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Putting to rest all confusion on applicability of indirect tax on transactions related to assets under liquidation, the West Bengal Authority for Advance Ruling (AAR) has said that leasehold-right assignment by a corporate debtor attracts 18% GST.
The AAR held that activity of assignment of asset, leasehold factory unit with car parking space leased by West Bengal Development Corporation (sub-lessor to corporate debtor) is a service taxable as “Other Miscellaneous Service” and therefore GST to be levied at 18%. It observed that the sub-lessor has allowed possession of the demised premises for manufacture of garments and textiles. The West Bengal Development Corporation has no title or ownership, which is central to sale of any immovable property within the meaning Transfer of Property Act, 1882.
Liquidation has been initiated following the National Company Law Tribunal (NCLT) order wherein Enfield Apparels has been admitted as a corporate debtor. This ruling gets importance keeping in mind the large number of liquidation cases. Experts feel that it can be used as a tool for persuasion in similar matter.
According to AAR, activity of assignment is in the nature of agreeing to transfer one’s leasehold rights which does not amount to further sub-leasing. “Neither does it create fresh benefit from land other than the leasehold right. It is like a compensation for agreeing to do the transfer of rights in favour of the assignee”.
The application here is related with a Liquidator Kanchan Dutta, appointed by NCLT in a matter related to Kolkata-based Enfield Apparels. One of the assets under liquidation is the leasehold property, given on lease for 99 years. One of the conditions of lease was that it can be sub-leased after five years from the date of signing of deed.
The question before the AAR was whether GST is payable in the consideration received on such assignment. If yes, then what will be rate and whether input tax credit can be claimed or not. AAR ruled in affirmative to all the questions.