Agreeing to part with leasehold interest to another person is taxable supply under GST : AAR TN

Case Details: Authority for Advance Rulings, Tamilnadu India Pistons Ltd., In re - [2021] 131 taxmann.com 129 (AAR - TAMILNADU)

Judiciary and Counsel Details

• • Thiru Senthilvelavan B. and TMT. T. Padmavathi, Member

Facts of  the Case

The applicant was engaged in manufacturing of pistons. The State Industrial Promotion Corporation of Tamil Nadu (SIPCOT) through lease deed allotted 15 acres of land on lease to applicant for a period of 99 years for purpose of setting up a piston manufacturing industry. The applicant in terms of lease deed can part with its interest in land only with approval of SIPCOT. Subsequent to allotment, certain land allotted to applicant remained un-utilized and one entity approached the applicant for transfer of un-utilized land for setting up of medical and industrial gases plant.

The applicant agreed to transfer leasehold rights in land admeasuring 5 acres and SIPCOT accorded approval for transfer of balance period of leasehold rights in 5 acres of land from applicant to new entity. It filed an application for advance ruling to determine whether activity of agreeing to part with leasehold interest would be supply and liable GST or not.

AAR Held

The Authority for Advance Ruling observed that the applicant can part with their interests in the land leased to them only with the approval of SIPCOT. If the approval had been denied by SIPCOT, then IPL would not be able to part with their interests. The new entity was liable to pay the differential cost of lease rentals and processing charges to SIPCOT and SIPCOT would execute the modified lease deed by for their respective leaseholds. Therefore, the activity was not transfer of leasehold rights but an activity of agreeing to part with the leasehold interests against a consideration which would be a taxable service classifiable under ‘Other Miscellaneous Services’, with SAC 9997. Hence, it was held that activity of agreeing to part with the leasehold interests held by the applicant would be supply and GST to be paid on consideration received by it.