Lease of commercial plot/land for 99 years attracts GST

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The Gujarat Authority for Advance Ruling has held that a lease of plot for 99 years is not sale of land but a lease of land and that this activity along with payment of annual premium for lease of a commercial plot is a ‘supply’ under the Central GST Act and is therefore liable to be taxed.

Supply under the Act is defined as all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.

The matter concerned Jinmagal Corporation, a partnership firm based in Ahmedabad that had secured the bid for a commercial plot through an e–auction conducted by the Ahmedabad Urban Development Authority. The plot was leased for a period of 99 years and could only be utilized for the purpose of commercial projects.

The Gujarat AAR had to clarify whether the one-time long term lease premium paid by the partnership firm to the Ahmedabad Urban Development Authority is a supply making it liable to pay tax under GST. It was also called upon to determine if the partnership firm was required to pay tax under the reverse charge mechanism on the one-time lease premium payable to AUDA.

The partnership firm was required to pay a one-time lease premium of ₹35.65 crore as one-time long term lease premium as consideration for the said plot. It was also required to pay an annual lease premium of ₹ 5 per sq m each year for 99 years as per the tender document.

It had submitted before the Gujarat AAR that it is of the view that a long term lease for a period exceeding 30 years is tantamount to a sale of the immovable property and that sale of land is neither a supply of goods nor a service and therefore it cannot be covered under the ambit of GST.

It also claimed that since land is not a movable property, it does not fall within the definition of goods under GST. Sale of land does not attract GST even as states impose stamp duty and registration fees on such transactions. It also claimed that one time lease premium under long term leases is generally regarded as equivalent to consideration for sale of land instead of rental income.

The Gujarat AAR, in its order, also clarified that the lease for 99 years comes with several restrictions which means that the partnership firm could not have mortgaged, transferred or sublet the premises without the permission of AUDA and that in the event of any violation of any condition the lease deed would have been automatically cancelled.

This is different from purchase of a commercial plot or land wherein the purchaser is an absolute owner of the plat and there is a sale deed between the seller and the purchaser.

Also, in case of a purchase of land there is no requirement to renew or extend the sale period and nor is the owner of the plot required to pay annual lease premium for the plot or land. The owner can also sell the land without seeking permission from the seller. He has absolute right of possession on land, the Gujarat AAR said.

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