In re Jinmagal Corporation (GST AAR Gujarat)
Question 1. Whether the one time long term lease premium payable/paid by the Jinmangal Corporation to Ahmedabad Urban Development Authority is supply and thus liable to pay tax as pr Section7?
Answer : Affirmative in view of the above discussion.
Question 2. Whether Jinmagal Corporation is required to discharge pay tax under Reverse Charge Mechanism in accordance to Section 9(3) on one time lease premium payable to AUDA in light of Notification No. 13/2017 as amended by Not. No. 05/2019.
Answer : Affirmative in view of the above discussion.
Question 3. Whether the annual lease premium payable/paid by the applicant is supply?
Answer : Affirmative in view of the above discussion.
Question 4 Whether Jinmangal Corporation is required to discharge/tax under Reverse Charge Mechanism in accordance to Section 9(3) on one time lease premium payable to AUDA in light of Notification No. 13/2017 as amended by Not. No. 05/2019.
Answer : Affirmative in view of the above discussion.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING,GUJARAT
BRIEF FACTS
M/s. Jinmagal Corporation, 4, Chintamani Villa Bunglow, B/H. H.H. Patel High School, Ramnagar, Sabarmati, Ahmedabad a partnership firm not having GST Registration, filed an application for Advance Ruling under Section 97 of CGST Act, 2017 and Section 97 of the GGST Act, 2017 in FORM GST ARA-01 discharging the fee of Rs. 5,000/- each under the CGST Act and the SGST Act.
2. The applicant submitted that Ahmedabad Urban Development Authority (hereinafter referred to as “AUDA”) had carried out e-auction for leasing certain plots for a period of 99 years. The plot so auctioned could be used only for the purpose of construction of commercial projects.
3. The applicant further submitted that they have secured bid for plot No. 265, TP 22, Chandkheda through e-auction conducted by AUDA. They required to pay one time lease premium /salami of Rs. 35,65,85,940/-as one time long term lease premium/ salami as consideration for the said plot. The applicant is also required to pay annual lease premium of Rs. 5 per Sq. Mtr each year for 99 years as per the tender document as annual lease premium paid.
4. The applicant submitted that they are of the view that a long term lease for a period exceeding 30 years tantamount to sale of the immovable property since the lessor is deprived of the right to use , enjoy and possess the property once the said lease has been granted.
4. The applicant submitted that the attention is drawn to the Entry No. 49 of the List II of Seventh Schedule of the Constitution of India, which empowers only the State government to levy any tax on land which is produced hereunder,-
“49 Taxes on Land and Building”
Attention is also drawn to Article 30 of Gujarat Stamp Duty Act wherein the aforesaid transaction is treated as conveyance. Such an instrument style as conveyance and conveying a right, title and interest in the ‘immovable property’ is brought into existence.
5. The applicant submitted that the Stamp duty is levied on the value including upfront premium and five times the average annual rent reserved. The applicant submitted that this would constitute the market value of the said land. Hence the whole transaction is akin to sale.
6. Attention is invited to Schedule II of the GST Act wherein – ” any lease, tenancy, easement, licence to occupy land is supply of services” . Lease premium is a periodical payment, upfront premium / Salami is not.
7. One-time lease premium is different and distinct from lease rent. It is not a periodical payment but a one time. It is inconceivable that on such a premium, the tax could be levied when Schedule III purposefully omits the words- Upfront premium/ Salami. The legislation was to charge GST on this one-time lease premium, then, appropriate provisions would have been inserted.
8. The applicant submitted that he is of the view that long term lease is nothing but akin to sale of immovable property and thus covered under entry 5 of Schedule II of the CGST Act vis-a-vis GGST Act, 2017 and thus the applicant is not liable to discharge any liability u/s 9(3) of the CGST Act vis-a-vis GGST Act, 2017.
9. The applicant has submitted additional submission dated 14.08.2020 in their case wherein it is state that they would like to draw kind attention to Schedule III wherein activities or transactions which shall be treated neither as a supply of goods nor supply of services.
“Sale of land and subject to clause (b) of paragraph 5 of schedule II, sale of building”
Hence sale of land is neither a supply of goods nor service and hence not covered under the ambit of GST.
10 The applicant submitted that Land though explicitly not defined in the CGST Act, 2017 viz-a-viz SGST Act, 2017 reference could be drawn from various other statutes as under:-
“Section 3(a) of Land Acquisition Act, 1894
The expression ‘land’ includes benefits that arise out of land and things attached to earth or permanently fastened to anything attached to the earth”
“Section 3(4) of Bombay Land Revenue Code, 1879 ‘land’ includes benefits to arise out of land and things attached to the earth or permanently fastened to anything attached to the earth and also shares in or charges on the revenue or rent of village or other defined portions of territory “
Section 3(26) of General Clause Act, 1897
‘Immovable property’ shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth”
11. The applicant has drawn the attention to term “Sale” as defined under the Immovable Property Act, 1981:-
Section 54 of Transfer of Property Act, 1882 defines the term “Sale” as a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised.
Supreme Court in the case of Kaliaperumal vs Rajagopal and anr (AIR 2009 SC 2122) has observed that ‘Sale ‘ is defined as a transfer of ownership for a price. In a sale there is an absolute transfer of all rights in the properties sold. No rights are left with the transferor.
Hon’ble Bombay High Court in the case of Provident investment Co. Ltd vs Commissioner of income tax – AIR 1954 Bom 95 observed that a sale or transfer presupposes the existence of the property which is sold or transferred. It presupposes the transfer from one person to another of the right in the property.
12. The applicant has submitted that Entry 49 of the List II of Seventh Schedule of the Constitution of India, which empowers only the state government to levy any tax on land which is produced hereunder:
“49. Taxes on Land and Buildings”
13. The applicant is of the view that a long term lease for a period exceeding 30 years tantamount to Sale of the immovable property since the lessor is deprived of the right to use, enjoy and possess the property once the said lease has been granted.
14. The applicant has drawn attention to Article 30 of the Gujarat Stamp Duty Act wherein the aforesaid transaction is treated as conveyance. Such an instrument styled as conveyance and conveying a right, title and interest in the immovable property is brought into existence.
Article 30 (vi) of the Gujarat Stamp Act, 1958 which is produced hereunder:
