Services of Leasing Land for Industrial purposes cannot be Treated as an Exempt Supply: AAR [Read Order]

The West Bengal bench of the Authority for Advance Ruling (AAR) observed that services of leasing land for industrial purposes cannot be treated as an exempt supply

The issue to be decided was whether the upfront premium payable by the applicant towards the services of leasing of the land for industrial purposes by SMPK is exempted under entry 41 of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 .

The applicant submitted that he has entered into a leasing agreement with the Shyama Prasad Mookerjee Port, Kolkata (hereinafter referred to as SMPK), a body incorporated under the Ministry of Ports, Shipping and Waterways, Government of India, wherein, the SMPK has agreed to lease an industrial plot of land at Taratala Road for a period of thirty years (30 years) for setting up commercial office complex. The allotment of the plot has been done vide letter bearing number Lnd. 6063/22/2869 dated 21.09.2022.

The applicant argued that SMPK in its official website “ smportkolkata.shipping.gov.in” has declared vide notice dated 14.12.2018 bearing reference number FIN/368/B that SMPK is covered under the category of notified persons under notification number 50/2018 Central Tax dated 13.09.2018 and is required to deduct tax under section 51 of CGST/WBGST Act 2017. SMPK is therefore registered as a tax deductor in the state of West Bengal bearing registration number 19AAAJK0361L1DC

According to the applicant, from a conjoint reading of clause (a) to notification 50/2018- Central Tax dated 13.09.2018 and section 19(2) of Comptroller & Auditor General‟s (Duties, Power & Conditions of service) Act, 1971 it was evident that more than fifty-one percent of control of SMPK is with Central Government.

The applicant submitted that it is a manufacturing company duly registered under CGST/WBGST Act, 2017 and has manufacturing units in the state of West Bengal. Therefore, the applicant fulfils the last condition mention above as well.

The revenue pointed out that the leased plots shall be used for the purpose for which they are allotted, that is, for industrial or financial activity in an industrial or financial business area, and

It was further stated that the State Government concerned shall monitor and enforce the above condition as per the order issued by the State Government in this regard, Provided also that in case of any violation or subsequent change of land use, due to any reason whatsoever, the original lessor, original lessee as well as any subsequent lessee or buyer or owner shall be jointly and severally liable to pay such amount of central tax, as would have been payable on the upfront amount charged for the long term lease of the plots but for the exemption contained herein, along with the applicable interest and penalty

The revenue also pointed out that the lease agreement entered into by the original lessor with the original lessee or subsequent lessee, or sub-lessee, as well as any subsequent lease or sale agreements, for lease or sale of such plots to subsequent lessees or buyers or owners shall incorporate in the terms and conditions, the fact that the central tax was exempted on the long term lease of the plots by the original lessor to the original lessee subject to above condition and that the parties to the said agreements undertake to comply with the same.”

The applicant sought for advance ruling on exemption only on the ground of the services of leasing land for industrial purpose, so, the applicant did not go into “the financial activity” or “financial business area” clauses.

In the application, the allotment letter did not specify structure or activities of “commercial office complex”. Also the applicant did not produce any document that can describe the activities to be done in that commercial office complex and whether such activity fulfills all conditions to be termed as “industrial activity”.

The bench have gone through the records of the issue as well as submissions made by the authorized advocate of the applicant during the course of personal hearing and considered the submission made by the officer concerned from the revenue.

The bench first took the issue to decide whether SMPK falls within the ambit of suppliers as specified in the relevant entry of the exempt notification supra. The applicant argued that since SMPK deducts tax under section 51 of the GST Act and the books of accounts of SMPK is audited by Comptroller and Auditor General of India, it is evident that more than fifty-one percent of control of SMPK is with the Government.

On due consideration of the reply given by SMPK and in light of the discussions detailed herein above including scope of audit of CAG, the Bench was unable to conclude that SMPK may be regarded as an entity having 20 percent or more ownership of Central Government merely on the ground that its books of accounts are audited by CAG.

The bench held  that being registered as a deductor of tax at source under section 51 of the GST Act can be equated with the supplier of services specified in entry number 41 of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017 i.e., an entity having 20 percent or more ownership of Central Government” the Bench noted.

The two member bench of the authority comprising Dr.Tanisha Dutta ( member) and Joyjith Banik ( member) conclude that  the services of leasing of the land for industrial purposes by SMPK to the applicant is found not to be covered under entry 41 of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 and therefore cannot be treated as an exempt supply.

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