#GSTCase-15-Goa Tourism Development Corporation Ltd.  100 taxmann.com 128 (AAR – GOA)
Whether GST is applicable on One Time Concession Fees charged by the applicant for a long term lease of 60 years for development of infrastructure for financial business on Private Investment mode on DBFOT basis (Design Build, Finance, Operate and Transfer) providing exclusive right, license and authority to construct, operate and maintain the project.
The applicant had executed Concession Agreement for Renovation/Development of their Anjuna property through Private Investment Mode on DBFOT basis, with Myrayash Hotels Pvt. Ltd, Mumbai on 09th December 2016, given the exclusive right, license and authority to construct, operate and maintain the project for a period of 30 years extendable by further period of 30 years totaling 60 years for a consideration of Rs. 25,20,00,000/- in the name of onetime upfront Concession Fees for a term of 60 years @ Rs. 42,00,000/- per annum.
- Contention of the Applicant:
Contention 1: The Applicant contended that one-time upfront concession fee charged is exempted from payment of GST under Sr. No. 41 of Notification No. 12/2017-CT (Rate) 28/06/2017 as amended by Notification no 32/217-CT (Rate) dated 13/10/2017. The Entry No. 41 reads as follows:
“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 50 per cent or more ownership of Central Government, State Government, Union territory to the industrial units or the developers in any industrial or financial business area ”
Contention 2: It was also contended by applicant that as per section 142(10) of the GST Act, GST shall be liable in cases where supply of service has been after the appointed date i.e. introduction of levy of GST. Thus, in case services are provided prior to appointed date, the provisions of GST shall not apply.
Contention 1: From the provisions of Entry No. 41 of Notification No. 12/2017 dated 13th October 2017 following criterion may be derived for availing exemption from GST-
(a) Service provider should be ‘State Government Industrial Development Corporation or Undertakings or any other entity having 50 percent or more ownership of Central Government, State Government, union territory:- Service provider is an undertaking of Goa Government,
(b) Lease shall be for a period of 30 years or more:– The lease is made for 60 years, therefore the given condition is fulfilled.
(c) Long term lease shall be in respect of industrial plots or plots for development of infrastructure for financial business, located in any industrial or financial business area:- The term ‘industrial or financial business area’ has not been defined in the Notification/Statue, therefore meaning of the term “Industrial Area” was taken as per sub-section (g) of Section 2 of the Goa Industrial Development Act, 1965.
“any area declared to be an industrial area by the State Government by Notification in the Official Gazette, which is to be developed and where industries are to be accommodated”
Therefore for considering any area as industrial or financial business area it is necessary that the area must be declared as industrial or financial business area by the state government by Notification. An area cannot be treated as industrial or financial business area merely on the ground that the area is being used for the purpose of industry/finance. It may often see that banking or some other financial/commercial activities are being carried out in residential area but the area is not considered as industrial/financial area. The approval/declaration from state government is mandatory for treatment of any area as industrial or financial business area.
In the matter of case on hand there was no such Notification declaring area consisting of plot leased out by applicant, as industrial/financial business area, on record. Therefore, the area cannot be treated as industrial or financial business area. Therefore, the benefits of Notification No. 12/2017-Central Tax (Rate), dated 28.06.2017 as amended by Notification No. 32/2017-Central Tax (Rate), dated 13.10.2017 is not available to the applicant.
AAR relied upon the decision of Hon’ble Bombay High Court in the matter of Builders Association of Navi Mumbai and Neelsidhi Realties Vs. Union of India and others wherein it was observed that lease premium amount is a consideration against supply of service and is subject to Goods and Services Tax. AAR also relied upon the decision of Hon’ble High Court Allahabad in the case of Greater Noida Industrial Development Authority Vs. Commissioner of Customs, Central Excise [2015 (40) STR 95 (although of Service Tax Regime), wherein Hon’ble High Court arrived at the conclusion that services of renting of immovable property of Greater Noida, was a taxable service
Contention 2: AAR observed that provisions of section 142(10) are pretty clear that if contract is made in Service Tax regime and the service is provided in the GST regime or the service is in the nature of continuous supply of service, the same shall be liable to tax under the GST Act. In the instant matter, though the consideration against service is received prior to the appointed day and the contract was made in service tax regime, it cannot be said that the supply of service is completed. It can easily be understand that the consideration is received against the services to be provided for next 60 years i.e. the supply of service is in the nature of continuous supply of service. Therefore, the same is liable to be taxed under GST Act.
The service provided by the applicant in the instant matter, is not falling under the criterion mentioned at Sr. No. 41 of the Notification No. 12/2017-Central Tax (Rate), dated 28.06.2017 as amended by the Notification No. 32/2017-Central Tax (Rate), dated 13.10.2017. Therefore, applicant is not entitled for the benefits of the said notification and the activity of long term lease is liable for levy of GST.
There have been plethora of decisions wherein it has been held that long term lease is taxable in GST Regime. However the decision is much beyond that and decides two important issues i.e. exemption under Entry no. 41 of Notification No. 12/2017 dated 28th June 2017 and taxability of contracts executed on a date prior to 1st July 2017.
Contention 1: Benefit of Exemption Entry no. 41 of Notification No. 12/2017 dated 28th June 2017- AAR held that benefit of exemption is not applicable to the applicant as for the benefit of exemption being available, land has to be situated in an area notified as Industrial area. As there was no such Notification declaring area consisting of plot leased out by applicant, as industrial/financial business area, on record, hence area cannot be treated as industrial or financial business area and therefore benefit of Notification exemption from levy of tax is not available to the applicant.
However there can be another view that there are twin conditions in the notification that the plot should be industrial plot and should be located in industrial area. AAR has borrowed definition of industrial area from Goa Industrial Development Act, 1965. However borrowing definition from another act which are not “parimatreria” is itself a matter of litigation. The entry under consideration is an exemption entry under taxation and meaning being taken from the act is an Industrial development act. Industrial Development Act and CGST Act, 2017 cannot be considered to be parimatreria. The term financial business area used alongwith industrial area has not been defined under the CGST Act, 2017.
Hon’ble Apex Court in the matter of n the case of Shah & Co., Bombay v. The State of Maharashtra &Anr, held that Rent Act and Requisition Act are not paramateria as the Rent Act was enacted for the purpose of amending and consolidating the law relating to the control of rents and repairs of certain premises, of rates of hotels and lodging houses and of evictions. The Requisition Act was passed to provide for the requisition of land, for the continuance of requisition of land and for certain other purposes. It will therefore be seen that this Act deals with a matter, so totally different from that dealt with by the Rent Act. There is absolutely no similarity between the two enactments; and we cannot hold that the Requisition Act relates to the same person or thing, or to the same class of persons or things, as the Rent Act. Hence the two Acts were not considered to be in parimateria.
Minutes of 22nd GST Council Meeting held on 6th October 2017, wherein said entry was substituted to include in its ambit plots for development of infrastructure for financial business in any industrial or financial business area are as under:
“Gift City Company Limited which is developing international financial services centre (IFSC) in Gujarat has requested for a similar exemption for the amount charged by it for granting development rights to developers for construction of commercial and residential spaces in the Domestic Tariff Area. He stated that the present request was different from the existing exemption in as much as it covered long term lease of commercial and residential plots and that allotment of land by authorities such as Delhi Development Authority, Ghaziabad Development Authority, NOIDA, on long term lease for residential purpose was presently not exempt from tax. .He stated that as Gift City Company was developing the first international financial services centre in India to attract international financial business to India which has a lot of potential, the development rights granted by Gift City Company to developers for construction of commercial and residential buildings on long term lease of 30 years or more could be exempted as this would reduce the initial cost of development and encourage them to invest in the project. He stated that the proposal before the Council was to exempt from tax upfront, amount (called as premium, salami, development charges or by any other name) payable in respect of service, by way of granting of long term lease (30 years or more) of industrial plots or plots for development of infrastructure for financial business, provided by the State Government Industrial Development Corporations/Undertakings or any other entity having 50% or more ownership of Central Government, State Government, Union Territory to industrial units or developers in any industrial or financial business area. The Council agreed · to this proposal.”
It can be observed that government extended benefit of this notification to an area which has not been defined anywhere based on the activity i.e. Financial Business Area, therefore there is no reason to restrict the same for industrial plot being leased out in industrial area. A plot which can be used for industrial activity and situated in industrial are although not notified might also suffice the purpose. Therefore, using restricted meaning for industrial area would be restricting benefit in case of industrial area when term used along Industrial area i.e. financial business area which has not been defined anywhere would be given a wider meaning. Therefore, alternate view that meaning of Industrial Area has to be taken as per common parlance just as the meaning of financial business area would be taken and in the context of the entry for which it has been inserted, is also possible.
Contention 2: Taxability of contracts executed on a date prior to 1st July 2017-AAR did not agree to the contention of the applicant on non-taxability of the service in view of Section 142(10) of CGST Act, 2017.
However, It appears from the facts of the case that the consideration against service is received prior to the appointed day and the contract was made in service tax regime i.e. of Rs. 25,20,00,000/- as onetime upfront Concession Fees for a term of 60 years @ Rs. 42,00,000/- per annum. Therefore, on an assumption based on facts quoted that agreement was executed prior to appointed date and consideration was paid prior to appointed date, provision of Section 142(11)(b) might give a different view point which provides as follows:
(b) notwithstanding anything contained in section 13, no tax shall be payable on services under this Act to the extent the tax was leviable on the said services under Chapter V of the Finance Act, 1994;
In the absence of necessary facts available in public domain, applicability of 142(11)(b) could not be ascertained, however if tax was payable under service tax regime alongwith the facts as narrated above, provision of section 13 of CGST Act are not applicable and supply is exempt from the leviability of tax.