The Bombay High Court has upheld the validity of Goods and Services Tax ( GST ) on Long-term lease premium.
The petitioners has challenged an order levying/collecting the Goods and Service Tax (GST) on the one-time lease premium charged by City Industrial and Development Corporation ( CIDCO ) while letting plots of land on the lease basis.
The petitioners have obtained plots in the above areas, but what they are questioning is that when the allotment letter was issued, the allottee was called upon to pay, on the one-time lease premium amount, the GST separately by a Demand Draft drawn in the name of the fourth respondent payable at Mumbai/Navi Mumbai.
The CIDCO collected GST on the total one-time lease premium amount payable by the successful allottee at the rate of 18%.
The Counsel for the Petitioner Mr Nankani contended that GST cannot be levied, assessed and recovered. A long-term lease of 60 years tantamounts to the sale of the immovable property since the lessor is deprived of, by the allotment the right to use, enjoy and possess the property. The petitioners relied on section 105 of the Transfer of Property Act, 1882. The one-time premium amount is the lump sum consideration paid for entering into the lease.
The Petitioners also contended that the whole transaction is akin to the sale. If that is the position, then, section 7 of the GST Act cannot have any application. Once the position in law is understood in this perspective, then, there is no warrant for the imposition of the GST. The premium is akin to Salami.
While Countering the Petitioners’ Counsel, Mr Jetly appearing for the Central Goods and Sales Tax Commissionerate and the Union of India contended that this is a petition which seeks to pre-empt the levy assessment and recovery of GST. In any event, if the GST is now paid, then, the issue raised is purely academic. Apart therefrom, the law does not make any distinction between governmental and nongovernmental agencies and supply of goods or services attracts GST. Once the legal provisions are clear, unambiguous and plain, then, regardless of the consequences, the tax is leviable.
A division bench comprising of Justice S.C Dharmadhikari and Justice Prakash D. Naik observed that “On a plain reading of the GST Act, we do not see how we can agree with Petitioners. Mr Nankani also relies upon Schedule II, which is referable to section 7. These are the activities to be treated as the 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 the 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 leasing them out for a consideration styled as one-time premium. Therefore, if one refers to Schedule II, section 7, then, Item No. 2 styled as land and building and any lease, tenancy, licence to occupy land is a supply of service”, the bench said.
“Any lease or letting out of a building, including commercial, industrial or residential complex for business, either wholly or partly is a supply of service. It is settled law that such provisions in a taxing statute would have to be read together and harmoniously in order to understand the nature of the levy, the object and purpose of its imposition. No activity of the nature mentioned in the inclusive provision can thus be left out of the net of the tax. Once this law, in terms of the substantive provisions and the Schedule, treats the activity as supply of goods or supply of services, particularly in relation to land and building and includes a lease, then, the consideration therefor as a premium/one-time premium is a measure on which the tax is levied, assessed and recovered. We cannot then probe into the legislation any further”, the bench also observed.
“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, we cannot hold that the lease premium would not attract or invite the liability to pay tax in terms of the GST Act”, the bench added.
While dismissing the petition, the bench also said that “We are, therefore, of the clear view that the demand for payment of GST is in accordance with law. The said demand cannot be said to be vitiated by any error of law apparent on the face of the record”.
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