The West Bengal Authority of Advance Ruling (AAR) ruled that assignment of leasehold right on land is taxable at the rate of 18% under GST.
The NCLT passed an order, initiating the corporate insolvency resolution process (CIRP), admitting the applicant as the corporate debtor, and appointed Kanchan Duatta as Interim Resolution Professional (IRP). The Committee of Creditors (CoC) subsequently confirmed Dutta as the Resolution Professional (RP).
During the CIRP, the RP and the CoC did not receive any resolution plan. The NCLT, therefore, passed another order under section 33 of the Insolvency & Bankruptcy Code, 2016 (IBC) to start the process of liquidating the corporate debtor and appointed Sri Dutta as the Liquidator. He has obtained separate registration as a distinct person in terms of Notification No. 11/2020 – Central Tax dated March 21, 2020.
One of the assets under liquidation is the leasehold factory unit along with car parking space. The West Bengal Industrial Development Corporation Ltd granted the applicant possession of the Demised Premises for 99 years under a registered deed of sub-lease on payment of an up-front premium of Rs 5.07 crore and monthly lease rental of Rs 21,000.
According to clause 12.28 of the Deed, the applicant, after the expiry of at least 5 years from the date of the Deed coming into force, is entitled to assign to another person the unexpired residual period of the sub-lease after taking written approval of the Sub-lessor and on payment of transfer fee, being 10% of the prevailing market value of the property as assessed by the Registering Authority of the State Government.
The Liquidator sought advance ruling on the issue whether GST is payable on the consideration receivable on such assignment. If so, what should be the SAC and the rate applicable.
The other issue raised was whether he can claim input tax credit for the GST paid on the transfer fee.
The two member bench of Susmita Bhattacharya and Parthsarthi Dey ruled that the activity of assignment is in the nature of agreeing to transfer one’s leasehold rights. It does not amount to further sub-leasing, as the applicant’s rights as per the Deed of sub-lease stands extinguished after assignment.
The AAR further ruled that neither does it create fresh benefit from the land. It is in the nature of compensation for agreeing to do the transfer of the applicant’s rights in favour of the assignee. It is a service classifiable under ‘Other miscellaneous service’ (SAC 999792) and taxable at the rate of 18% under Sl No. 35 of Notification No. 11/2017 – CT (Rate) dated June 28, 2017.
The Authority further ruled that the transfer fee charged by the Sub-lessor is the consideration payable to the Sublessor for providing a service in the course or furtherance of business, more specifically because business includes supply or acquisition of goods or services in connection with the closure of a business in terms of section 2 (17) (d) of the GST Act. The GST to be paid on such transfer fee is, therefore, admissible as input tax credit.
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