The Authority for Advance Ruling (AAR) ruled that the amount collected towards the Local Area Development Fund part of the value forms of supply of rental/lease services are taxable under a forward charge mechanism.
The applicant, Karnataka Solar Power Development Corporation Limited is a joint venture company of Solar Energy Corporation of India, Government of India and Karnataka Renewable Energy Development Limited, Government of Karnataka formed to establish 2000 MV solar park in Karnataka.
The applicant, for the aforesaid project, obtained lands on lease from the farmers of five villages for a period of 28 years and sub-leased the said lands to the SPDs, as per their requirement on the basis of solar power generating capacity, for 28 years to install solar panels for generation of solar power.
The applicant collects rent along with the applicable GST from the said SDPs and also required to collect a number of Rs 500000/- per MW capacity, from each SDP after commissioning of a solar project, in five yearly installments of Rs 100000/- each, under the guidelines of MNRE, towards LAD fund, intended to the rehabilitation of the affected area.
The LAD fund so collected by the applicant is kept in a separate account by the applicant and interest earned on such amounts also added to the said village panchayats, by the committee formed by the government of Karnataka.
The applicant contends that the amount collected towards LAD fund is not related to any supply made by them to the SDPs and is intended for the Local Area Development and also endeavors to truncate and separate the said amount from rental income, to circumvent the tax liability on the said income.
The section 15(2)(a) of CGST Act of 2017 elaborates as the value of supply shall include any taxes, duties, cesses, fees, and charges levied under any law for the time being in force other than this Act, the State Goods and Service Tax Act and Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier.
The authority observed the contention of the applicant in reference to section 15(2)(a) of the CGST Act 2017 said that the amount collected by the applicant from the SDPs under guidelines issued by MNRE, Government of India.
The Additional Commissioner of Commercial Taxes, Dr. Ravi Prasad and Joint Commissioner of Central Tax, Mashood Ur Rahman Farooqui further said that the amount payable, by SDPs towards the LAD fund are on account of supply made by the applicant and are directly linked to rent/lease payable and thus are includable in the value of the rental/lease services.
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