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TAXABILITY OF UP FRONT LEASE PREMIUM

Goods and Services Tax - GST - By: - Dr. Sanjiv Agarwal - Dated:- 24-3-2018 Last Replied Date:- 14-4-2018 - Leasing out the immovable property by the assessee was a taxable service under the category of Renting of Immovable Property under Section 65(105)(zzzz) of the Finance Act, 1994, as amended with effect from 01-07-2010. The CBEC vide DO F. No. 334/1/2010-TRU dated 26-02-2010 had clarified that it has been reported in many states, the local industrial corporation of PSUs or even private orga .....

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s commercial structure thereon after executing the lease deed. Such lease agreements escape Service Tax because of the exclusion mentioned above. The CBEC again clarified vide Circular No. 151/2/2012-ST dated 10-02-2012 vide Para No. 2.6 that Government or its agency transfers the right to use and/or develop the land, to the concessionaire, for a specific period, for construction of a building for furtherance of business or commerce (partly or wholly). Consideration for this taxable service may .....

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s against such provisioning of lease / renting service. Consideration means any amount that is payable for any service provided or to be provided. Lessor receives the amount in the form of upfront lease premium and other charges as consideration for lease. Upfront lease premium is charged on one time basis but on the other hand other charges are charged on regular basis (annual or otherwise). The premium is the price paid for obtaining the lease of an immovable property. While rent, on the other .....

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enting of immovable property and not on transfer of interest in property from lessor to lessee, service tax would be chargeable only on the rent whether it is charged periodically or at a time in advance. This position is also backed by and supported by judicial pronouncements. There are many judicial pronouncements where in it has been decided that the upfront lease premium (salami) is not liable to / subject to service tax. Reliance can be placed on following case laws: In Greater Noida Indust .....

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ccupation of immovable property leased. Tax is payable on renting of immovable property. Lease premium is not for continued enjoyment of property and as such demand was held to be not sustainable. In City & Indus. Dev. Corpn. of Maharashtra Ltd vs. CST, Mumbai-II, 2014 (11) TMI 127 - BOMBAY HIGH COURT , it has been held by Bombay High Court that Service Tax is leviable on quantum of lease charges and not on lease premium. In Infinity Infotech Parks Ltd. v. Union of India 2014 (12) TMI 36 - C .....

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Gain'. Even though aforesaid view was rendered in context of Income-tax laws read with Transfer of Property Act, same might have justifiably led assessee to believe that premium was not liable to service tax, same not being rent. However, in RIICO Ltd. v. CCE, Jaipur-I 2017 (5) TMI 673 - CESTAT NEW DELHI. substantial part of the demand against the appellant in various proceedings, related to their Service Tax liability on lump-sum premium amount, received by them from the allottees on allot .....

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footing when compared to the regular lease rent, received in a periodical manner. On identical set of facts, with reference to lease granted by Tripura Industrial Development Corporation, the High Court of Tripura in the case of Hobbs Brewers India Pvt. Ltd. v. Union of India reported in [ 2016 (4) TMI 1173 - TRIPURA HIGH COURT ] held as below: 4. We are not at all inclined to even issue notice in the writ petition. A perusal of Section 65(90a) and Section 65(105)(zzzz) of the Finance Act, 1994 .....

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ing of one time rent and then rebate is given for the yearly rent to be paid. Premium is also part of the lease money. Therefore, the entire transaction both premium and rent are amenable to Service Tax and Service Tax will have to be paid on the same. 6. Another submission has been made by Mr. Bhattacharji, that this premium includes capital investment. We do not understand what is the meaning of this argument? It is true that the payment of premium will be treated as a capital investment but t .....

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plots (Section 104) Finance Act, 2017 had inserted a section 104 as special provision in Finance Act, 1994 for retrospective exemption to lease premium/upfront fee in relation to long term lease of industrial plots. This provision sought to insert section 104 in the 1994 Act so as to exempt service tax leviable on one-time upfront amount (premium, salami, cost, price, development charge or by whatever name called) in respect of taxable service provided or agreed to be provided by a State Govern .....

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