GST Exemption on 90-Year Lease Premiums: Conditional and Not Considered Sale of Land

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

• upfront amount is payable for granting of long term lease of thirty years or more;

The land allotted by the Applicant to developers in the industrial town of NOIDA is long term lease for a period of ninety nine years. Hence the said pre requisite is fulfilled.

• the lease is either an industrial plot or for development of infrastructure for industrial or financial business;

For development of an industrial area essential infrastructure such as hotels, hospitals, retail spaces, commercial spaces etc. is also developed. Therefore, grant of plots by the applicant for developing necessary infrastructure in the form of commercial spaces including hotels, hospitals etc would fulfill the aforesaid conditions.

• the plots are allotted by the State Govt Industrial Development corporations or undertakings or by any other entity having at lease 20% ownership of State or Central Govt.; and

That the applicant is a duly constituted ‘industrial development authority’ of the Government of the state of Uttar Pradesh and therefore the said condition is also fulfilled.

• Such plots are allotted to the industrial units or the developers in any industrial or financial business area.

That the plots are allotted in NOIDA which is a notified ‘industrial development area’. Further the plots are allotted to developers by way of auction for development of necessary infrastructure which is essential for an industrial or financial business area and in itself is an industry. Therefore the said conditions is also fulfilled.

They referred to the decision of the Advance Ruling Authority in the case of Yamuna Expressway Industrial Development Authority, wherein it was held that the plot of land allotted by Yamuna Expressway Authority for hospital, nursing home, diagnostic centre purposes etc would be eligible for the aforesaid exemption under the exemption notification. The said advance ruling squarely applies to the facts of their present case and therefore the upfront premium payable on the allotment of commercial plots which would be used for development of office/commercial space for information technology and other service industries duly qualifies as ‘industrial plot’ and is eligible for the exemption.

ii) That the transaction of long term lease per se does not qualify as supply of service but as a transaction for sale of land and therefore the same is not taxable under GST at all. As per para 5 of the Schedule III of the CGST Act, sale of land shall be treated neither as supply of goods nor a supply of services hence not taxable under GST.

They referred to the definition of ‘immovable property’ under Section 2(6) of the Registration Act, 1880 and Section 3(26) of the General Clauses Act and they further referred to the definition of Hand’ under Section 3(a) of Land Acquisition Act, 1894 and Section 3(4) of Bombay Land Revenue Code, 1879. Accordingly leasehold rights are benefits conferred upon a person to enjoy the occupancy and possession over the land for the lease period and hence GST would not be applicable on allotment of land on long term basis. They also placed reliance upon the decisions in the case of Archaka Sundara Raju Dikshatulu V Archaka Seshadri Dikshatulu reported in (1928) 54 MLJ 76. They also placed reliance on the CESTAT order in the case of DLF Commercial Projects Corporations V Commissioner of Service tax, Gurugram 2019 – TIOL-1514-CESTAT whrein it was held that development right is benefit arising out of land and therefore, the same is not chargeable to service tax.

7. The application for advance ruling was forwarded to the Central Jurisdictional GST Officer vide letter dated 27.07.2023 and 17.08.2023 to offer their comments/views/verification report on the matter. However, No comments in the matter has been received in the matter.

8. Mr. Sanjeev Dutt, F & AO, Authorized Representative of the applicant appeared for the personal hearing held on 04.08.2023, in virtual mode and reiterated the submissions made in the application of advance ruling.

DISCUSSION AND FINDING

9. 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 to the earlier, henceforth 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*.

10. We have gone through the submissions made by the applicant and have examined the interpretation submitted by them. At the outset, we find that the issue raised in the application is squarely covered under Section 97(2) (b)of the CGST Act 2017 being a matter related to applicability of a notification issued under the provisions of this Act. We therefore, admit the application for consideration on merits.

11. NOIDA was declared as “Industrial Development Area” under the provisions of UPIAD Act and the applicant had been assigned the primary function to secure the planned development of the Industrial Development Area by the UPIAD Act, 1976. 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.

The allotment of plots of NOIDA was made by the applicant on sealed tender basis/auction basis/ two bid system as prescribed under Policies & Procedure for Commercial Management, 2004. 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.

12. The applicant in the present application has sought advance ruling on following question/clarification,-

i) Whether the upfront amount charged by the Applicant (as lease premium) for granting long-term lease of ninety years, in respect of allotment of plots to the industrial units or the developers, for the development of industrial infrastructure in the notified industrial town of NOIDA, such as for residential, commercial, retail, hospital, logistics etc. is exempt from payment of GST in terms of Entry No 41 of Notification No 12/2017-CT(Rate) dated 28.06.2017 (as amended by Notification No 32/2017-CT (Rate) dated 13.10.2017) and Entry No 41 of Notification No KA NL-2-843/XI-9(47)/17 (UPGST-Rate) dated 30.06.2017?

ii) Whether the upfront amount charged by the Applicant (as lease premium) for granting long-term lease of ninety years is in the nature of transaction for sale of land and therefore outside the scope of levy of GST?

13. From the submissions made by the applicant, we observe that the applicant has been entrusted the responsibility of planned development of Industrial Development Area, for which they have been receiving bids from prospective customers. After the bids are opened, the plots are allotted to successful bidders and the applicant charges and collects an Upfront amount in the name of lease premium. We find that the above situation is covered under Sr no 41 of the Notification No 12/2017-CT(Rate) dated 28.06.2017. The same is reproduced below for the sake of convenience.

As per the provisions contained in Sr No 41 of Notification No 12/2017-CT(Rate) dated 28.06.2017, Nil tax rate is applicable on fulfillment of following conditions :-

i) There should be an upfront amount for granting long term lease of thirty years, or more

ii) The lease should be for an industrial plot or plots for development of infrastructure for financial business.

iii) The plots are allotted by the State Government Industrial Development Corporation or undertakings or by any other entity having at least 20 % ownership of state or central government and

iv) Such plots are allotted to the industrial units or the developers in any industrial or financial business area.

On going through the application filed by the applicant, it transpires that the conditions stipulated at point no i, iii and iv have been fulfilled by the applicant since there is upfront amount for a long term lease exceeding 30 years, the plots are allotted by entity having 20% ownership or state or central government and the plots are allotted to the industrial units or the developers in any industrial or financial business area.

The condition ii) stipulates that the lease should be for an industrial plot or plots for development of infrastructure for financial business.

Further, the condition stipulated in column no (5) at sl no 41 of the Notification No 12/2017-CT(Rate) dated 28.06.2017, specifies that the leased plots shall be used for the purpose for which they are allotted, ie., for industrial or financial activity in an industrial or financial business area;

However, on going through the question raised by the applicant for seeking advance ruling, it is found that the applicant has granted long-term lease, for development of infrastructure such as for residential, commercial, retail, hospital, Logistics etc.

The applicant submitted model “LEASE DEED” and the relevant portion of the deed is as below:-

“……
.
.

AND WHEREAS the Lessor has agreed to demise and the Lessee has agreed to take on lease the Plot. … at sector-..,NOIDA (hereinafter referred to as the “Demised Premises”) for the development of infrastructure for financial business including but not limited to Commercial complex for commercial activities such as shopping malls, showrooms, retail outlet, hotels, restaurants, offices and such commercial uses,….”

That is the proposed lease of land by the NOIDA is for the development of infrastructure of financial business. The proposed infrastructure includes commercial activities.

The applicant has submitted that in Uttar Pradesh Advance Ruling Authority in the case of Yamuna Expressway Industrial Development Authority, wherein it was held that the plot of land allotted by Yamuna Expressway Authority for hospital, nursing home, diagnostic centre purposes etc would be eligible for the aforesaid exemption under the exemption notification.

In Jharkhand Advance Ruling in the case of M/s. Ranchi Smart City Corporation Limited, the advanced ruling held the leasing of industrial plots or plots for development of infrastructure for financial business, a Government entity, to the industrial units or the developers in this Area Based Developed property for commercial/ mixed use is exempted from the tax. In cases other than that, the applicable rate of Goods & Services Tax in case of leasing services is 18%.

The infrastructure for financial business may include commercial/ mixed use. Thus, the commercial/ mixed use plot is exempted from GST as long as it is for development of infrastructure for financial business and other conditions as stipulated in the Notification No 12/2017-CT(Rate) dated 28.06.2017 are satisfied.

The model “lease deed” submitted by the applicant state that development of infrastructure for financial business. Hence, the leasing of industrial plots or plots for development of infrastructure for financial business by NOIDA to the industrial units or the developers in this notified area for commercial/ mixed use is exempted from the tax. In cases other than that, the applicable rate of Goods and Services Tax in case of leasing services is 18%.

14. The second question raised by the applicant is, whether the long-term lease is in the nature of sale of land, hence outside the scope of supply under the provisions of CGST Act?

Para 2(a) of the Schedule II to the CGST Act stipulates that , ‘any lease, tenancy, easement, licence to occupy land is a supply of services’. There is no differentiation between long term or short term lease. Further long term lease cannot be equated to sale land since in the case of long term lease, the ownership of the leasehold land vests with the lessor. A lease deed is executed between both the parties. The relationship between both parties is that of Lessor and Lessee and not seller and buyer. Further Entry at SI No 5C of Notification 13/2017-CT (Rate) as amended, Entry at Sr No 41 of Notification No 12/2017-CT(Rate) dated 28.06.2017 contain specific reference to the long term lease of land. Hence long-term lease of land is not outside the scope of supply under the provisions of CGST Act.

15. From the analysis of the above paras, we are of the considered views that the upfront amount charged by the Applicant (as lease premium) for granting long-term lease of ninety years, in respect of allotment of plots to the industrial units or the developers in the notified industrial town of NOIDA for development of infrastructure for financial business is exempt from payment of GST in terms of Entry No 41 of Notification No 12/2017-CT(Rate) dated 28.06.2017 (as amended by Notification No 32/2017-CT (Rate) dated 13.10.2017) and Entry No 41 of Notification No KA NL-2-843/XI-9(47)/17 (UPGST-Rate) dated 30.06.2017. Further, the upfront amount charged by the Applicant (as lease premium) for granting long-term lease of ninety years is in not in the nature of transaction for sale of land and therefore the same is not outside the scope of levy of GST.

16. In view of the above discussions, we, both the members unanimously rule as under;

RULING

(i) Whether the upfront amount charged by the Applicant (as lease premium) for granting long-term lease of ninety years, in respect of allotment of plots to the industrial units or the developers, for the development of industrial infrastructure in the notified industrial town of NOIDA, such as for residential, commercial, retail, hospital, logistics etc. is exempt from payment of GST in terms of Entry No 41 of Notification No 12/2017-CT(Rate) dated 28.06.2017 (as amended by Notification No 32/2017-CT (Rate) dated 13.10.2017)) and Entry No 41 of Notification No KA NI.-2-843/XI-9(47)/17 (UPGST-Rate) dated 30.06.2017?

Answer : Exempted, if the long-term lease is industrial plot or for development of infrastructure for financial business and satisfy the conditions laid in the said notification as amended. Otherwise, the activity is taxable under GST.

(ii) Whether the upfront amount charged by the Applicant (as lease premium) for granting long-term lease of ninety years is in the nature of transaction for sale of land and therefore outside the scope of levy of GST?

Answer : In negative

17. 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, 2017until and unless declared void under Section 104(1) of the Act.