TMI Blog2020 (6) TMI 602X X X X Extracts X X X X X X X X Extracts X X X X ..... renting of residential dwelling for used as residence. However, in the present case, the agreement has taken place during the construction of the project and the lease payments are made slab wise before the completion of the project. This almost never happens in the lease of a flat or a unit. It is seen that almost 95% of the amount comprising the lease consideration is paid before the possession of the apartment. It is difficult to believe that a Lessee will commit such amount before moving or enjoying the flat. All these leads us to believe that this is nothing but a sale transaction projected as a lease transaction. Though the object of the RERA Act is to regulate the sale of building, apartment or building, this project is RERA registered. This fact and the interpretation by the Bombay High Court in the case of Lavasa also shows that the said transaction is not a lease. Decision of AAR upheld wherein it was held that, the activity would be in the nature of works contract as defined under Section 2 (119) of the Act and fall under SAC 9954 and attract GST @ 18%. - MAH/AAAR/SS-RJ/11/2019-20, Appeal No. MAH/GST-AAAR-11/2019-20 - - - Dated:- 24-10-2019 - SMT. SUNGITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nship Pvt. Ltd., the appellant herein. MADC and the appellant have entered into a Development Agreement dated 08.12.2017, a copy of which is placed at Page Nos. 35 to 57 of this appeal. By virtue of this agreement, the appellant has been granted the right to design, finance, develop, a township project, comprising of residential apartments, commercial complexes, etc. in the land owned by MADC. As per the agreement, the appellant had been permitted only to grant long term lease of the residential apartments and commercial buildings and the same cannot be sold outright in favour of the buyers. The land in which the construction is undertaken is a leasehold land, which cannot be transferred. In pursuance of thereof, the appellant intend to grant long term lease of the residential apartments being constructed and a sample Agreement for Lease proposed to be entered with prospective lessees is placed at Page Nos. 58 to 88 of this appeal. It may be observed that the identified apartment unit in the residential complex is proposed to be given on long term lease for 99 years, expiring on 21.06.2105, against payment of lease consideration by the lessee to the appellant. It may be noted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AAR noted the following facts, which are not disputed. (i) The appellant is granted the development rights on the property by MADC and also has rights to lease out the flats to the customers. In pursuance of the same, the appellant constructs residential apartments and give them on long term lease basis to its customers. (ii) The customers would be paying 10 % of the lease premium as advance and pay the balance amounts in various installments based on progress on construction and the final 5 % will be paid on obtaining possession. (iii) The maintenance of the flats would be the responsibility of the customer. G. The AAR goes on to observe that generally lease agreements for flats would be entered into in respect of finished apartments and the monthly lease amount would be around 2 to 3 % of the property value, but in this case, lump sum lease amount is received during construction stage itself, similar to the case of sale of apartments, where the buyer would make stage wise payments. Then the AAR has proceeded to compare the information as to lease value and sale value of flats in the locality and made certain observations. Further, the AAR has also observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not in dispute and they are: (i) The appellant has been granted the right to develop and construction residential apartments in the subject land, which is owned by MADC. (ii) The land is not freehold land but only a lease hold land and there are restrictions on transferring the Land. (iii) As per the agreement with MADC, the appellant can only allot the residential apartments to their customers on long term lease for 99 years and cannot effect a transfer by way of sale or otherwise. (iv) The customers can approach the appellant for grant of such long term lease of the residential apartment at any stage, either during the construction stage or after completion of construction. (v) The lease premium payable by the customer is a lump sum amount, payable in various installments, co-terminus with the stage of construction. (vi) The customers (lessees) are responsible for proper upkeep and maintenance of the apartment. (vii) The customers (lessees) use the apartment for their own dwelling or may give it on sub lease to others, subject to the conditions prescribed in this regard. (viii) The lease is for a long period of 99 years. (ix) The leas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase transaction it is ideally the lessee who is liable to bear it, as the lessor s interest in the property after granting a long- term lease for 99 years, would be minimal. Thus, all the facts relied upon by the AAR to conclude that the subject transaction is not a lease transaction are totally extraneous facts and have no bearing on the decision as to whether the transaction is a lease or not. The AAR has completely ignored the statutory restrictions on effecting sale, prevalence of various methods of lease transactions in the field but has substituted its own restricted understanding of the term lease to the subject issue. The agreement between the appellant and their prospective customers is purely one of long -term lease and is in accordance with the relevant laws governing leasing of such properties and it cannot be wished away as a sham. Since the lease is for long period of 99 years, the lease premium payable by the lessee would be near to the sale price of such apartments in the vicinity, which is a commercial fact. Hence, all the facts based on which the AAR has come to a conclusion that the subject transaction is not a lease, are not at all relevant to decide whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed from the above that the term renting is given a very wider meaning, which covers, leasing, licensing, etc. without any reference to the period for which such agreement is entered into. The intention of the legislature is not to subject renting or leasing of residential dwelling to levy of GST and by disregarding the real nature of transactions between the appellant and their customers, the AAR has negated such legislative intention. 11. Further, the appellant also wish to rely on CBIC s Circular No.44/18/2018 Dt. 02.05.2018 (Page No. 101 of this appeal), wherein it has been clarified that grant of tenancy right in a residential dwelling for use as residence dwelling against tenancy premium or periodic rent or both is exempt vide S.No. 12 of Notification 12/2017, which would go prove that the mode of payment, whether it is lump sum or periodical is not relevant to claim the said exemption. 12. Further, the appellant wish to submit that the decision of the AAR that the activity is a works contract, falling under Service Accounting Code 9954 is not sustainable for the following reasons. The relevant classification is reproduced below: Sr. No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... careful perusal of the Agreement for Lease between the appellant and their lessees would reveal that the agreement is not at all for providing any construction service, as envisaged above. The agreement is purely for long term lease of an identified apartment as mentioned in Schedule C. The specifications of the apartment being constructed are mentioned in Schedule E of the agreement, which would be leased to the lessee, upon completion of construction. 14. Further, reference is also invited to the following entries under Schedule II of the CGST Act, 2017, which lays down as to whether certain activities would be treated as supply of goods or as supply of services. SCHEDULE II [See Section 7] ACTIVITIES [OR TRANSACTIONS] TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES 5. Supply of services The following shall be treated as supply of services, namely: - (a) renting of immovable property; (b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether as goods or in some other form. In a case where an apartment is constructed for a buyer, there is an element of transfer of property in various goods such as cement, steel, wood, etc. during the course of such construction and handing over. In the instant case, the apartment is only leased out to the lessee, along with the proportionate share of undivided share of land and at the end of the lease period, the lessee is required hand over the property back to the lessor in as is where is condition. Thus there is no transfer of property in goods in the transaction between the appellant and the lessees. Hence, the AAR s conclusion that the subject activity is works contract is patently illegal and contrary to the statutory provisions. 18. Further, the appellant also wish to refer to S.No. 16 (ii) of Notification 11/2017 Central Tax (Rate), as introduced vide Notification 1/2018 Central Tax (Rate) Dt. 25.01.2018, which is reproduced below: (1) (2) (3) (4) (5) 16 Heading 9972 (i) Services by the Central Government, Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fication 12/2017, which also covers SAC 9972 can be claimed, as the leasing in this case is of residential unit. 20. The appellant also wish to submit that if the view of the AAR that the subject lease transaction is nothing but a sale of flat during construction and hence subjected to GST levy accordingly, the applicable GST shall also be equal to the GST applicable on sale of flat during construction. It may be noted that with effect from 01.04.2019, as per S.No.3 of Notification 11/2019, sale of apartments during construction attracts, 1.5 % GST on two thirds value (effective rate being 1 % on total value) in case of affordable residential apartments or 7.5 %GST on two thirds value (effective rate being 5 % on total value) in case of apartments other than affordable ones. But, as per the ruling of the AAR, the appellant would be liable to charge 18% GST on the whole amount, contrary to 5 % on the whole amount, which is liable in similar cases where the apartments are sold during construction. If the allegation of the AAR that the appellant has camouflaged the activity as a leasing only to claim exemption and if such camouflage is lifted, the appellant should be liable to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25. IJM, on behalf of NITPL has deposited through MADC and Chourangi a Onetime Settlement (OTS) amount to Mis Vijaya Bank towards the Settlement of loan amount, availed by Chourangi in respect of the development of the said Land. 26. In consideration of NITPL paying the OTS amount and agreed dues in respect of the development of the said Land, MADC had entered in for Development Agreement (DA) with NITPL on 8 December 2017 along with a Power of Attorney (POA) dated 8 December 2017 and thereby entrusted to NITPL the rights to design, finance and develop a township project, on the said Land comprising apartment units, commercial space and allied infrastructure thereof and to lease the same to the prospective lessees (hereinafter referred to as Township Project/ First City Project ) and by virtue of the said DA and POA the Developer named herein above is now therefore entitled to complete the said Township Project and to lease, assign and transfer the various residential and nonresidential units proposed to be constructed therein to the prospective lessees. Therefore, the Developer alone has the sole and exclusive right to allot on lease the residential and residential-cum comme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grees to take on lease from Developer(Applicant) and Applicant agree to lease out to respective buyer the respective flat as mentioned specifically in the agreement. The lessee is not having any option to suggest any changes to the plan as approved. The prospective buyer would make an advance payment followed by instalments as prescribed. The buyer is liable to pay all applicable taxes including GST on the lease Consideration as applicable. The buyer is also liable to pay stamp duty and registration charges as applicable. The lease of property shall be registered in the name of buyer on full payment of consideration as scheduled. The deed is registered with right of inheritance of lease for the remaining period of lease as-is dependent on the situation. The payments from the buyers are described as lease Consideration. Authenticated copies of certificates showing nature of title of MADC and Developer is made available to the prospective buyer. Copy of sanctioned plan on basis of which construction is undertaken is also made available to the buyer. 31. From the abovementioned facts and paras of sample copy of lease agreement, it is revealed that developer is going to construct th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upply as it is for supply of construction services for a consideration. Basically, it is a works contract service and as per judgment of Hon ble Apex Court in case of Larsen Toubro Vs. State of Karnataka (2014) 1 SCC 708 = 2013 (9) TMI 853 - SUPREME COURT . The term works contract is broad and includes all obligations and all types of contract. Works contract is a contract for undertaking or bringing into existence some works. Hence, lease agreement between applicants and prospective lessee is a works contract. 34. A perusal of the above authorities leads us to the conclusion that Works means the carrying out of construction activities involving labor along with the supply of materials. Further, there appears to be a close nexus between works contract and construction activities. 1. Works is largely interpreted as a building or a structure which has emerged as a result of labor; 2. Works contract is a contract for executing of any works along with the right to sue for breach; 3. There should be a transfer of property in goods involved in the execution of works contract. 35. From the final definition of works contract , it becomes clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es in compliance of agreement of lease hence it is squarely covered in the ambit of GST Law. Personal Hearing 37. A personal Hearing in the matter was conducted on 14.10.2019, which was attended by Shri G. Natarajan, Advocate, on behalf of the Appellant, as well as by Shri Manish Puliye, the Jurisdictional Officer in the instant matter, who reiterated their respective written submissions filed before us. Discussions and Findings 38. We have gone through the facts of the case, documents on record and submission made by the appellant as well as the jurisdictional officer. The MADC i.e. Maharashtra Airport Development Authority is a Special Planning Authority under the MRTP Act for the Multi Model International Hub Airport, Nagpur, Mihan which includes development of Nagpur Airport as an International Hub Development of SEZ etc.. It is seen that M/s. Chaurangi Builders and Developers have formed a Special Purpose Vehicle (SPV), along with M/s IJM Realty (Mauritius) Ltd., under the name and style of M/s Nagpur Integrated Township Pvt. Ltd., who is the appellant in the present case. Then agreement between MADC and the appellant dated 08.12.2017, the appellant is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case, the lease amount are received during construction. The Lessee keeps paying installments on completion of slabs and this type of payment is only made when person has entered into an agreement for purchase of flat in an ongoing project. B) The AAR called for details of lease amount charged to the customers towards the leasing of the flats in the proposed project. From the details submitted by the appellant, the AAR gave a finding that the lease amount payment over a certain time period is around 50% of the prices for right to move in flats. In respect of certain flats it was found that lease amount payment over a certain time period without having possession of the flats is an excess of 60% of the flat. This lease amount are going to be paid without using the flat and therefore it was concluded that the said transaction are given a colour of a lease transaction. C) The Lessee have to pay the maintenance charges. Normally in lease transaction it is the flat owner who pay maintenance charges. 41. In view of the above, the AAR has concluded that the said supply is a taxable supply in the form of construction of complex/building/civil structure or a part t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e above payment schedule is only seen when an agreement is entered into by a prospective buyer with a builder/developer for the construction of a building or complex. Therefore, it is seen that almost 95% of the amount comprising the lease consideration is paid before the possession of the apartment. It is difficult to believe that a Lessee will commit such amount before moving or enjoying the flat. All these leads us to believe that this is nothing but a sale transaction projected as a lease transaction. 45. As per clause 5.2 of the draft agreement, the prospective Lessee also has to pay advance maintenance charges for the operation and maintenance of the common facilities in the township project. 46. As per clause 9.1 of the Agreement, it is stated that the developer shall facilitate formation of Society/Association of the prospective lessee of the flat. As per the said clause, all prospective lessee of the flats shall be entitled to join the said Association or Co-operative Society. This clause also goes on to prove that the appellant has built a complex or residential unit and the same is to be given on outright supply and not as a lease. We say so because it is only in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r after a long delay, the parties approached RERA authorities and the question arose whether, the provisions of the RERA are applicable to the Agreement of Lease executed between the parties. The High Court went through the clauses of the agreement and held that though the agreement is shown to be of lease, it is an agreement of sale. It observed the following:- .... In this context, vis-a-vis, these definitions given in the RERA, it would be essential to go through the Agreements executed between the parties. No doubt, it is true, that the Agreements are titled as Agreements of Lease . The word Rent is also defined therein to mean the yearly rent amount payable by the customer to Lavasa, once the lease is actually granted in respect of the apartment . The term Annual Rent is defined to be ₹ 1/- and the period of lease is stated to be 999 years . Clause No,4(xi) of the Agreement is relevant in that respect. It says that, under its Township Development Scheme, Lavasa proposes to construct Lake Views on the Lots identified by it and grant on lease, the apartments constructed therein for a period of 999 years on the notionally divided pieces of land term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Respondents to the Appellant and the lease premium agreed is only of ₹ 1/- per annum, including the clause relating to the period of lease of 999 years, are self-speaking to prove that, in reality, the transaction entered into by the parties is an Agreement of Sale and not an Agreement of Lease ; though it is titled as such. The law is well settled that the nomenclature of the document cannot be a true test of its real intent and the document has to be read as a whole to ascertain the intention of the parties. 48. Similar clauses can be found in the present agreement. The Payment Schedule found in Schedule D also shows payment made as per the stages in the completion of the construction. (Clause 4.1) Clause 4.2 says that the lessee shall also be liable to bear and pay all stamp duty and registration charges. As per clause 4.6 the developer has also agreed to facilitate the process of obtaining loan from the financing agency. As per Clause 5.2 the lessee also has to pay advance maintenance charges for operation and maintenance of the common facilities. The developer is to give the possession on or before the completion dates as decided. As per clause 6.3, if the dev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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