Lease Cancellation Not a Supply, No GST on Refund | AAR

Case Details: Indian Institute of Information Technology and Management, In re - [2025] 176 taxmann.com 724 (AAR - KERALA) 

Judiciary and Counsel Details

• Jomy Jacob and Mansur M.I., Member
• Sreeram Sekar for the Appellant.

The applicant, an educational institution, entered into long-term lease agreements with Technopark for two parcels of land during the pre-GST regime. The applicant sought to cancel the lease agreements to facilitate the transfer of land to a newly formed university. Upon cancellation, Technopark would refund a proportionate amount to the applicant for the unexpired lease period. The applicant contended that the proposed cancellation of the leases does not fall within the scope of “supply” as defined under the Act. The refund amount is adjusted against the unamortised portion of the lease assets in the applicant’s books. The transaction does not result in any income for the applicant and is purely an asset adjustment following lease surrender.

AAR Held

The Kerala AAR ruled that while leasing of property constitutes a supply of service under the GST Act, the cancellation of a lease, in itself, does not constitute a taxable activity under the Act. The refund received by the applicant for the unexpired portion of the lease period is not liable to GST, as it does not involve any supply of service. The transaction does not entail any agreement to perform, refrain from, or tolerate an act and is merely a return of consideration for the unutilized lease period. However, if any additional amount is received by either party specifically under a pre-agreed arrangement for agreeing to refrain from an act, to tolerate an act or situation, or to do an act, then the taxability of such payment must be examined separately.