GST on lease premium, Goods and Services Tax - GST

[jitendra jain]

Dear sir/madam

In Maharashtra government given us a lease land for a period of 60 years + 39 years extendable further for the purpose of setting up way side amenity on express highway.

my question is when lease deed happened there is a GST applicable on lease premium?

it is a 60 tear plus lease deed allotted by government, and we are first buyers private limited company. Maharashtra govt is asking GST on this premium amount but they failed to clarify under which section. we do study some old case law where above 30 year + lease (long lease) no gst is applicable.

please clear the same under which law applicable or exempt.

thanks & regards.

Jain

 

 

 

Posts / Replies

[Sadanand Bulbule]

2018 (4) TMI 461 - BOMBAY HIGH COURT - BUILDERS ASSOCIATION OF NAVI MUMBAI, NEELSIDHI REALTIES VERSUS UNION OF INDIA THROUGH THE SECRETARY, MINISTRY OF FINANCE, THE COMMISSIONER OF GOODS AND SERVICE TAX, THANE & OTHERS

Levy of GST on the one-time lease premium - letting plots of land on lease basis - long term lease - The members of the association were allotted plots. Under the scheme, the tenderer/bidder is required to make an offer by quoting a rate per square meter on account of payment of lease premium. The plots are to be allotted on long term lease of 60 years. - It is argued that, a long term lease of 60 years tantamounts to sale of the immovable property, since the lessor is deprived of, by the allotment the right to use, enjoy and possess the property. Our attention is invited to section 105 of the Transfer of Property Act, 1882.

Held that:- if one refers to Schedule II, section 7, then, Item No. 2 styled as land and building and any lease, tenancy, licence to occupy land is a supply of service. Any lease or letting out of a building, including commercial, industrial or residential complex for business, either wholly or partly is a supply of service. It is settled law that such provisions in a taxing statute would have to be read together and harmoniously in order to understand the nature of the levy, the object and purpose of its imposition. No activity of the nature mentioned in the inclusive provision can thus be left out of the net of the tax. Once this law, in terms of the substantive provisions and the Schedule, treats the activity as supply of goods or supply of services, particularly in relation to land and building and includes a lease, then, the consideration therefor as a premium/one-time premium is a measure on which the tax is levied, assessed and recovered. We cannot then probe into the legislation any further.

The demand for payment of GST is in accordance with law. The said demand cannot be said to be vitiated by any error of law apparent on the face of the record. In these circumstances, we do not find any merit in the writ petition. - Decided in favor of revenue.

[Sadanand Bulbule]

2024 (2) TMI 708 - AUTHORITY FOR ADVANCE RULING, UTTAR PRADESH - IN RE: M/S. NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY (NOIDA),

Exemption from GST - 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. - Applicability 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 - 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?

HELD THAT:- 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 12/2017-CT(Rate) 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%.

In Jharkhand Advance Ruling in the case of M/s. Ranchi Smart City Corporation Limited [2022 (1) TMI 1300 - AUTHORITY FOR ADVANCE RULING, JHARKHAND], 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%.

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? - HELD THAT:- Para 2(a) of the Schedule II to the CGST Act stipulates that, ‘any lease, tenacy, 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 12/2017-CT (Rate) 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.

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.NI-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.

No.- UP ADRG 37/2023

Dated.- October 12, 2023

[YAGAY andSUN]

Based on the judgments and rulings you’ve referred to — including the NOIDA case, Jharkhand AAR, and related legal provisions — here is a clear, authoritative clarification on the GST applicability on long-term lease premium:

Legal Position on GST on Lease Premium (Long-Term Lease):

1. Long-term lease of land, even for 90 years, does not amount to a sale of land.

As clarified under:

1. • Para 2(a) of Schedule II to the CGST Act: Any lease, tenancy, easement, or license to occupy land is considered a supply of services under GST.
   • Hence, lease premium (even if upfront and one-time) is taxable under GST, unless specifically exempt.
2. Exemption under Entry 41 of Notification No. 12/2017-CT (Rate) (as amended):
   • Exempts upfront amount (lease premium) for long-term lease (30 years or more) of land if:
     • The lessor is the Government or a local authority,
     • The lease is given to an industrial unit or a developer,
     • The purpose is the development of infrastructure for financial business, or industrial infrastructure,
     • And the land is situated in a notified industrial area or township.

Application to Your Case (Wayside Amenities on Expressway in Maharashtra):

• Your case involves:
  • Lease from the Government of Maharashtra,
  • A long-term lease (60+39 years),
  • Purpose: Setting up wayside amenities (commercial use),
  • You are a private limited company (not a government authority or developer for financial business).

Exemption Not Applicable — Why?

1. Commercial activity like wayside amenities (restaurants, petrol pumps, parking, retail outlets etc.) does not qualify as:
   • Industrial infrastructure, or
   • Infrastructure for financial business, as interpreted in NOIDA-related AARs.
2. The exemption under Entry 41 is specific and conditional — it applies to cases where the industrial or financial development objective is met, in a notified area, by an industrial unit or developer.
3. Since your purpose is not industrial or financial, and the activity is commercial, the exemption does not apply.
4. The Bombay High Court judgment (2018 (4) TMI 461) also upholds that GST is applicable on lease premium for commercial plots, regardless of lease duration.

Final Answer:

• GST is applicable on the upfront lease premium in your case.
• The exemption under Notification 12/2017 (Entry 41) is not available for commercial purposes such as setting up wayside amenities.
• The long-term lease does not amount to a sale, and hence remains within the scope of supply of services under the CGST Act.
• GST rate applicable: 18% under SAC 9972 (Real estate services including lease of land).

If needed, I can help you draft a legal note or representation to the department, citing relevant rulings and justifying your input tax credit eligibility.

***

[Sadanand Bulbule]

Dear Yagay & Sun

Thanks for further deciphereing the facts in conjuncion with the statutory position of Para 2(a) of II Schedule of the CGST Act as ragards to GST liabilty @ 18% on upfront  lease premium paid on long term lease of land for 30 years or more.

Though certaiin segments of such lease premium is exempt, it is subject to strict compliance of mandatory conditions prescribed under Notification No.12/2017-CTR.

[FSSAI License]

As per GST Notification 12/2017-Central Tax (Rate), Entry 41, GST is not applicable on lease premium for long-term leases (30+ years) of industrial plots by government bodies to industrial units. Since your lease is for 60+ years, it may qualify—provided the use is industrial and the allotment is by a government entity.

If the government hasn't clarified under which section GST is being applied, you may consider seeking an advance ruling for certainty.

For expert help in such matters, feel free to connect with Metacorp—we specialize in regulatory and tax compliance.

[KASTURI SETHI]

   No exemption is admissible. It is taxable.

The judgements posted by Sh.Sadanand Bulbule, Sir and comprehensive and analytical reply by M/s.Yagay and Sun, Sirs are crystal clear. There is no room for even  an iota of doubt.

[Shilpi Jain]

GST on upfront lease premium is exempt in case it relates to residential project or 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 68 [20] percent. or more ownership of Central Government, State Government, Union territory to the industrial units or the developers in any industrial or financial business area.

If your lease does not pertain to the above then there is no exemption and GST would be payable since under GST this would be regarded as a lease transaction and not sale of immovable property.

You can evaluate whether you are eligible for the credit of this GST paid.