TMI Blog2023 (4) TMI 300X X X X Extracts X X X X X X X X Extracts X X X X ..... nce annual lease rental of Re 1/- per square metre for the built up area of the leased premises for the first three years and thereafter the same shall be enhanced by 200% for every subsequent block of 10 years or part thereof. The lease of plot for 90 years by the applicant is not sale of land but is a lease and therefore, does not fall within the ambit of clause 5 of Schedule III of CGST Act, 2017. Hence, it is concluded that this activity i.e. lease of commercial units on payment of one time lease premium and annual premium is a supply falling within the ambit of section 7(1) of CGST Act, 2017, which defines supply as all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business read with clause 2 of Schedule II of CGST Act, 2017, which specifies that lease of a land or building as a supply. The one time premium received by the applicant on allotment of completed commercial units/building is taxable supply in terms of section 7 of the CGST/GGST Act, 2017 - the supply of the applicant is classified under S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lessee 3 Hubtown Bus Terminal (Ahmedabad) P. Ltd. Confirming party No. 1 4 Kedaram Trade Centre LLP [applicant] Confirming party No. 2 8. On expiry of the lease period, the lease deed shall come to an end and the lessee/sub-lessee shall without any demur or delay remove all the goods and other belongings and hand over the leased premises to the lessor or its nominee. 9. The lessee shall pay a one-time premium of Rs. 13.00 lacs to the applicant [ie confirming party no. 2] as a consideration for allotment of the commercial unit on long term lease period of 90 years . Additionally, the lessee shall pay to the lessor ie GSRTC, advance annual lease rental of Re 1/- per square metre for the built up area of the leased premises for the first three years and thereafter the same shall be enhanced by 200% for every subsequent block of 10 years or part thereof. 10. The lease deed inter alia also provides that the lessee shall be entitled to sublet or transfer/assign holding rights in the leased premises in favour of a third party in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence to the same provisions under the GGST Act. 15. We have considered the submissions made by the Applicant in their application for advance ruling as well as the submissions made during the of personal hearing. We have also considered the issue involved, the relevant facts the applicant s submission/interpretation of law in respect of question on which the advance ruling is sought. 16. Before adverting to the submissions made by the applicant, we would like to reproduce the relevant provisions for ease of reference: Section 7. Scope of supply.- (1) For the purposes of this Act, the expression - supply includes- (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business: 1 [(aa) the activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration. Explanation .-For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng through the same, what is significant to the present dispute is reproduced below for ease of reference viz GSRTC has granted permission in writing to Hubtown permitting assignment of development rights in respect of said land; M/s. Hubtown has entered into concession agreement dated 12.5.2011 with GSRTC to develop Gita Mandir bus terminal facility commercial units thereto; M/s. Hubtown pursuant to the above concession agreement is entitled to develop proposed commercial units admeasuring 1670 sq. mtrs.; that Hubtown is desirous of assigning the said right of construction, marketing allotment and demise of the said commercial units in favour of the applicant for consideration pursuant to the permission of GSRTC on as is where is basis; In consideration of the sum of Rs. 4.70 crores, paid by the applicant to Hubtown, it assigns the below mentioned rights to applicant\ o Right to construct commercial units; o Right to market and promotion of the said commercial units; o Right to execute lease deeds as confirming party and obtain premia from the third party lessee for a lease of 90 years; The applicant shall construct the commercial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the physical possession thereof and the lessor thereafter shall be entitled to deal with the leased premises and the said land in the manner it may deem fit without any restriction with any person iii. The ownership of the said land at all times hereinafter shall remain with GSRTC while the lessee shall only be entitled to the lease hold rights in the leased premises fir the lease period as set out herein and nothing in this lease deed shall directly or indirectly create any ownership rights of lessee of whatsoever nature in the said land and/or in the leased premises save and except for leasehold rights detailed above. 3 (i)The lessor hereby grants on lease the leased premises being.. .for a period of 90 years commencing from . 3(ii)Upon expiry of the lease period, this lease deed shall come to an end and the lessee and/or the sub lessee and /or the subsequent transferee/assignee shall without any demur or delay remove all the goods belonging and hand over the vacant ...... ...of leased premises 5. Over and above the premium amount of Rs. 13 lacs the lessee shall pay to the lessor annual lease rent of Re 1/- per sq mtr for the built up area o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The lessee doing or permitting to be done or happening of any act, matter deed or thing in violation of applicable laws applicable permits in the leased premises; v. The lessee dealing with the leased premises inter alia mortgaging, assigning or otherwise creating charge over its leasehold rights in contraventions to the terms and the manner set out here in favor of any third party; vi. Change in management control of the lessee whereby such amended entity is involved in or undertaking any business activity which relates to the bus transport business/activities competing directly or indirectly with the lessor herein .. 19. Thus what needs to be examined by us is whether the said transaction wherein the applicant received one time premium from the lessee would fall within the ambit of the definition of Supply under GST. The term Supply as defined under section 7 of the GST Act, 2017, is already reproduced supra hence is not being repeated for the sake of brevity. 20. In terms of Schedule II of the CGST Act, 2017, [reproduced supra] any lease, tenancy, easement, license to occupy land is a supply of service. Further, any lease or letting out of building in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suggest with many restrictions though with a right to further sublet in favour of third parties, for residue period of lease only in the manner set out in the lease deed subject further to the condition that in case there is violation of any condition by lessee, the lease deed will automatically be treated as cancelled. Whereas, in ordinary course assuming that a person purchases a commercial plot/unit, he becomes an absolute owner of the plot/unit and there is sale deed between seller and purchaser. On purchase of commercial plot/unit, there is no requirement of renewal or extension of the sale after a certain period. The purchaser of the commercial units is also not required to pay any type of annual lease premium for the commercial units so purchased. Also the purchaser/owner is under no restriction as far as sale of the commercial units is concerned meaning thereby he can sell the plot/units to anybody and no permission is required from original seller as such purchaser consequent to sale deed is believed to have an absolute right of possession on land. However, in the present case, the lessee has to pay to the lessor ie GSRTC, advance annual lease rental of Re 1/- per square ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of goods and not as a supply of services or a supply of services and not as a supply of goods. Pertinently, no notification and traceable to sub-section (2) of section 7 has been brought to our notice. 14. On a plain reading of the GST Act, we do not see how we can agree with Mr. Nankani. Mr. Nankani also relies upon Schedule II, which is referable to section 7. These are the activities to be treated as supply of goods or services. The substantive provision section 7 in clearest terms says that the activities specified in Schedule I made or agreed to be made without a consideration and the activities to be treated as supply of goods or supply of services referred to in Schedule II would be included in the expression supply . However, clause (a) of sub-section (1) of section 7 includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. We referred to the definitions simply to reinforce our conclusion that the CIDCO is a person and in the course or in furtherance of its business, it disposes of lands by le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before us seeking an advance ruling is related to construction of complex, building, civil structure or a part thereof. Thus, the question of this transaction falling within the ambit of Sl. No. 5 (b), Schedule II, does not arise. Moreover, schedule III, Sr. No. 5 would not apply since it relates to sale of land/building, which is not the case herein. Hence the submission made by the applicant is not tenable and is therefore rejected. 26. The applicant has also relied upon the judgment of the Hon ble Gujarat High Court SCA No. 1350/2021 in the case of Munjaal Manishbhai Bhatt. The Hon ble High Court vide its judgement dated 6.5.2022, held as follows [relevant extracts] 3. By this writ application under Article 226 of the Constitution of India, the writ applicant has prayed for the following reliefs: A. This Hon ble Court may be pleased to strike down and declare Entry 3(if) of Notification No. 11/2017-Central Tax (Rate) as well as Entry 3(if) of Notification No. 11/2017 State Tax (Rate) along with paragraph no. 2 of both the notifications as being ultra-vires Section 7(2) of the GST Acts read with Entry No. 5 of Schedule III to the GST Acts as well as ultra-vires ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm rate of deduction is discriminatory, arbitrary and violative of Article 14 of the Constitution of India. 123. While we so conclude, the question is whether the impugned paragraph 2 needs to be struck down or the same can be saved by reading it down. In our considered view, while maintaining the mandatory deduction of 1/3rd for value of land is not sustainable in cases where the value of land is clearly ascertainable or where the value of construction service can be derived with the aid of valuation rules, such deduction can be permitted at the option of a taxable person particularly in cases where the value of land or undivided share of land is not ascertainable. 124. The impugned paragraph 2 of Notification No. 11/2017-Central Tax (Rate) dated 28th June 2017 and the parallel State tax Notification is read down to the effect that the deeming fiction of 1/3rd will not be mandatory in nature. It will only be available at the option of the taxable person in cases where the actual value of land or undivided share in land is not ascertainable. 125. In so far as the writ applicant of the Special Civil Application No.1350 of 2021 is concerned, the value of land is availa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construction contracts, wherein it was held that prescribing mandatory uniform rate of deduction of 1/3 rd of total amount towards land value in terms of notification No. 11/2017-Central Tax (Rate), instead of actual price of land was ultra vires. Hence, the facts being different to the transaction on which advance ruling is sought, the reliance on the above case law by the applicant is not tenable. 27. Further, in terms of notification No. 11/2017-Central Tax (Rate), dated 28.6.2017, the relevant parts of which are reproduced below for ease of reference viz. Annexure: Scheme of Classification of Services S.No. Chapter, Section, Heading or Group Service Code (Tariff) Service Description (1) (2) (3) (4) 220 Heading 9972 Real estate services 221 Group 99721 Real estate services involving owned or leased property 222 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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