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Last Updated : Oct 22, 2020 07:19 PM IST | Source: Moneycontrol.com

Agreeing to grant easement rights even to original owner is service and attracts 18% GST: Tamil Nadu AAR

A pathway was leased to the original owner for 35 years for a consideration. Chennai Metro Rail Limited sought an advance ruling on whether GST shall be charged for leasing the pathway to grant access to both the parties.


The Tamil Nadu Authority for Advance Ruling (AAR) has held that agreeing to grant easement rights is a service and hence attracts goods and services tax (GST) at the rate of 18 percent.

An easement is a right the owner of a particular land enjoys over an adjacent property which he does not own.

The case concerned Chennai Metro Rail Limited (CMRL) that acquired a portion of property for public purpose from an individual. The memorandum of understanding (MOU) entered between it and the owner contained a specific clause that stated that the owner will be entitled to use a passage way (out of the part which was sold to CMRL).


The pathway was leased to the owner for 35 years for a consideration. CMRL sought an advance ruling on whether GST shall be charged for leasing the pathway to grant access to the original owner.

In this particular case, the land of 2500 sq ft was acquired from an individual by CMRL under the Land Acquisition Act. Out of the 2500 sq ft land, 452sq ft was leased out to the original owner to be used as common access road to be used by CMRL and the individual in terms of an MOU in which it was agreed that a net amount of Rs 4 crore along with lease right to use (easement rights) the land of 452 sq ft as road will be given to the individual.

“It is clear that this right of use of the 'pathway' granted to the lessee for a fixed period for an amount qualifies the definition of 'easement' of the land owned by the applicant as per Section 4 of Indian Easement Act, 1882… it is seen that in the course of business of the applicant, i.e constructing the metro station, the applicant has given easement rights to the land measuring 452 sqft to the individual for an amount agreed, Rs 60,40,980, in the MOU which is the consideration here,” the order said.

The transaction of granting easement rights satisfies the conditions of Section 7(1)(a) as a 'supply' under CGST/TNGST Act.

Under the Act, the expression ‘supply’ includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; import of services for a consideration whether or not in the course or furtherance of business.

The act of agreeing to grant easement rights of the pathway by CMRL to the original owner by way of shared access as per the MOU was classifiable under SAC 999794 and taxable under GST at 18 percent GST, it ruled.

“Easement rights, long term lease, bayana, salami and similar payments are generally perceived for being made for purchase or use of properties. As transaction in immovable property is outside GST, invariably the general perception is to ignore the tax implications," said Harpreet Singh, Partner, KPMG.

"It would be prudent for all tenants and landlords to be cognizant of basic principles of GST to understand that leasing, brokerage, site development and other allied real estate transactions are construed as supply and hence liable to GST,” he said.

First Published on Oct 22, 2020 07:10 pm