Property/ Plot given on long term lease by Development authority is outside the ambit of GST [AAR]
Facts of the case:
The applicant is a statutory authority constituted under Section 3 of the Uttar Pradesh Industrial Act, 1976 (herein after referred to as UPIAD Act 1976) vide Notification dated 17.04.1976 and the applicant works under the administrative control of the Infrastructure & Industrial Development Department, Government of Uttar Pradesh. The applicant was entrusted with the responsibility of preparing Master Plan for development of the area, to demarcate and develop sites for various land uses, to allot plot/properties as per regulations, to regulate the erection of buildings and setting up industries and to provide infrastructure and amenities.
The Applicant is registered under the provisions of Central Goods and Services Tax Act, 2017 as well as Uttar Pradesh Goods and Services Tax Act, 2017 (herein after referred to as the CGST Act and UPGST Act respectively). The applicant is a Local Authority’ as per Section 2(69) of the CGST Act, 2017 and the applicant is also recognized as a ‘Local Authority’ by the Ministry of Finance, Government of India vide its Office Memorandum dated 20.12.2017 in terms of provisions of section 2(69) of the CGST Act, 2017.
The primary function assigned to the applicant by the UPIAD Act, 1976 was to secure the planned development of the Industrial Development Area. NOIDA was declared as “Industrial Development Area” under the provisions of the UPIAD Act vide Notification dated 17.04.1976. In terms of Section 6 of the UPIAD Act, 1976, the applicant is assigned with the function of allocating land for the purposes of creating necessary infrastructure for development of NOIDA as ‘industrial development area’. In this regard, in exercise of powers conferred under Section 19 read with Section 6 of the UPIAD Act, 1976, the applicant notified the New Okhla Industrial Development Area (Preparation and Finalization of Plan) Regulations, 1994 (herein after referred to as “NOIDA Plan Regulations, 1991”) for the purpose of proper planning and development of NOIDA as an industrial development area with all necessary infrastructure.
Based on the bid filed by the participants, the bid is opened, and properties/plots are allotted to the successful bidder on “As is Where is Basis for which the applicant charges applicable “Premium” as per the terms and conditions mentioned in Para D of the Policies and Procedures, 2004. Further, as per Para F of the said Policies and Procedures, 2004, the allotment of plot is made on lease hold basis for a period of 90 years from the date of lease deed.
Applicant’s interpretation of law:
As per the applicant’s understanding, the upfront amount charged by the Applicant (as lease premium) in respect of allotment of plots by way of granting long term lease, for creating necessary commercial infrastructure such as hotels, hospitals, retail shops, offices, institutions etc would be covered under the scope of Entry No 41 of exemption notification 12/2017 CT(Rate) dated 28.06.2017 as amended for the following reasons:
i) Entry No 41 of the exemption Notification No 12/2017-CT(Rate) dated 28.06.2017 provides that the rate of tax on upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable in respect of service by way of granting of long-term lease of thirty years or more of industrial plots or plots for development of infrastructure for financial business, provided by the State Government Industrial Development Corporations or Undertakings or by any other entity having 20% or more ownership of Central Government, State Government, Union territory to the industrial units or the developers in any industrial or financial business area shall be NIL.
Following conditions have been specified for applicability of the aforesaid exemption benefits namely :-
(i) upfront amount is payable for granting of long term lease of thirty years or more;
The land allotted by the Applicant to developers in the industrial town of NOIDA is long term lease for a period of ninety nine years. Hence the said pre requisite is fulfilled.
(ii) the lease is either an industrial plot or for development of infrastructure for industrial or financial business; For development of an industrial area essential infrastructure such as hotels, hospitals, retail spaces, commercial spaces etc. is also developed. Therefore, grant of plots by the applicant for developing necessary infrastructure in the form of commercial spaces including hotels, hospitals etc would fulfill the aforesaid conditions.
(iv) the plots are allotted by the State Govt Industrial Development corporations or undertakings or by any other entity having at lease 20% ownership of State or Central Govt.; and
That the applicant is a duly constituted ‘industrial development authority’ of the Government of the state of Uttar Pradesh and therefore the said condition is also fulfilled.
Such plots are allotted to the industrial units or the developers in any industrial or financial business area.
That the plots are allotted in NOIDA which is a notified ‘industrial development area’. Further the plots are allotted to developers by way of auction for development of necessary infrastructure which is essential for an industrial or financial business area and in itself is an industry. Therefore the said conditions is also fulfilled.
They referred to the decision of the Advance Ruling Authority in the case of Yamuna Expressway Industrial Development Authority, wherein it was held that the plot of land allotted by Yamuna Expressway Authority for hospital, nursing home, diagnostic centre purposes etc would be eligible for the aforesaid exemption under the exemption notification. The said advance ruling squarely applies to the facts of their present case and therefore the upfront premium payable on the allotment of commercial plots which would be used for development of office/commercial space for information technology and other service industries duly qualifies as ‘industrial plot’ and is eligible for the exemption.
That the transaction of long term lease per se does not qualify as supply of service but as a transaction for sale of land and therefore the same is not taxable under GST at all. As per para 5 of the Schedule III of the CGST Act, sale of land shall be treated neither as supply of goods nor a supply of services hence not taxable under GST. immovable property’ under GST.
Discussion and Finding:
NOIDA was declared as “Industrial Development Area” under the provisions of UPIAD Act and the applicant had been assigned the primary function to secure the planned development of the Industrial Development Area by the UPIAD Act, 1976. In this regard, in exercise of powers conferred under Section 19 read with Section 6 of the UPIAD Act, 1976, the applicant notified the New Okhla Industrial Development Area (Preparation and Finalization of Plan) Regulations, 1994 (herein after referred to as “NOIDA Plan Regulations, 1991”) for the purpose of proper planning and development of NOIDA as an industrial development area with all necessary infrastructure.
The allotment of plots of NOIDA was made by the applicant on sealed tender basis/auction basis/ two bid system as prescribed under Policies & Procedure for Commercial Management, 2004. Based on the bid filed by the participants, the bid is opened, and properties/plots are allotted to the successful bidder on “As is Where is Basis” for which the applicant charges applicable “Premium” as per the terms and conditions mentioned in Para D of the Policies and Procedures, 2004. Further, as per Para F of the said Policies and Procedures, 2004, the allotment of plot is made on lease hold basis for a period of 90 years from the date of lease deed.
From the submissions made by the applicant, we observe that the applicant has been entrusted the responsibility of planned development of Industrial Development Area, for which they have been receiving bids from prospective customers. After the bids are opened, the plots are allotted to successful bidders and the applicant charges and collects an Upfront amount in the name of lease premium. We find that the above situation is covered under Sr no 41 of the Notification No 12/2017-CT(Rate).
As per the provisions contained in Sr No 41 of Notification 12/2017- CT (Rate), Nil tax rate is applicable on fulfillment of following conditions:
i) There should be an upfront amount for granting long term lease of thirty years, or more
ii) The lease should be for an industrial plot or plots for development of infrastructure for financial business.
(iii) The plots are allotted by the State Government Industrial Development Corporation or undertakings or by any other entity having at least 20% ownership of state or central government and
iv) Such plots are allotted to the industrial units or the developers in any industrial or financial business area.
That is the proposed lease of land by the NOIDA is for the development of infrastructure of financial business. The proposed infrastructure includes commercial activities.
The applicant has submitted that in Uttar Pradesh Advance Ruling Authority in the case of Yamuna Expressway Industrial Development Authority, wherein it was held that the plot of land allotted by Yamuna Expressway Authority for hospital, nursing home, diagnostic centre purposes etc would be eligible for the aforesaid exemption under the exemption notification.
The infrastructure for financial business may include commercial/ mixed use. Thus, the commercial/ mixed use plot is exempted from GST as long as it is for development of infrastructure for financial business and other conditions as stipulated in the Notification 12/2017-CT(Rate) are satisfied.
The model “lease deed” submitted by the applicant state that development of infrastructure for financial business. Hence, the leasing of industrial plots or plots for development of infrastructure for financial business by NOIDA to the industrial units or the developers in this notified area for commercial/ mixed use is exempted from the tax. In cases other than that, the applicable rate of Goods and Services Tax in case of leasing services is 18%.
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