West Bengal AAAR Denies GST Exemption on Land Lease Premium

In re Anmol Industries Limited (GST AAAR West Bengal)

The West Bengal Appellate Authority for Advance Ruling (WBAAR) upheld a ruling denying M/s. Anmol Industries Limited an exemption on the upfront premium paid for a long-term land lease from Shyama Prasad Mookerjee Port, Kolkata (SMPK). Anmol Industries argued the premium was exempt under Entry 41 of Notification No. 12/2017-Central Tax (Rate), which covers long-term leases of industrial plots. The WBAAR, however, found that Anmol Industries did not meet the necessary conditions for the exemption.

The notification specifies that the leased plot must be used for “industrial or financial activity in an industrial or financial business area.” While Anmol Industries intended to build a commercial office complex, the WBAAR determined this did not qualify as either industrial or financial activity. The authority emphasized the distinction between general business activities, which often involve financial transactions, and actual “financial activity” like rendering financial services. They consulted definitions of “financial service” from other acts, such as the Insolvency and Bankruptcy Code (IBC), and pointed to the specific SAC codes for financial services under GST law, to illustrate this distinction. The WBAAR also noted Anmol Industries’ GST registration details, which identify their primary business as manufacturing and export of food products, further supporting their conclusion.

Another key condition for the exemption is that the service provider (in this case, SMPK) must be a State Government Industrial Development Corporation or an entity with at least 20% ownership by the Central/State/Union Territory government. While Anmol Industries argued that SMPK met this criterion because its accounts are audited by the Comptroller and Auditor General of India (CAG), the WBAAR, after requesting clarification from SMPK, found that the Central Government does not hold ownership in SMPK. SMPK clarified that ownership rests with a Board appointed under the Major Port Authorities Act, 2021. The WBAAR acknowledged the CAG audit but stated that this alone doesn’t establish the required government ownership for the exemption.

The WBAAR’s decision clarifies the interpretation of “industrial or financial activity” in the context of the exemption notification. It highlights the need for a clear distinction between general business operations and specifically defined financial activities. The ruling also underscores the importance of fulfilling all prescribed conditions, including ownership criteria, to avail of the exemption. While the WBAAR upheld the original ruling, they modified it by providing a more detailed discussion of the conditions of the notification.

FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, WEST BENGAL

At the outset we would like to make it clear that the provisions of the Central Goods and Services Tax Act, 2017 and West Bengal Goods and Services Tax Act, 2017 (hereinafter referred to as the ‘CGST Act, 2017’ and the ‘SGST Act, 2017’) are in pari materia and have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act, 2017 would also mean reference to the corresponding similar provisions in the SGST Act, 2017.

1. The WBAAR vide order dated 20.12.2023 previously held that the services of leasing of the land for constitution of commercial office complex by SMPK to the appellant is found not to be covered under entry 41 of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 and therefore cannot be treated as an exempt supply.

2. Aggrieved by the said ruling given by the WBAAR, Anmol Industries Ltd. (hereinafter referred to as “the Appellant”) filed an appeal before the West Bengal Appellate Authority for Advance Ruling (hereinafter referred to as the WBAAAR) where the WBAAAR vide order dated 18.04.2024 has set aside the Advance Ruling Order No. 24/WBAAR/2023-24 dated 20.12.2023 issued by the WBAAR in the case of the appellant and without delving into the merit of the case, remanded the case to the WBAAR for fresh decision after considering all aspects of the matter.

3. In compliance with the order of the WBAAAR, the appellant was heard again by the WBAAR and accordingly Advance Ruling Order No. 06/WBAAR/2024-25 dated 29.07.2024, pronounced by the WBAAR where the WBAAR ruled that “Services by way of grant of long term lease of land by SMPK to the appellant for the purpose of “setting up commercial office complex‟ as involved in the instant case is found not to be covered under entry 41 of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 and therefore cannot be treated as an exempt supply.”

4. Aggrieved by the said Advance Ruling Order No. 06/WBAAR/2024-25 dated 29.07.2024, pronounced by the WBAAR, the Appellant has filed this Appeal on 30.08.2024.

5. The appellant, is a company incorporated under the Companies Act, 1956 having its principal place of business at Maity Para, Delhi Road, Hooghly, West Bengal 712311. The appellant had entered into a leasing agreement with the Shyama Prasad Mukherjee Port, Kolkata (hereinafter referred to as SMPK) to lease a plot of land at Taratala Road for thirty (30) years for the purpose of setting up a commercial office complex. As per the allotment letter bearing no. Lnd. 6063/22/2869 dated 21.09.2022, an amount of Rs. 39,00,11,000/- would have to be paid by the appellant as upfront lease premium along with GST @ 18% on the aforesaid amount.

6. In course of personal hearing, the authorized advocate of the appellant made a prayer to allow the appellant to rephrase the question admitting the fact that the land would not be used for industrial activity. The prayer was allowed and the appellant sought an advance ruling under section 97 of the West Bengal Goods and Services Tax Act, 2017 and the Central Goods and Services Tax Act, 2017, (hereinafter collectively referred to as “the GST Act”) on the following question: “Whether the upfront premium payable by the appellant towards the services of 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 by SMPK is exempted under entry 41 of Notification No. 12/2017-CGST (Rate) dated 28.06.2017?

7. The crux of the contention of the appellant is that the appellant being an industrial unit has entered into an agreement for having leased out land for a period of thirty years for setting up commercial office complex against upfront lease premium. According to the appellant, the aforesaid factual position leaves no doubt that the appellant has fulfilled all the conditions as specified in entry number 41 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 from the end of the recipient. And that from supplier‟s end, SMPK also fulfils the condition specified in the said entry.

8. As per the said entry, qualification for the benefit of exemption as specified in entry number 41 of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017 depends on four major conditions:

I. The lease period should be of thirty years or more;

II. The property leased should be industrial plots or plots for development of infrastructure for financial business;

III. Service provider must be a state Government Industrial Development Corporations or Undertakings or by any other entity having 20 per cent. or more ownership of Central Government, State Government, Union territory (either directly or through an entity wholly controlled by the Central Government, State Government, Union territory);

IV. Service recipient must be an Industrial Unit.

9. Now, the first condition regarding lease period of thirty years or more is a settled matter of fact as evident from the allotment letter itself. So, the first condition for availing the benefit of exemption as per the aforesaid entry gets fulfilled.

10. Regarding the second condition for availing the benefit of exemption as per the aforesaid entry, in addition to the fact whether the property leased out is an Industrial plot or plots for development of infrastructure for financial business or not, all other conditions as specified in the aforesaid entry has also to be met in order to qualify for exemption.

11. Such other conditions as further laid down in entry number 41 of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017 as amended are as follows:

“Provided that the leased plots shall be used for the purpose for which they are allotted, that is, for industrial or financial activity in an industrial or financial business area:

Provided further that the State Government concerned shall monitor and enforce the above condition as per the order issued by the State Government in this regard:

Provided also that in case of any violation or subsequent change of land use, due to any reason whatsoever, the original lessor, original lessee as well as any subsequent lessee or buyer or owner shall be jointly and severally liable to pay such amount of central tax, as would have been payable on the upfront amount charged for the long term lease of the plots but for the exemption contained herein, along with the applicable interest and penalty:

Provided also that the lease agreement entered into by the original lessor with the original lessee or subsequent lessee, or sub-lessee, as well as any subsequent lease or sale agreements, for lease or sale of such plots to subsequent lessees or buyers or owners shall incorporate in the terms and conditions, the fact that the central tax was exempted on the long term lease of the plots by the original lessor to the original lessee subject to above condition and that the parties to the said agreements undertake to comply with the same.” [emphasis added]

12. As per the appellant’s argument, by setting up their commercial office complex, all the financial activities shall be undertaken. He has also argued that as per the sketch of the plot annexed with the tender document, it is clear that the plot is in an industrial area as an industrial unit of another business entity was previously operative at the same plot.

13. In this context, WBAAR referred to the last proviso of the condition for exemption vide entry no 41 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 which requires that the lease agreement entered into by the original lessor with the original lessee for lease of such plots shall incorporate in the terms and conditions, the fact that the central tax was exempted on the long term lease of the plots by the original lessor to the original lessee subject to above condition and that the parties to the said agreements undertake to comply with the same. Similar Notification No. 1136 F.T. dated 28.06.2017 issued by the Government of West Bengal speaks about incorporation of exemption from payment of State tax in the lease agreement.

14. WBAAR also observed that the copy of the allotment letter issued by the SMPK dated 21.09.2022, as submitted by the appellant during the original stage of hearing, doesn’t refer any such exemption from payment of tax. On the contrary, para 3(a) of the said allotment letter specifically mentions payment of applicable GST on upfront premium. Even the Notice Inviting Tender [NIT No SMP/KDS/LND/03-2022 dated 15.03.2022] also speaks as follows:

Terms of payment of lease rent:-

(i) The successful bidder shall make full payment towards upfront plus taxes [GST and any other tax(es), if in vogue at the material time], security deposit (SD) as well as yearly token rent for the first year @ Re.1/- per sq. mtr. plus applicable taxes, within 30 days from the date of the offer letter for allotment.

[Clause 15(i) of Annexure-VI: Conditions of Lease]

The tax components will be as in vogue from time to time. Presently, the tax components are as mentioned below:-

[Clause 15(f) of Annexure-VI: Conditions of Lease]

15. Thus, WBAAR observed that the said supply of services doesn’t fulfill all the conditions as specified in the relevant entry of the exemption notification supra.

16. Regarding the third condition for availing the benefit of exemption as per the aforesaid entry, i.e. whether service provider is a state Government Industrial Development Corporation or Undertaking or any other entity having 20 per cent. or more ownership of Central Government, State Government, Union territory (either directly or through an entity wholly controlled by the Central Government, State Government, Union territory), the appellant has argued that SMPK deducts tax under section 51 of the GST Act and the control of the said Port rests with the Central Government as there is no share capital in such organisations to determine the ownership in terms of percentage of share capital. Therefore, the status of the service provider, as specified in the notification, gets satisfied in the instant case.

17. The appellant has further stated that as per the audited financial statement of SMPK it is clear that the audit of books of accounts of SMPK is done annually by Comptroller and Auditor General of India under section 19(2) of the Comptroller & Auditor General’s (Duties, Powers & Conditions of Service) Act, 1971 read with Section 102(2) of the Major Port Trusts Act, 1963 and Section 44 (2) of the Major Port Authority Act 2021 and everywhere in the audit report the regulations of The Ministry of Ports, Shipping and Waterways (MPSW), Government of India has been referred to.

18. In this context WBAAR observed that when the board of SMPK takes administrative and financial decisions, raises loans, pays salaries and other financial benefits to its employees and retired employees, decides the rate for assets and services available at the port, creates master plan for infrastructural projects, without any intervention from the Central Government, it is rather clear that SMPK is controlled by the Board which is an autonomous body.

19. WBAAR has further referred to the relevant part of the reply given by SMPK which we had mentioned in our earlier order dated 20.12.2023:

“Further, as stated in your letter, the clarification regarding ownership of SMPK is required in reference to clause 41 of the notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. In this regard we would like to state that SMPK as per their Land Policy, is collecting Lease Rent payable by the Lessee over the Lease Term calculated on Pro-rata basis multiplying by a G-Sec Rate which is not in the nature of Salami, Premium, development charge etc for providing long term lease for more than 30 years. Further, as stated above, as Central Government has no ownership in SMPK since it is an autonomous body, therefore, the upfront amount paid by the lessee at the time of entering into the lease agreement shall not be exempted by virtue of clause 41 of the Notification No. 12/2017- Central Tax (Rate).” [emphasis supplied]

20.Thus, as observed by the WBAAR, the third condition for availing the benefit of exemption as per the aforesaid entry, i.e. whether service provider is a state Government Industrial Development Corporation or Undertaking or any other entity having 20 per cent. or more ownership of Central Government, State Government, Union territory (either directly or through an entity wholly controlled by the Central Government, State Government, Union territory) does not get fulfilled in this case.

21. Regarding the fourth condition for availing the benefit of exemption as per the aforesaid entry i.e. the service recipient must be an Industrial Unit, there is no dispute whatsoever.

22. Thus, WBAAR arrived at the conclusion that the services provided by SMPK by way of grant of long term lease of land at Taratala Road for a period of thirty years (30 years) for setting up commercial office complex to the appellant, as involved in the instant case, doesn’t satisfy all the conditions specified in entry number 41 of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017, as amended, and hence gave its ruling accordingly that “Services by way of grant of long term lease of land by SMPK to the appellant for the purpose of “setting up commercial office complex’ as involved in the instant case is found not to be covered under entry 41 of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 and therefore cannot be treated as an exempt supply.”

23. Accordingly, the following ruling was passed by the WBAAR vide Order No. 06/WBAAR/2024-25 dated 29.07.2024:

“Services by way of grant of long term lease of land by SMPK to the appellant for the purpose of “setting up commercial office complex‟ as involved in the instant case is found not to be covered under entry 41 of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 and therefore cannot be treated as an exempt supply.”

24. The appellant has filed the instant appeal against the above-mentioned Advance Ruling dated 29.07.2024 with a prayer to set aside/modify the said order; to grant personal hearing; and to pass such further order or other orders as may be deemed fit and proper in the facts and circumstances of the case.

25. The instant appeal has been filed by the appellant mainly on the grounds that:

i. Regarding fulfilment of the condition that the “lease agreement entered into by the original lessor with the original lessee or subsequent lessee, or sub-lessee, as well as any subsequent lease or sale agreements, for lease or sale of such plots to subsequent lessees or buyers or owners shall incorporate in the terms and conditions, the fact that the central tax was exempted on the long term lease of the plots by the original lessor to the original lessee subject to above condition and that the parties to the said agreements undertake to comply with the same”-

a. the WBAAR has failed to appreciate the fact that since SMPK had been charging GST and the fundamental issue to be decided was the correctness of such charge of GST, the question of having an exemption clause in the lease agreement/allotment letter doesn’t arise at all.

b. the second proviso as being relied upon by the WBAAR is for the purposes to provide exemption to any subsequent lease if given by the original lessee during the subsistence of the lease period i.e. to say if the Appellant in the given case sub leases the land to a third person, then the said sub lease would be exempted subject to the terms and conditions that the said original lease agreement should contain the exemption clause. But in this case, both the parties involved are neither sub-lessor or sub-lessee.

ii. Regarding non fulfillment of condition regarding SMPK being State Government Industrial Development Corporations or Undertakings or by any other entity having 20 per cent. Or more ownership of Central Government, State Government, Union territory –

a. as per the audited financial statement of SMPK it is clear that the audit of the same is done by the C&AG under Section 19(2) of the Comptroller and Auditor General’s (Duties, Powers and Conditions of Service) Act, 1971 read with Section 44 (2) of the Major Port Authority Act 2021 and everywhere in the audit report the regulations of The Ministry of Ports, Shipping and Waterways (MPSW), Government of India has been referred to.

b. from the provisions of the MAJOR PORT AUTHORITIES ACT, 2021, it is clear that the said act has been promulgated for the purposes of administration of the Major Ports in such manner as provided.

c. web-site of Shyama Prasad Mookherjee Port, Kolkata shows that SMPK is under the administrative control of Ministry of Ports, Shipping and Waterways, Govt of India, which is a ministry run and controlled by the Central Government and thus SMPK is owned and controlled by the Central Government and the Board of SMPK is formed for the purposes of administrative activities of SMPK.

26. The appellant thus concluded that the ruling of the WBAAR suffers from infirmity.

27. Personal Hearing:

27.1 During the course of hearing held on 18.11.2024, the appellant”s authorised representative reiterated the points as stated in their Appeal. The appellant’s authorised representative argued that as the qualification for the benefit of exemption as specified in entry number 41 of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017 depends on four major conditions out of which, the WBAAR has already observed that the appellant satisfies the the first condition regarding lease period of thirty years or more as evident from the allotment letter issued to him by the lessor, i.e. SMPK itself and also, here is no dispute whatsoever regarding the fourth condition for availing the benefit of exemption as per the aforesaid entry i.e. the service recipient must be an Industrial Unit, the entire matter now rests on the remaining two conditions:

a. Whether the property leased is an industrial plot or plot for development of infrastructure for financial business; and,

b. Whether the service provider is a state Government Industrial Development Corporations or Undertakings or by any other entity having 20 per cent. or more ownership of Central Government, State Government, Union territory (either directly or through an entity wholly controlled by the Central Government, State Government, Union territory).

27.2 The appellant”s authorised representative also argues that regarding the second condition as to whether the property leased is an industrial plot or plot for development of infrastructure for financial business, the WBAAR has restricted their observations to the fourth proviso which states that “the lease agreement entered into by the original lessor with the original lessee or subsequent lessee, or sub­lessee, as well as any subsequent lease or sale agreements, for lease or sale of such plots to subsequent lessees or buyers or owners shall incorporate in the terms and conditions, the fact that the central tax was exempted on the long term lease of the plots by the original lessor to the original lessee subject to above condition and that the parties to the said agreements undertake to comply with the same”.

27.3 He argues that observations on such proviso only implies that the WBAAR has no adverse observation on the other issues related to such condition, such other conditions are now well settled. Further, as his appeal is restricted to the grounds that he has already stated, there is no scope for the WBAAAR to revisit such issues afresh.

27.4 In this context, he argues that the the WBAAR has failed to appreciate the fact that since SMPK had been charging GST and the fundamental issue to be decided was the correctness of such charge of GST, the question of having an exemption clause in the lease agreement/allotment letter doesn’t arise at all. the second proviso as being relied upon by the WBAAR is for the purposes to provide exemption to any subsequent lease if given by the original lessee during the subsistence of the lease period i.e. to say if the Appellant in the given case sub leases the land to a third person, then the said sub lease would be exempted subject to the terms and conditions that the said original lease agreement should contain the exemption clause. But in this case, both the parties involved are neither sub-lessor or sub-lessee.

27.5 On being questioned that whether the appellant fulfils the condition of using the property so leased for development of infrastructure for financial business, in light of the rephrased question put forward by him before the WBAAR, the appellant’s authorized representative argument is that, by setting up their commercial office complex, all the financial activities shall be undertaken. He also argues that such office is planned to maintain and monitor all the financial records and transactions which implies that the appellant is using such plot for financial activities. Hence, the appellant fulfills the second condition also.

27.6 Regarding the other issue as to whether the service provider is a state Government Industrial Development Corporations or Undertakings or by any other entity having 20 per cent. or more ownership of Central Government, State Government, Union territory (either directly or through an entity wholly controlled by the Central Government, State Government, Union territory), the appellant’s authorized representative argued that: As per the audited financial statement of SMPK it is clear that the audit of the same is done by the C&AG under Section 19(2) of the Comptroller and Auditor General’s (Duties, Powers and Conditions of Service) Act, 1971 read with Section 44 (2) of the Major Port Authority Act 2021 and everywhere in the audit report the regulations of The Ministry of Ports, Shipping and Waterways (MPSW), Government of India has been referred to. Also, from the provisions of the MAJOR PORT AUTHORITIES ACT, 2021, it is clear that the said act has been promulgated for the purposes of administration of the Major Ports in such manner as provided. Further, the web-site of Shyama Prasad Mookherjee Port, Kolkata shows that SMPK is under the administrative control of Ministry of Ports, Shipping and Waterways, Govt of India, which is a ministry run and controlled by the Central Government and thus SMPK is owned and controlled by the Central Government and the Board of SMPK is formed for the purposes of administrative activities of SMPK.

27.7 He further argues that as SMPK does not hold any share capital and is run by the fund appropriated by the Government, the question of ownership does not stand on the parameter of financial or equity ownership but on administrative ownership. In this case, as per his argument the board of SMPK is constituted of members nominated by the Government and the board has to report its state of affairs to the Government. This implies that SMPK is an entity having more than 20 per cent ownership of the Government and hence the appellant satisfies the third condition also.

28. Discussion and Findings:

28.1 We have carefully gone through the facts of the case and considered the grounds of appeal, the submissions made by the appellant, the documents placed before us by both the parties and the Advance Ruling given by the WBAAR in the instant case. We are of the opinion that prior to deliberating on the merits of the present appeal, it is necessary to examine the legal provisions relevant here in the interest of justice.

28.2 The entry 41 of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 (with amendments) as relevant to this case is reproduced below:

28.3 Careful examination of the WBAAR’s Order No. 06/WBAAR/2024-25 dated 29.07.2024 reveal that in order to qualify for the exemption as specified in entry 41 of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017, there are certain conditions that are required to be fulfilled which the WBAAR has summarised as under:

I. The lease period should be of thirty years or more;

II. The property leased should be industrial plots or plots for industrial or financial activity in an industrial or financial business area;

III. Service provider must be a state Government Industrial Development Corporations or Undertakings or by any other entity having 20 per cent. or more ownership of Central Government, State Government, Union territory (either directly or through an entity wholly controlled by the Central Government, State Government, Union territory);

IV. Service recipient must be an Industrial Unit.

28.4 The WBAAR has observed that out of these four conditions, the appellant fulfils the first and the fourth ones and has made adverse observations on the appellant’s status regarding the remaining two conditions. The WBAAR in Order dated 29.07.2024 has categorically held that the appellant has not satisfied conditions II and III above, hence is not eligible for the benefit of above notification.

28.5 In this context we observe that the WBAAR while observing the appellant’s failure to satisfy the second condition, has relied on the related provisos and has negated the appellant’s contention on the ground that the “lease agreement entered into by the original lessor with the original lessee or subsequent lessee, or sub-lessee, as well as any subsequent lease or sale agreements, for lease or sale of such plots to subsequent lessees or buyers or owners shall incorporate in the terms and conditions, the fact that the central tax was exempted on the long term lease of the plots by the original lessor to the original lessee subject to above condition and that the parties to the said agreements undertake to comply with the same”, but has not discussed the condition mentioned in the first proviso i.e. whether the leased plot is being used for industrial or financial activity in an industrial or financial business area.

28.6 We observe that a more comprehensive approach by WBAAR in rendering its ruling in the present case and mentioning of its observations and findings regarding satisfaction of all the conditions required for deciding the eligibility for the exemption under entry 41 of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 would have been better, even though rendering of final ruling would have remained unaffected.

28.7 In this context, the issue of whether the appellant fulfils the condition of using the property so leased for industrial or financial activity is the substantial condition for claiming the benefit under the above notification and is, therefore, pivotal issue in this case. Condition II of conditions summarized by WBAAR is exactly this condition which WBAAR has held that the same has not been satisfied.

28.8 On being questioned in this matter, although the appellant‟s authorized representative has made an argument that, by setting up their commercial office complex, all the corporate activities including accounting and financial activities shall be undertaken and that such office is planned to maintain and monitor all the financial records and transactions of the company which implies that the appellant is using such plot for financial activities. The appellant once again stated that observations made by the WBAAR on such fourth proviso only implies that the WBAAR has no adverse observation on the other issues related to such condition. In this regard, we note that WBAAR has not elaborated on this aspect of condition, though has ruled that this condition is not satisfied by the appellant.

28.9 In this context, the provisions of sub-section (1) of section 101 of the CGST Act, 2017 and the SGST Act, 2017 may be referred to, which are reproduced below:

Section 101. Orders of Appellate Authority. –

(1) The Appellate Authority may, after giving the parties to the appeal or reference an opportunity of being heard, pass such order as it thinks fit, confirming or modifying the ruling appealed against or referred to. [emphasis added]

28.10 Thus, as there is no such statutory restriction, it is very much clear from the statute itself that the WBAAAR can pass orders on the appeal as it deems fit, and can confirm or modify a ruling given by the WBAAR.

28.11 In this case, it is evident that the crux of the issue is the determination of the fact as to whether the leased plot for setting up of a commercial office complex can be said to have been used for industrial or financial activity.

28.12 In the allotment letter the land was leased to appellant for “setting up commercial office complex”. Thus allotment letter is specific for the use of land plot for setting up of commercial office complex.

28.13 Notice Inviting Tender, NIT No. SMP/KDS/LND/03-2022 dated 15.03.2022, under the para 8 has mentioned definitions of types of building/construction for different purposes. These definitions include Institutional building, Assembly building, Business building, Mercantile (Retail) building, Mercantile (Wholesale) Building, Mall/Food Park/Plaza etc.

28.14 Para 8.7 defines setting up of a Commercial office complex. For ease of understanding, this is reproduced,

“Setting up of a commercial office complex in a particular plot may be allowed where the listed purposes in the tender include Assembly, Business and Mercantile Buildings and the said land shall be used by the original lessee for own Corporate use and excess vacant space of the said office complex to be let out on lease to other corporate entities who will use the complex for setting up of Business Centre, Business Chambers, Conference Rooms, Office Infrastructure, Cafeteria, Restaurant, Gymnasium, Guest House, hotel accommodation, recreation facilities, pharmacies, diagnostic clinics, retail outlets etc. In other words, the original lessee will be a business integrator where various other stake holders/investors/retailers/service providers will operate under the business integrator (original lessee) as sub­lessees.”

28.15 It is evident from the definition of ^„setting up of a commercial office complex‟ that land is required to be used for construction of office complex which could be used for own corporate use and excess vacant place could be rented out to other corporate entities conference rooms, guest houses, retail outlets etc. Thus, office complex built on the land leased out would be used for commercial purpose by way of sub-leasing/renting of the available space.

28.16 Para 8.8 mentions specific exclusions which are not permitted to be constructed under the above Notice Inviting Tender. These exclusions are Educational building, Residential building, Religious Establishment, Political Establishment and Industrial building. Industrial building is defined as, “Any building or structure or part thereof used principally for fabrication, assembly and or processing of goods and materials of different kinds. Such building shall include laboratories, power plants, smoke houses, refineries, gas plants, mills, dairies, factories and workshops”.

28.17 Thus Industrial buildings are specifically excluded from the purview of the Tender. When Industrial buildings itself are not allowed, no stretch of imagination can conclude that industrial activity is allowed under the instant tender. Thus setting up of commercial office complex has a specific purpose and the same cannot be equated to industrial activity.

28.18 Now comes the question as to whether the leased property is used for “financial activity”.

28.19 The appellant’s authorized representative has argued that, by setting up their commercial office complex, all the corporate office activities including financial activities shall be undertaken. He has also argued that such office is planned to maintain and monitor all the financial records and transactions which implies that the appellant is using such plot for financial activities.

28.20 “Financial activity” is not defined in the GST laws. In such case, we would go by the common business parlance. Mere maintenance and monitoring of all the required financial records and transactions of a company does not mean financial activity. Every business aims to achieve a profit which occurs as a result of increase in income and decrease in expenses. This obviously involves some financial transactions. So, it is quite natural that every business entity undertakes activities which have financial implications. If financial records maintenance by a business concern is a financial activity, as argued by the appellant, such being a normal activity for a business, every business concern would be undertaking ^„financial activity’ and there was no need for it to be specifically mentioned in the condition.

28.21 A company or a business entity can be said to be carrying out ^„financial activity’ if it is involved in rendering financial services. ^„Financial service’ has been defined under different Acts, for example under Section 3(16) of the IBC Act, it is defined to include any of the following services namely –

A. accepting of deposits;

B. safeguarding and administering assets consisting of financial products, belonging to another person, or agreeing to do so;

C. effecting contracts of insurance;

D. offering, managing or agreeing to manage assets consisting of financial products belonging to another person;

(e) rendering or agreeing, for consideration, to render advice on or soliciting for the purposes of–

i. buying, selling, or subscribing to, a financial product;

ii. availing a financial service; or

iii. exercising any right associated with a financial product or financial service;

(f) establishing or operating an investment scheme;

(g) maintaining or transferring records of ownership of a financial product;

(h) underwriting the issuance or subscription of a financial product; or

(i) selling, providing, or issuing stored value or payment instruments or providing payment services;

28.22 It is undisputed that appellant is not providing any of the above services. Thus they cannot claim to be carrying out financial activity in a financial business area.

28.23 The SAC Codes as per the rate Notifications of GST also specifies Financial Services as follows:

28.24 Thus, it is clear that the term ^„financial activity’ is a specific one and cannot be equated with mere maintenance of accounts and records by a company or a business concern.

28.25 The appellant is registered under the GST Laws having GSTIN: 19AADCB9169P1ZS. The appellant’s business profile and other relevant data as entered by the appellant himself in his registration database available in the GSTN portal specifically states that the appellant is a Public Limited Company having the nature of business of a Factory for Manufacturing and Export. It deals with goods having HSN Code: 19053100 -Bread, pastry, cakes, biscuits and other baker wares, whether or not containing cocoa; communion wafers, empty cachets of a kind suitable for pharmaceutical use, sealing wafers, rice paper and similar products- sweet biscuits; waffles and wafers–sweet biscuits, HSN Code: 19051000 – Bread, pastry, cakes, biscuits and other bakers wares, whether or not containing cocoa; communion wafers, empty cachets of a kind suitable for pharmaceutical use, sealing wafers, rice paper and similar products-crispbread and HSN Code: 33021090 – Mixtures of odoriferous substances and mixtures (including alcoholic solutions) with a basis of one or more of these substances, of a kind used as raw materials in industry; other preparations based on odoriferous substances, of a kind used for the manufacture of beverages of a kind used in the food or drink industries: other. The GSTN database and the appellant”s own Portal has no indication that it is engaged in any financial business activity.

28.26 Thus, we find that the appellant is unable to satisfy the pivotal points related to the afore-stated second condition, i.e. whether the leased plot is being used for industrial or financial activity in an industrial or financial business area to qualify for the benefit of exemption as specified in entry number 41 of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017.

28.27 Regarding the issue of SMPK having 20% or more ownership of Central Government, the appellant has stated that the audit of books of accounts of SMPK is done annually by Comptroller and Auditor General of India under section 19(2) of the Comptroller & Auditor General‟s (Duties, Powers & Conditions of Service) Act, 1971 read with Section 102(2) of the Major Port Trusts Act, 1963.

28.28 The appellant stated that audit under section 19(2) supra is conducted only for corporations (not being companies) established under law made by parliament and accounts of such corporations are presented before Parliament.

28.29 Extract of section 19(2) of Comptroller & Auditor General’s (Duties, Powers & Conditions of service) Act, 1971 is as follows – “The duties and powers of the Comptroller and Auditor-General in relation to the audit of accounts of corporations (not being companies) established by or under law made by parliament shall be performed and exercised by him in accordance with the provisions of the respective legislations.”

28.30 According to the appellant, from a conjoint reading of clause (a) to notification 50/2018- Central Tax dated 13.09.2018 regarding deduction of GST TDS and section 19(2) of Comptroller & Auditor General’s (Duties, Power & Conditions of service) Act, 1971 it is evident that more than 51% percent of control of SMPK is with Central Government. Therefore, it can be averred that SMPK satisfies the third condition stated above.

28.31 However, to decide this issue, SMPK was requested vide Memo No. 97/WBAAR/2023 dated 05.06.2023 and 173/WBAAR/2023 dated 30.11.2023 respectively to clarify the following aspects:

a. Whether 20(twenty) percent of more ownership of the Shyama Prasad Mookerjee Port is with the Central Government and/or State Government, put together.

b. Status of SMPK as a notified person in terms of Notification No. 50/2018 – Central Tax dated 13.09.2018.

c. Status of SMPK in respect of audit of books of accounts being done annually by Comptroller and Auditor General of India under section 19(2) of the Comptroller & Auditor General’s (Duties, Powers & Conditions of Service) Act, 1971 read with Section 102(2) of the Major Port Trusts Act, 1963.

28.32 SMPK, in its reply dated 09.06.2023 and 08.12.2023 respectively, has submitted that:

a. The ownership of Shyama Prasad Mookerjee Port, Kolkata is vested upon the Board appointed under the Major Port Authorities Act, 2021 and Central Government is not holding any ownership in the SMPK. [emphasis added]

b. Further, as per the second proviso of the Major Port Authorities Act, 2021 the Board constituted under the Act shall be a body corporate having perpetual succession and a common seal with power to acquire, hold or dispose of property and may by the name by which it is constituted , sue or be sued.

28.33 Sub-section (3) of section 44 the Major Port Authorities Act, 2021 which deals with “Accounts and audit” says that:

(3) The Comptroller and Auditor-General of India and any person appointed by him in connection with the audit of the accounts of the Board under this Act shall have the same rights, privileges and authority in connection with such audit as the Comptroller and Auditor-General of India generally has in connection with the audit of Government accounts and, in particular shall have the right to demand the production of books, accounts, connected vouchers and other documents and papers, and to inspect any of the offices of the Authority.

28.34 Thus, although SMPK is audited by the office of the Comptroller and Auditor General of India, it cannot be conclusively regarded merely on the basis, as per the entry number 41 of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017, as an entity having 20% or more ownership of Central Government.

28.35 Thus, we find that the appellant is unable to satisfy the afore-stated third condition, i.e. whether the service provider is a state Government Industrial Development Corporation or Undertaking or any other entity having 20 per cent. or more ownership of Central Government, State Government, Union territory (either directly or through an entity wholly controlled by the Central Government, State Government, Union territory) also to qualify for the benefit of exemption as specified in entry number 41 of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017.

28.36 In light of the preceding discussion, in exercise of the power conferred under the provisions of sub-section (1) of section 101 of the CGST Act, 2017 and the SGST Act, 2017, we therefore uphold the WBAAR order with certain modification by way of discussion on the conditions of notification.

In view of the foregoing, we pronounce our ruling as under:

Ruling:

Services by way of grant of long term lease of land by SMPK to the applicant for the purpose of “setting up commercial office complex‟ as involved in the instant case is found not to be covered under entry 41 of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 and therefore cannot be treated as an exempt supply.

Send a copy of this order to the Appellant and the Respondent for information.