In re New Okhla Industrial Development Authority (NOIDA) (GST AAR Uttar Pradesh)
The Goods and Services Tax (GST) regime in India is intricate, with its applicability on various transactions often subject to specific conditions and interpretations. A recent ruling by the Authority for Advance Ruling (AAR) in Uttar Pradesh concerning the New Okhla Industrial Development Authority (NOIDA) sheds light on the GST implications for 90-year lease premiums. This article delves into the nuances of the ruling, offering a comprehensive analysis for stakeholders in the real estate and development sectors.
The AAR Uttar Pradesh examined the GST applicability on the upfront amount charged for granting a ninety-year lease of plots by NOIDA for the development of industrial infrastructure. The key points of consideration were whether such transactions are exempt from GST and if they constitute a sale of land, thus falling outside the GST purview.
1. GST Exemption on Lease Premiums:
The exemption hinges on specific conditions outlined in Entry No 41 of Notification No 12/2017-CT (Rate) dated 28.06.2017 (as amended) and the corresponding state notification. The conditions for exemption include:
- The lease must be for a term of thirty years or more.
- It should be for industrial plots or for the development of infrastructure for financial business.
- The lessor should be a state government industrial development corporation, undertaking, or any entity with at least 20% ownership by central or state governments.
- The plots must be allotted to industrial units or developers in any industrial or financial business area.
NOIDA’s lease of plots for the development of infrastructure fulfills these conditions, rendering the upfront lease premiums exempt from GST, provided the plots are used for the intended purpose.
2. Nature of Transaction: Lease vs. Sale of Land:
The ruling clarified that the upfront amount charged for granting a ninety-year lease does not constitute a sale of land. Rather, it falls within the scope of GST as it does not transfer ownership but only confers certain rights for a specified period. The AAR distinguished between the sale of land (exempt from GST) and long-term leases, which are subject to GST regulations unless specifically exempted.
Conclusion: The AAR ruling provides critical clarity on the GST implications for long-term lease premiums, especially in the context of industrial and infrastructure development in NOIDA. It underscores the importance of meeting specific conditions for exemptions and delineates the distinction between lease transactions and land sales under GST law. This decision is pivotal for developers and investors, guiding their financial and operational strategies in compliance with GST regulations.
The clarification ensures that stakeholders can navigate the GST landscape with greater certainty, potentially influencing the structuring of real estate transactions and development projects in NOIDA and similar jurisdictions.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, UTTAR PRADESH
M/s New Okhla Industrial Development Authority (NOIDA), Administrative Complex, Sector -6, Noida, G B Nagar, Uttar Pradesh -201301. (hereinafter referred as “the applicant”) having GSTIN09AAALN0120A1ZV have filed an application for Advance Ruling under Section 97 of the CGST Act, 2017 read with Rule 104 of the CGST Rules, 2017 and Section 97 of UPGST Act, 2017 read with Rule 104 of the UPGST Rules, 2017 in Form GST ARA-01 (the application form for Advance Ruling), discharging the fee of Rs. 5,000/- each under the CGST Act and the UPGST Act.
2. The applicant is a statutory authority constituted under Section 3 of the Uttar Pradesh Industrial Act, 1976 (herein after referred to as UPIAD Act 1976) vide Notification dated 17.04.1976 and the applicant works under the administrative control of the Infrastructure & Industrial Development Department, Government of Uttar Pradesh. The applicant was entrusted with the responsibility of preparing Master Plan for development of the area, to demarcate and develop sites for various land uses, to allot plot/properties as per regulations, to regulate the erection of buildings and setting up industries and to provide infrastructure and amenities.
3. The Applicant is registered under the provisions of Central Goods and Services Tax Act, 2017 as well as Uttar Pradesh Goods and Services Tax Act, 2017 (herein after referred to as the CGST Act and UPGST Act respectively). The applicant is a “Local Authority’ as per Section 2(69) of the CGST Act, 2017 and the applicant is also recognized as a “Local Authority’ by the Ministry of Finance, Government of India vide its Office Memorandum dated 20.12.2017 in terms of provisions of section 2(69) of the CGST Act, 2017.
4. The primary function assigned to the applicant by the UPIAD Act, 1976 was to secure the planned development of the Industrial Development Area. NOIDA was declared as “”Industrial Development Area” under the provisions of the UPIAD Act vide Notification dated 17.04.1976. In terms of Section 6 of the UPIAD Act, 1976, the applicant is assigned with the function of allocating land for the purposes of creating necessary infrastructure for development of NOIDA as “industrial development area’. In this regard, in exercise of powers conferred under Section 19 read with Section 6 of the UPIAD Act, 1976, the applicant notified the New Okhla Industrial Development Area (Preparation and Finalization of Plan) Regulations, 1994 (herein after referred to as ‘”NOIDA Plan Regulations, 1991”) for the purpose of proper planning and development of NOIDA as an industrial development area with all necessary infrastructure.
5. The allotment of plots of NOIDA and other matters incidental to the management of plots identified for development of commercial infrastructure are governed by the Policies & Procedures for Commercial Property Management, 2004 (hereafter referred to as “Policies & Procedures 2004”), wherein as per Clause A, the allotment of commercial properties/plot are made by the Applicant on sealed tender basis/auction basis/two bid system. And as per Clause B, any person may submit tender for one or more than one plot/built up shops. Based on the bid filed by the participants, the bid is opened, and properties/plots are allotted to the successful bidder on “As is Where is Basis’ for which the applicant charges applicable “Premium” as per the terms and conditions mentioned in Para D of the Policies and Procedures, 2004.Further, as per Para F of the said Policies and Procedures, 2004, the allotment of plot is made on lease hold basis for a period of 90 years from the date of lease deed.
6. Applicant’s Interpretation of Law:
6.1 As per the applicant’s understanding, the upfront amount charged by the Applicant (as lease premium) in respect of allotment of plots by way of granting long term lease, for creating necessary commercial infrastructure such as hotels, hospitals, retail shops, offices, institutions etc would be covered under the scope of Entry No 41 of exemption Notification No 12/2017-CT(Rate) dated 28.06.2017 as amended for the following reasons :
i) Entry No 41 of the exemption Notification No 12/2017-CT(Rate) dated 28.06.2017 provides that the rate of tax on upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable in respect of service by way of granting of long-term lease of thirty years or more of industrial plots or plots for development of infrastructure for financial business, provided by the State Government Industrial Development Corporations or Undertakings or by any other entity having 20% or more ownership of Central Government, State Government, Union territory to the industrial units or the developers in any industrial or financial business area shall be NIL.
Following conditions have been specified for applicability of the aforesaid exemption benefits namely
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