ODISHA- held that transfer of Building and Civil Structure, including railway siding, by applicant is covered under the scope of supply and taxable under GST as supply of service.
Fact of the case:-
Applicant is a public limited company registered under the Companies Act, 1956 and engaged in the business of mining, iron pellets, Noble Ferro Alloys etc. amongst others. The applicant had entered into a lease deed with the Government of Odisha. To carry out the mining operations at the aforesaid mines, the applicant had constructed building & Civil Infrastructures along with railway sidings and plant and machinery. The lease deed had exclusively granted the power to the applicant to carry out any operation on the said mines which were necessary for carrying out mining operations.
On expiry of extended lease period the Government of Odisha decided to grant the mining lease to Odisha Mining Corporation Ltd (OMCL). which is a wholly owned corporation of the Government of Odisha. a final understanding was reached between the parties wherein it was agreed that the OMCL will take over the buildings, including railway siding and plant and machinery constructed by the applicant on the mines.
Question to AAR:-
Based on the facts below question is posed to AAR-ODISHA-
“Whether handover of Building and Civil Structure, including railway siding, by the applicant to OMCL tantamount to sale of building and covered under clause no.5 to Schedule III of the CGST Act, 2017?”
Authority Finding and conclusion.
The Apex Court in the case of CIT v. Motors and General Stores (P.) Ltd (1967) 66 ITR 692 also relied upon the above definition in the context of the Income Tax Act and held that ‘sale’ is a transfer of ownership in immovable property for a money consideration. Without land, any building or any portion of building structure has no existence, and for transfer of ownership in building some rights in land is essential. Building is in nature of addition to land. After construction of building on land the property has to be sold as land and building. Building cannot be sold without appropriate claim in land. Therefore, for selling building or building structure or any portion/part of it, proportionate share in land is also to be transferred.
the applicant has no right or ownership in the land. In view of the above, the interpretation of applicant that handover of Building structure and railway siding, by the applicant to OMCL tantamount sale of building and covered under clause no. 5 of Schedule -III of CGST Act, 2017, is not correct.
However, under contractual agreement between the applicant and OMCL wherein the applicant effectively agrees to an obligation to refrain from removing the constructed/erected structures for the benefit of OMCL against receipt of consideration is covered under the scope of supply under Section 7 (1) of the CGST Act and the contractual agreement of agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act is treated as a supply of Service as per entry SI. No. 5(e) of the Schedule-II of the CGST Act.
The contractual agreement of handing over of Building and Civil Structure, including railway siding, by the applicant against receipt of consideration; effectively a contractual agreement to refrain from removing the erected structures against receipt of consideration is treated as supply of service as per the Clause 5(e) of Schedule -II of the CGST Act, 2017. It is a service classifiable under other miscellaneous service (SAC 999792) and taxable @18% under SI. No. 35 of Notification no. 11/2017 CT (Rate) date 28.06.2017.
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