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TMI Blog2024 (1) TMI 1344X X X X Extracts X X X X X X X X Extracts X X X X ..... iruvananthapuram International Airport'. It is presumed that the same is a typographical error and that 'Adani International Airport Limited' took over such operations only on execution of the agreement. Further, para 3 mentions M/s Adani Enterprises Limited' as the concessionaire, whereas the agreement mentions that the concessionaire is 'Adani Thiruvanananthapuram International Airport Ltd'. This ruling is issued on the presumption that the correct concessionaire is 'Adani Thiruvanananthapuram International Airport Ltd', as evident from the agreement, and that the reference to 'M/s Adani Enterprises Limited' as concessionaire is a typographical error. 4. The statement of facts connected to the application, as submitted by the applicant, is as follows. Section 12-A of Airports Authority of India Act allows AAI, in public interest or in the interest of better management of airports, make a lease of the premises of an Airport (including building and structures thereon and appertaining thereto) to carry out some of its functions under Section 12 as the AAI may deem fit. Accordingly, bids for undertaking the operation, management and development of certain airports, on a public priva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt for operation, management and development of the airport which include civil, mechanical, electrical works, terminal buildings, cargo facilities, runway and all other project assets. The SPV will be undertaking the operations, management and development of the airport for a period of 50 years subject to the compliance of various terms and conditions as set forth in the concessionaire agreement. AAI will cease to operate, manage and develop the airport as per this agreement from a prescribed date. The applicant has placed the copy of the concession agreement entered into in this regard. From clause 28.1 of the said agreement, we find that on and from COD and till the transfer date (i.e., the date of expiry of agreement), the concessionaire has the sole and exclusive right to demand, collect and appropriate fees from the users of aeronautical/non-aeronautical provisions, including from passengers. We find that this amount constitutes the consideration received by the concessionaire against the activity of 'operation, management and development of the airport'. The relevant portion of the agreement shall be cited as and when relevant to the discussions. 5. Comments of the Jurisdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ules do not define the concept of transfer as a going concern. Based on accounting practices in vogue, the concept of going concern has been discussed by the High Court of New Delhi, in Indo Rama Textiles case (2013) 4 Comp 141 (Del). Accordingly, an enterprise is normally viewed as a Going Concern, if it is continuing in operation for the foreseeable future. It is assumed that the enterprise has neither the intention nor the necessity of liquidation or of curtailing materially the scale of the operations. In the same case, the Hon'ble Court observed "To ensure that it is a going concern, the Court while sanctioning a Scheme can certainly examine whether essential and integral assets like plant, machinery and manpower without which it would not be able to run as an independent unit have been transferred to the demerged company". Another clarification on transfer of going concerns is available in paragraph 7.11.15 of Taxation of Service An Education Guide' dated June 20, 2012 issued by CBEC, wherein it is clarified that "Transfer of a going concern means transfer of a running business which is capable of being carried on by the purchaser as an independent business, but shall not cov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in carrying on the same kind of business as the seller-this does not need to be identical to that of the seller, but the buyer must be in possession of a business rather than simply a set of assets. - where the seller is a taxable person, the buyer must be a taxable person already or become one as the result of the transfer. - in respect of land or buildings which would be standard-rated if it were supplied, the buyer must notify HMRC that they have opted to tax the land by the relevant date, and must notify the seller that their option has not been disapplied by the same date. - where only part of the business is sold it must be capable of operating separately - there must not be a series of immediately consecutive transfers of the business d-From the above, it emerges that in order to be 'transfer of going concern', a going concern or an independent vertical of a going concern should be transferred to another person, such that transferee is able to carry on with the business of the transferred going concern independently. To so enable the transferee, the essential and integral assets like plant, machinery and manpower without which it would not be able to run as an ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... These activities can be summed up as performance and fulfilment of obligations of the concessionaire. We find that all these activities are subsidiary or ancillary to the guidelines to the master plan viz., 'construction of the Airport, so that it is developed into a state-of-the-art Airport'. iii-The exact role of the concessionaire is evident from Article-5 of the concession agreement which explains the obligations of the concessionaire. This article, inter-alia, clarifies that (5.1.7) the concessionaire shall (1) support, cooperate with and facilitate the Authority in the implementation and operation of the Project in accordance with the provisions of this agreement, applicable laws and applicable permits including... (m) transfer the project assets to the Authority upon termination of the agreement, in accordance with the provisions thereof and (n) operate, maintain, and refurbish (if necessary) the existing Airport assets including but not limited to the terminal Building, Runway, cargo terminal, car park, apron, taxiway and other Airport assets as provided in Annex I of Schedule A. iv-From the agreement, it is evident that the concessionaire is obliged to execute and ful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and service quality requirements specified in Schedule H ("Key Performance Indicators"). Thus, operating and managing the airport is not the end activity, but are only the means to the end, viz., construction and development of the airport so as to achieve or exceed the performance indicators. The core activity is 'development' of the Airport. This is also evident from Section 12A of the Airport Authority Act, 1994, which empowers the authority to 'make a lease of the premises of an airport (including buildings and structures thereon and appertaining thereto) to carry out some of its functions under section 12 of the Authority Act'. Hence, even the lease is not an end activity, but is only a means to carry out its functions under Section 12 of the Act, which includes, inter alia, the plan to 'develop, construct and maintain runways, taxiways, aprons and terminals and ancillary buildings at the airports and civil enclaves'. vi-The guidelines for preparing the Master Plan are provided in Annex II to Schedule A and the concessionaire is bound to prepare the master plan accordingly and further, should obtain the concurrence of the applicant, prior to finalization of the master plan. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uarter, furnish to the Authority, a report on progress. The independent engineer shall inspect the Airport works, considering the quarterly progress reports submitted by the Concessionaire, at least once a quarter and make a report of such inspection and make a report to the applicant. If in the reasonable opinion of the Authority, the Concessionaire is in material breach of its obligations under this Agreement and such breach is causing or likely to cause material hardship or danger to the users, the Authority can take appropriate action including suspension/ termination of the agreement. Even the revenue of the concessionaire is subject to constant monitoring by the applicant. The applicant is empowered to verify the international/ domestic passenger throughput and to ascertain the actual throughput at the Airport. For this purpose, the applicant can depute its representatives to the Airport and the offices of the Concessionaire, and undertake such other measures and actions as it may deem necessary. The applicant can also call upon the concessionaire to furnish any and all data, information, log, sheet, document or statement, as they may deem fit and necessary for these purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action does not involve a transfer of business or going concern, but involves only a contractual service arrangement to attract private sector participation in the development, financing, operation and maintenance of such infrastructure. ix- On an examination of the above facts, we find that the Airport or its activities are not transferred to the concessionaire. Though for a limited period, the project shall be jointly run by the applicant and the concessionaire. The employees of the applicant are not transferred to the concessionaire, but select employees alone will be posted to the Airport by the applicant. The employees still belong to the applicant and the liability for paying the employees are also with the applicant, though there is a provision to collect the expense from the concessionaire. The concessionaire shall have no obligation with regard to the employees of the applicant, other than the select employees. The property including the trees and mining, archaeological and geological rights on the property is with the applicant. The concessionaire has the right to operate the installations and capitalized items at the airport. However, these items have not been transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o as to enable the concessionaire to carry out the business of the concern independently. g- The next question is then to find out the exact nature of the activity or transaction involved. The nature of transaction is evident from Section 12A of the AAI Act, 1994 and also from the Concession agreement. It is limited to bringing in of private partnership to carry out the activities in Section 12 of the Airport Authority Act, 1994. As per the concession agreement, the bids are for "undertaking the operations, management and development of certain airports of AAI on a public private partnership basis". The applicant wants to develop the airport on a PPP basis to bring efficiency in service delivery, expertise, enterprise and professionalism apart from harnessing investments, and invited the partnership of the concessionaire in the said activity. The annual report of the AAI for 2022-23 also includes this airport under its airports operating under PPP scheme (page 150). That being the case, it cannot be equated to 'transfer' of the Airport or any of its vertical. From the facts on record, in the transaction, it is evident that there is no transfer of any property or rights. All the ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Airport in a phased manner in accordance with the provisions of the agreement. This service is provided by the concessionaire to the applicant. No fee is specifically prescribed for this service. However, during the agreement period, the concessionaire is empowered to collect the entire fee for all operations at the airport, which otherwise would be due to the applicant, and this amount has to be construed to be remuneration to the concessionaire, for the services rendered by them to the applicant. * The second is the set of services is provided by the applicant to the concessionaire. This includes leasing of the facilities, providing employees etc. for which a remuneration is fixed. In both these cases, both supply and consideration are involved. As per Section 7 of the CGST Act, 2017, Supply includes "(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business". Here, the concessionaire is constructing the Airport of the applicant to develop it "into a state-of-the-art airport serving tourism and business m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on fee by the concessionaire to the applicant. As per Article 10.2.2 of the agreement, it is seen that 'In consideration of the Monthly Concession Fee, this Agreement and the covenants and warranties on the part of the Concessionaire herein contained, the Authority, in accordance with the terms and conditions set forth herein, shall grant to the Concessionaire, commencing from the COD, lease rights in respect of all the land (along with any buildings, constructions or immovable assets, if any, thereon) comprising the Site which is described, delineated and shown in Schedule A hereto, free of any Encumbrances, to develop operate and maintain the Site'. As already elaborated above, this lease does not empower the concessionaire to operate independently and thus does not qualify to be treated as 'transfer of going concern.' However, this lease is a supply against consideration, the consideration being concession fee. The supplier in this regard is the applicant and recipient of supply is the concessionaire. Thus the concession fee paid to the applicant by the concessionaire is a consideration for supply and is taxable. 7. The seventh question is whether GST is applicable on Monthly/A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o reversal to be made under Section 17 (3), since 17 (3) only explains about the value of exempt supply. With regard to the supply made by the applicant to the concessionaire which are specifically discussed above, we find that the services are not exempted and hence, no GST reversal is warranted in respect of those supplies. In view of the observation stated above, the following rulings are issued; RULING Question No. 1 Whether the transfer of business by the Airport Authority of India to the M/s. Adani Thiruvananthapuram International Airport Limited be treated as Supply u/s. 7 of the Central Goods and Service Tax Act, 2017 ("CGST") viz-a-viz Kerela State Goods and Service Tax Act, 2017 ("KGST")? RULING: The transaction involved herein is not the transfer of business by the applicant to the concessionaire. However, the concessionaire is supplying the service of developing the airport of the applicant and applicant is supplying the service of manpower, leasing etc., to the concessionaire and both constitutes supply under Section 7 of the GST Act. Question No. 2 Whether the transfer of business by Airports Authority of India to M/s. Adani Thiruvananthapuram International Airpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aff cost on the concessionaire. It is to be paid at 9% each towards CGST and SGST or 18% IGST as may be applicable under SAC '998519'. Question No. 9 Whether GST is applicable on the reimbursement claimed of Municipal tax, Property Tax and Water Charges by the Applicant from M/s. Adani Thiruvananthapuram International Airport Limited? If yes, at what rate? RULING: We are of the opinion that reimbursement of such taxes, being reimbursement of expenses, do not attract GST and therefore, GST is not applicable on the reimbursement of such charges. This ruling is applicable only if such taxes are 'reimbursed' by the concessionaire to the applicant. If such taxes are embedded in the consideration for lease and cannot be identified, this ruling does not hold good. Question No. 10 Whether any reversal is required in accordance with section 17 (2)/(3) of CGST Act viz-a-viz KSGST Act? RULING: This ruling is requested without specifying the context or situation in which the same is put. Therefore, only a general ruling can be offered. If the applicant has inward supply of goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts own cost and expense, procure finance for and undertake the operations, management and development of the Airport 30 7. The Concessionaire shall, from time to time, undertake expansion or augmentation of the Aeronautical Assets and Non-Aeronautical Assets in accordance with the provisions of this Agreement. 30 8. The Concessionaire shall support, cooperate with and facilitate the Authority in the implementation and operation of the Project in accordance with the provisions of this Agreement 31 9. Transfer the project Assets to the Authority upon Termination of this Agreement, in accordance with the provisions thereof; and -do- 10. The Authority shall, from time to time, have the right, but not the obligation, to access the drafts of all Project Agreements, or any amendments or replacements thereto. The Authority also reserves the right to seek and obtain true copies of all agreements, contracts, sub-lease, sub-license and any other material agreements or contracts that may be entered into by the Concessionaire with any person in connection with matters relating to, arising out of or incidental to the Project even if the consideration of the contract less than Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n amount equivalent to 2% (two percent) of the cost of the Construction Works of the relevant Phase (as determined by the Concessionaire), shall be deemed to be created under this Clause. 49 17. It is expressly agreed that trees on the Site are property of the Authority 51 18. It is expressly agreed that mining, geological or archaeological rights do not form part of the lease granted to the concessionaire 52 19. Prior to commencement of construction Works, the concessionaire shall: (a) submit to the Authority and the Independent Engineer, its Development plan, detailed design, drawings, construction methodology, quality assurance procedures, and the procurement, engineering and construction time schedule for Completion of the concerned Phase; 56 20. The Concessionaire shall at all times procure and ensure that the Airport is constructed and developed in accordance with the Master Plan. The guidelines for preparing the Master Plan are provided in Annex II to Schedule A. 56 21. The Concessionaire further agrees to update the Master Plan periodically, every 5 (five) years or earlier as the case may be. The Development Plan for Phase I and the subsequent Phases s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning of each Accounting Year during the Concession Period, the Concessionaire shall provide to the Authority and the Independent Engineer, its proposed annual programme of preventive, urgent and other scheduled maintenance. 79 30. In the event the Concessionaire does not maintain and/or repair the Airport or any part thereof in conformity with the Maintenance Requirements, the Maintenance Manual or the Maintenance programme, as the case may be, and fails to commence remedial works within 15 (fifteen) days of receipt of the O&M Inspection Report or a notice in this behalf from the Authority or the Independent Engineer, as the case may be, the Authority shall, without prejudice to its rights under this Agreement including Termination thereof, be entitled to undertake such remedial measures at the risk. 79 31. At all times during the Concession Period, the Concessionaire shall, no later than 7 (seven) days after the close of each quarter, furnish to the Authority a quarterly report, in a form acceptable to the Authority, stating in reasonable detail the condition of the Airport including its compliance or otherwise with the Safety Requirements. 91 32. The AODB must provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f require, inspect the Airport at least once a year with prior intimation to the Concessionaire. 93 37. Without prejudice to the obligations specified in this agreement, commencing from the date which is I (one) year from the COD, the Concessionaire shall operate the Airport such that it achieves or exceeds the performance indicators specified in this Article 23 and service quality requirements specified in Schedule H ("Key Performance Indicators"). 96 38. The Concessionaire shall ensure and procure compliance of each of the Key Performance Indicators specified in this Article 23 and for any shortfall in average performance during a quarter, it shall be liable for Damages. Any such Damages will be determined in consultation with the Regulator and adjusted against Aeronautical Charges for the specified period. 97 39. The Authority and the Concessionaire shall appoint a consulting engineering firm substantially in accordance with the selection criteria set forth in Schedule K, to be the independent consultant under this Agreement ("Independent Engineer"). The Independent Engineer shall be appointed in accordance with the provisions of Schedule K and role is specifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esenting the capital investment made by theConcessionaire in the Project Assets shall be deemed to be acquired and owned by the Concessionaire. The Authority shall not in any manner be liable in respect of any claims for depreciation to be made by the Concessionaire under Applicable Laws. 151 46. The concessionaire shall neither assign, transfer or create any lien or encumbrance on this Agreement, or the Concession hereby granted or on the whole or any part of the Airport nor transfer, or part possession thereof, save and except as expressly permitted by this Agreement or the Substitution Agreement. 26 47. The Concessionaire shall not make any addition, replacement or amendments to any of the Financing Agreements without the prior written intimation to the Authority. 32 48. The Concessionaire shall not assign or in any manner create an Encumbrance on any Project Asset. (It is pertinent to note that 'Project Asset' means all physical and other assets relating to or forming part of the Site including all rights of the concessionaire under the project Agreements) -do- 49. the Concessionaire agrees and acknowledges that selection or replacement of any or all EPC Contract ..... X X X X Extracts X X X X X X X X Extracts X X X X
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