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TMI Blog2021 (9) TMI 1064X X X X Extracts X X X X X X X X Extracts X X X X ..... hieve the above object such as: (i) Plan, develop, construct and maintain runways, taxiways, aprons, terminals and ancillary building at the airports and civil enclaves; (ii) Establish airports or assist in the establishment of private airports by rendering such technical, financial or other assistance which the Central Govt. may consider necessary for such purpose; (iii) Plan, procure, install and maintain navigation aids, communication equipment, beacons and ground aids at the airports and at such location as may be considered necessary for safe and operation of aircrafts; (iv) Provide air safety services and search and rescue, facilities in co-ordination with other agencies; (v) Establish and maintain hotels, restaurants and restrooms at or near the airports; (vi) Arrange for postal, money exchange, insurance and telephone facilities for the use of passengers and other persons at the airports and civil enclaves; (vii) Regulate and control the plying of vehicles, and the entry and exit of passengers and visitors, in the airports and civil enclaves with due regard to the security and protocol functions of the Govt. of India. (ix) Develop and provide consultancy, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lomerate had won the bid of the airport quoting highest bid among all. 8. The Concessionaire agrees to pay to AAI the following sum as consideration for transfer: - * Rs. 2,71,00,00,000/- towards Estimated Deemed Initial Regulatory Asset Base ("RAB") i.e. estimated depreciated value of Investments made by the Applicant in the Aeronautical Assets at the airport as on 31st March 2018. * Rs. 6,41,00,000/- towards Estimated Initial Non-Aeronautical Investments i.e. estimated depreciated value of investments made by the applicant towards development of the Non-Aeronautical Assets at the Airport as on 31st March 2018. * Actual amount incurred by AAI in respect of contracts relating to Work-in-Progress as on the Commercial operation Date ("COD"). * Reimbursement of salaries incl. of other cost paid to employees of AAI having designation of Asst. General Manager and below during the Joint Management Period and deemed deputation period as per Clause 6.5.4 of the Concession Agreement. Subject to the select employee cost i.e. clause 6.5.4 of the concession agreement, the concessionaire shall pay the amount as indicated in invoice raised by applicant towards emoluments of the select e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... systems, communication systems and administrative offices; d) Project Facilities situated on the Site; e) buildings and immovable fixtures or structures forming part of City Side Development; f) all rights of the Concessionaire under the Project Agreements; g) financial assets, such as receivables, security deposits, all negotiable instruments etc.; h) insurance proceeds; and i) Applicable Permits and authorisations relating to or in respect of the Airport." 13. The applicant has submitted various relevant clauses of the agreement which throws light on the underlying transaction as under : Reference in the agreement i.e. Clause No./ Article No. Summary of the clause Recital A The functions and powers of the AAl, under the AAI Act include the development, maintenance and management of the airports in India. ln pursuance thereof, the AAl, having constructed the airport at Ahmedabad in the State of Gujarat, is operating it under and in accordance with the Act. Recital B The GOI has decided to invite bids for undertaking the operations, management and development of certain airports of the AAI on a public private partnership basis to bring efficiency in serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement or the Substitution Agreement. ln addition, SPV shall undertake development, finance, operation and maintenance of real estate at the Site specified in Schedule A, in accordance with Schedule B and Schedule C, and to use such development for commercial purposes in accordance with terms specified with the right to sub-lease and/ or sub-license any or all parts thereof by way of Project Agreements. Article 4 Conditions Precedent` Various conditions for both the parties viz. the AAI and the SPV which are to be complied/ fulfilled before transfer. Further, there is provision with respect to payment of damages in case of delay in compliance of the above conditions and provision for termination in case of delay of more than prescribed time limit. Some of the important conditions on part of the AAI are as under: a) procurement of the Right of Way to the Site for the SPV; b) novation Existing Contracts in favour of the SPV; c) grant to the SPV, by means of a power of attorney, to act for and behalf of the AAI as its agent in respect of such of the Existing Contracts which cannot be novated in favour of the SPV for any reason. Some of the important conditions on part of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ination due to delay. Article 16 Transitional arrangements All revenues, receipts, expenditure and other financial transactions for and in respect of the Airport shall be deemed to be transferred from the AAI to the SPV with effect from COD and all rights, obligations and liabilities in respect thereof shall vest exclusively in the SPV from the Transfer Date. All liabilities incurred by the AAI prior to COD, including any debt obligations and payments to the AAI or any third party, shall continue to vest in the AAI at all times. Further, it provides that the SPV shall be deemed to have assumed control over all Aeronautical Assets and Terminal Building on the COD. Certain obligations are also provided for smooth transition of the operations of the airport and to meet the regulatory requirements. Article 17 Change of scope Any change of scope is permitted subject to the prescribed procedure and approval for providing safer and improved services to the user. Article 18 Operation, maintenance And management During the concession period, SPV shall operate and maintain the airport in accordance with this agreement, applicable laws and applicable permits. Article 19 O&M Services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the SPV to the AAl. However, the monthly concession fee shall not be included as a part of costs for provision of aeronautical services. Further, in case of fall in prescribed passenger traffic, contract can be terminated by the SPV and upon such termination, the AAI shall be liable to pay to the SPV an amount equal to 70% of termination payment. It has been further agreed that the AAI shall not commission a new airport within a 50km radius of the airport prior to expiry of 10 years from COD. Article 28 Fees On and from COD and till the Transfer Date, the SPV has the sole and exclusive right to demand, collect and appropriate Fees from the Users for the provision of the Aeronautical Services and Non-Aeronautical Services, including the airlines and passengers, in accordance with the provisions of the Regulatory Framework. It also provides that the SPV acknowledges and agrees that any user, who is not liable for payment of Fee shall be entitled to use the Airport, without any restrictions except to the extent specified. Further, the SPV shall pay the AAl, the amount equal to the estimated depreciated investment made by the AAI in the aeronautical assets as well as in non-a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another;] (b) import of services for a consideration whether or not in the course or furtherance of business; [and] (c) the activities specified in Schedule I, made or agreed to be made without a consideration [***] (d) [***] (1A) Where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.] (2) Notwithstanding anything contained in sub-section (1),- (a) activities or transactions specified in Schedule III; or (b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services. (3) Subject to the provisions of 40[sub-sections (1), (1A) and (2)], the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be trea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pendent part thereof. Nil Nil From the above it is clear that any transfer on a going concern is supply of service and exempted from levy of tax. Alternatively, it can be said that the transfer of business as a going concern as a whole or independent part thereof is considered as service. However, the same has been specifically exempted from the levy of GST via above mentioned notification. At this juncture, it is imperative to analyze whether the transaction in the given context qualifies for the exemption. The exemption essentially lays down the following conditions: (i) Service by way of transfer; (ii) The 'transfer' should be of the going concern; (iii) Such transfer must be as a whole or an independent part thereof It becomes imperative to understand the meaning of word 'transfer' in the above exemption entry. In general connotation transfer can be permanent as well as temporary. Union of India vs Dr. Maqsood Ahmed [AIR 1963 Bom110, 114], wherein, the Court has held that, "the word 'transfer' is a larger word and the word 'sale' is a specific word. A transfer may be by means of a lease, mortgage or sale or in any other mode." (v) It would be worthwhile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is, to denote the passing of title in property or an interest therein from one person to another and in that sense the term means that the owner of the property delivers it to another person with the intent of passing the rights which he had in it to the latter. a. Rashtriya Ispat Nigam Ltd. vs Commercial Tax Officer, Company Circle, Visakhapatnam [(1990) 77 STC 182(AP)] - Andhra Pradesh High Court "The essence of transfer is passage of control over the economic benefits of property which results in terminating rights and other relations in one entity and creating them in another. While construing the word "transfer" due regard must be had to the thing to be transferred." This ruling was confirmed by Supreme Court [Refer State of Andhra Pradesh & Anr. vs M/s. Rashtriya Ispat Nigam Ltd. (Appeal (civil) 31 of 1991)] b. Bharat Sanchar Nigam Ltd. vs UOI [2006] 3 STT 245(SC) "While dealing as to what constitute a transaction for the transfer of the right to use the goods the Supreme Court laid down certain attributes which must be present in a transaction. One of the attributes was that for the period during which the transferee has such legal right, it has to be the exclusio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transferring its independent unit i.e. Sardar Vallabhbhai Patel International airport. Hence, it becomes necessary to determine whether operation of the airport can be said to be independent part of a going concern of the AAl. (xii) The Ahmedabad airport of the applicant is the independent part of the applicant. However, rights to operate, manage and maintain the airport will be transferred. The word 'independent' in common parlance denotes the stand alone or capable of being functional individually. The concept of business is changing, and new age business undertaking may contain various different businesses and a single business out of the entire business undertaking may contain different units. In such scenario, even transfer of a unit can be said to be transfer of independent part of business In the present case, we understand that the Airport is capable of operating as an independent unit. The operation of the airport can generate revenue. Hence, it can be said that the airport is an independent part of a going concern of the applicant. (xiii) The applicant relies on following pronouncements: The Karnatka Authority for Advance Ruling in case of M/s Rajashr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. (xv) Attention at this stage is also invited to the international jurisprudence in this regard. a. Hon'ble Constitutional Court of South Africa in the case of Aviation Union of South Africa and Another Vs. South African Airways (Pty) Ltd and Others MANU/SACC/OO3O/2011, while interpreting the provision Section 197 of Labour Relations Act, it was held that transfer of operations of airport from first person to second and subsequently from second person to first amounts to transfer of business by one person to another as a going concern. b. In case of Robinson Family Limited vs. the Commissioners for Her Majesty's Revenue and Customs (20121 UKFTT 360 GC), Hon'ble United Kingdom First Tier Tribunal has held that transfer of property by way of lease for the letting business amounts to transfer of a going concern. (xvi) Therefore the applicant submits that a view can be taken that the transaction amounts to services by way of transfer of a going concern, as a whole or an independent part thereof which is covered in the entry 2 of the exemption Notification No. 12l2017-Central Tax (Rate) dated 28 June 2017. (xvii) As per the concessionaire agreement, apart from a lum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rved that a sale or transfer presupposes the existence of the property which is sold or transferred. It presupposes the transfer from one person to another of the right in the property. (xxiii) Attention is drawn to the Entry 49 of the List II of Seventh Schedule of the Constitution of India, which empowers only the state government to levy any tax on land which is produced hereunder: "49. Taxes on Land and Buildings" (xxiv) Applicant is of the view that a long term lease for a period exceeding 30 years tantamount to Sale of the immovable property since the lessor is deprived of the right to use, enjoy and possess the property once the said lease has been granted. (xxv) Further attention is also drawn to Article 30 of the Gujarat Stamp Duty Act wherein the aforesaid transaction is treated as conveyance. (xxvi) The applicant draws attention to the decision of the Hon'ble Bombay High Court in the case of Navi Mumbai Builder's Association v. Union of India, 53 GSTR 374, which is held as follows: "On a plain reading of the GST Act, the argument of the assessee is not agreeable. The assessee also relies upon Schedule II, which is referable to section 7. These are the activities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... area. The CIDCO is one such authority. It is entirely for the legislature, therefore, to exercise the powers conferred by sub-section (2) of section 7 of the GST Act and issue the requisite notification. Absent that notification, merely going by the status of the CIDCO, it cannot be held that the lease premium would not attract or invite the liability to pay tax in terms of the GST Act." (xxvii) The applicant submits that if the monthly/ annual fees are considered to be consideration for transfer of business over and above the initial/ upfront payments then the exemption shall be available and thus Navi Mumbai Builder's Association v. Union of India is distinguishable. (xxviii) The applicant submits that it receives reimbursement of property tax, water tax, electricity etc. payable from the concessionaire. The applicant submits that the said reimbursements are in nature of pure agents and thus cannot be treated as supply under section 7 of the CGST Act. (xxix) The applicant also raises invoice for emoluments of various employees of AAI engaged by the concessionaire i.e. "Adani Group". The applicant submits that the said invoice is raised to covered the emoluments of the Governme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not in nature of any damages recovered. (iv) Further the "select employees" had the option to choose whether to join the concessionaire or not. However the applicant was contractually obligated to pay the salaries and other emoluments to the select employees hired for the purpose of the operations of Ahmedabad airport. (v) The applicant has merely passed over its liability arisen out of the employment contracts of the "select employees" to the concessionaire. And thus this cannot be considered as any damages levied upon the concessionaire. (vi) The Ld. Bench had inquired whether the contracts have been novated and whether the concessionaire has taken insurance. As per the communication received from the concessionaire all the contracts have been novated, aero dome license has been issued and requisite insurance has been taken. (vii) The Ld. Bench had inquired whether the concessionaire has paid any fee/consideration during the inception period. As per concession agreement, the inception period refers to the period commencing from the date execution of concession agreement and expiring upon occurrence of Commercial Operation Date. Applicant submits that during the inception peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the same? 6. Whether the concession fees paid by M/s. Adani Ahmedabad International Airport Limited to AAI be treated as consideration for transfer of business? 7. Whether GST is applicable on Monthly/Annual concession fees charged by the AAI on the M/s. Adani Ahmedabad International Airport Limited? 8. Whether GST is leviable on the invoice raised by AAI for reimbursement of the salary/ staff cost on M/s. Adani Ahmedabad International Airport Limited? If yes at what rate? 9. Whether GST is applicable on the reimbursement claimed of Municipal tax, Property Tax and Water Charges by the AAI from M/s. Adani Ahmedabad International Airport Limited? If yes at what rate? 10.Whether GST is applicable on transfer of spares and consumables for consideration by the AAI to M/s. Adani Ahmedabad International Airport Limited? If yes at what rate? Personal Hearing 16. Personal Hearing was granted on 27-7-2021. However, AAI requested for adjournment. 17. Further, another Personal Hearing was granted on 12-8-21 Shri Hem M Chhajed, CA appeared for hearing ( Video Conferencing) on 12-8-21 and reiterated the contents of the application. To specific enquiry with respect to Question 10, he wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is capable of being carried on by the transferee as an independent business in continuity without any hindrance for a foreseeable period. Such transfer of business will comprise transfer of assets for running the business. Such transfer as going concern may involve transfer of employees as requisite to carry on the business without interruption. In effect, it implies that the business will continue in the new hands with regularity and a nature of permanency. 23. We detail our findings on the issue if subject Contract entered between AAI and SPV merits transfer of Going Concern or otherwise, as follows: i. Foreseeable Future We find that the subject Business Arrangement has been set in place for 50 years, which is for a forseeable future spanning 5 decades. We find that subject Contract is for transfer of the development, maintenance and management of SVP International Airport, Ahmedabad from AAI to SPV. In pursuance to AAI Act, The AAI has constructed the airport at Ahmedabad and has been operating it under and in accordance with the AAI Act. SPV has taken insurance, novated all the existing agreements as mentioned in Schedule V, so as to maintain effective running of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be a transfer of a business. We find our view in compliance with judicial discipline as laid down by the H'ble Bombay High Court in the case of Sunderdas Harjiwan-1987-65-STC-450 (Bom). iii. Legal backing for Transfer of functions to AAI to SPV We refer to the provisions to Section 12A of AAI Act, wherein as per Section 12(A) subsections (1) and (4), AAI, in the the public interest or in the interest of better management of airport may lease premises of an airport (including buildings and structures thereon and appertaining thereto) to carry out some of its functions under Section 12 as AAI may deem fit, and SPV who had been assigned this function of the AAI shall have all the powers of AAI necessary for the performance of such functions. We find that AAI has transferred to SPV the exclusive right and authority to operate, manage and develop the Airport for a period of 50 years commencing from the Commercial Operation Date covering the following functions, as follows: (a) design, development, financing, construction, up-gradation and expansion of the Airport in a phased manner (b) operations, maintenance and management of the Airport in accordance with the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vivisect the contract and hold that such a view would be short sighted. The Contract in toto envisages transfer of part business of AAI to SPV. d. We note Article 2 of the subject contract wherein the scope of the Project is detailed, which includes the operation, management and development of the airport. We further note that 'airport' also includes all project assets necessary for and associated with the operation and expansion of the airport. There project assets are physical and other assets relating to or forming part of the site including the rights over the site in the form of lease, right of way or otherwise; the aeronautical assets and non aeronautical assets; tangible assets such as civil works and equipment including foundations, drainage works, electrical systems, communication systems and administrative office; project facilities situated on the site; buildings and immovable fixtures or structures forming part of city side development; all rights of the concessionaire under the project agreements; financial assets such as receivables, security deposits , all negotiable instruments etc; insurance proceeds; applicable permits and authorisations relating to or in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the definition of Goods in CGST Act. Section 2 (52) CGST Act defines Goods as follows: "goods" means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply. 24.1 With reference to said definition, we find that business is not Goods for it is not a movable property and thereby Transfer of Business cannot be supply of goods. 24.2 We now refer to the definition of Service. Section 2(102) CGST Act defines Service as follows: "services" means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged. What we have before us is whether 'Business' may be covered under the umbrella of the definition of Service, as per Section 2(102 ) CGST Act. To ascertain the same, we refer to the definition of business. We reproduce the definition of Business as per Section 2(17) CGST Act, as fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losure of business 24.5 Further, on careful reading of the provisions of CGST Act and Rules, we find the phrase 'Transfer of Business' has been mentioned in i. CGST Act at the following sections- Section 18(3) ; section 22(3); section 85 ii. CGST Rules - Rules 41. iii. Schedule II(4)(c) to CGST Act. Section 18(3)CGST Act reads of follows: 18(3) Where there is a change in the constitution of a registered person on account of sale, merger, demerger, amalgamation, lease or transfer of the business with the specific provisions for transfer of liabilities, the said registered person shall be allowed to transfer the input tax credit which remains unutilised in his electronic credit ledger to such sold, merged, demerged, amalgamated, leased or transferred business in such manner as may be prescribed. Section 22(3) CGST Act reads as follows: (3) Where a business carried on by a taxable person registered under this Act is transferred, whether on account of succession or otherwise, to another person as a going concern, the transferee or the successor, as the case may be, shall be liable to be registered with effect from the date of such transfer or succession. Section 85(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the recommendations of the Council, by notification, exempt generally, either absolutely or subject to such conditions as may be specified therein, goods or services or both of any specified description from the whole or any part of the tax leviable thereon with effect from such date as may be specified in such notification. 24.8 We note that in exercise of powers conferred under Section 11(1) CGST Act, the Central Government has issued Notification 12/2017CT(R) dated 28-6-2017, wherein at serial no. 2 of said Notification, reads the description of service as 'Services by way of transfer of a going concern, as a whole or an independent part thereof'. The plain meaning of the words 'services by way of transfer of a going concern,' is 'Transfer of a going concern service'. This is the interpretation of these wordings at the cited sr no. 2 of the said Notification12/2017-CT(R). 24.9 Now taking our cue from the said Sr no. 2 of Notification 12/2017 which has been issued in exercise of powers granted by Section 11(1) CGST Act, we hold that business is service and transfer of business is supply of service. 24.10 Further, we hold that transfer of business may be by way of sale, gif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as supply of going concern. We refer to Schedule II (4) CGST Act, reproduced as follows: 4. Transfer of business assets (a) where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, such transfer or disposal is a supply of goods by the person; (b) where, by or under the direction of a person carrying on a business, goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, whether or not for a consideration, the usage or making available of such goods is a supply of services; (c) where any person ceases to be a taxable person, any goods forming part of the assets of any business carried on by him shall be deemed to be supplied by him in the course or furtherance of his business immediately before he ceases to be a taxable person, unless- (i) the business is transferred as a going concern to another person; or (ii) the business is carried on by a personal representative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure electricity, telecommunication services, water and other utilities, as may be necessary for the operation of the Airport, from respective local utilities upon payment of charges in accordance with applicable laws. vi. As per Article 5.14, the SPV is set up for the sole purpose of exercising the rights and observing and performing its obligations and liabilities under this Agreement, i.e., the operation, management and development of the Airport. SPV shall not have any shareholding interest or otherwise in any entity, or any other form of arrangement with any person, which may allow it to undertake or perform any other business activity. vii. The Airport shall be known, promoted, displayed, advertised and branded by the same name of SVP International Airport only at all times and SPV shall ensure that any advertisement, display or otherwise at or in relation to the Airport shall contain the logo of the AAI. These obligation on part of SPV reflects the underlying principle that Transfer of Business with respect to Airport will be a running business, in effect, this is Transfer of Going concern. viii. All the rights and interests in the Airport shall vest in the SPV until th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one time/ in instalments/ as per agreed terms of the Contract. ii. We find that Concession fees are paid by SPV to AAI during the concession period, calculated on a formula based on passenger footfall. We make it clear that Concession fees payable by SPV to AAI are not to be confused with the user fees payable by the users to SPV. iii. On specific enquiry to Shri Chajed, during the personal hearing, he submitted that AAI had not received any Concession fees during the Inception period and that all the concession fees were received by it after the Commencement of Operations (COD). 28. We note that AAI has sought Ruling on its Question No. 10 whether GST is applicable on transfer of spares and consumables for consideration by AAI to SPV? If yes, at what rate? 28.1 During the Personal Hearing, Shri Chajed was required to submit the details of the goods and related documents for ascertaining the GST liability, to which he replied that said Question No 10 does not pertain to the spares and consumables covered in the Contract. But they may be a proposed transaction in the future between AAI and SPV that AAI may supply spares and consumables to SPV and that the applicant is not awa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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