Rajasthan Authority for Advance Ruling rejects contention that the money deposited is not a lease premium but a security deposit. Makes it clear that lease premium deposited by the applicant is a consideration towards leasing services supplied by RLDA
The Rajasthan Authority for Advance Ruling has ruled that leasing services provided under a lease agreement entered into for 99 years between Rail Land development Authority (RLDA) and a special purpose vehicle for residential and commercial development is not exempted from GST.
The issue to be decided by the state AAR was to do with whether the lease agreement signed between the lessee and RLDA for a period of 99 years is exempt from levy of GST.
The case concerned a lease agreement signed between RLDA and Hazari Bagh Builders Pvt Ltd Ajmer who had submitted the bids for a plot at Rs 15.98 crore lease premium and another plot at Rs 31.90 crore lease premium.
The two parties had entered into a lease agreement on Nov 8, 2019 for 99 years for a land measuring 7337 hectare for residential development. The company had paid an amount of 15.8 crore as first installment of lease premium during February 2019 to the RLDA.
The financial bid submitted by the applicant firm for both the plots had mentioned that the applicable taxes, duty, GST if any, shall have to be paid in addition to the quoted or offered rates of the lease premium and annual lease rent.
The company also paid an amount before entering into the lease agreement as security deposit. This amount was neither an advance nor a lease premium but a security and if the lease agreement is not entered then as per clause 26 of the agreement such amount is refundable in full.
The AAR rejected the applicant’s contention that the amount of around Rs 15.98 crore deposited as first installment of lease premium in the February, 2019 is not a lease premium but only a security deposit and stated that security of contract was ensured when the letter of acceptance (LOA) was signed with the RLDA.
It also observed that since the applicant is registered under GST, it is liable to pay GST under reverse charge mechanism and in terms of Section 13(3), payment is due when the said amount is either shown in books of account of recipient or 60 days post invoicing of said amount made by supplier, which-ever is earlier.
“The contention that the money deposited is not a lease premium but a security deposit is not rational and tenable. …lease premium deposited by the applicant is a consideration towards leasing services supplied by RLDA to the applicant and thus liable to GST,” the order noted.
It also held that the RLDA, a statutory government authority is into the business of leasing parcels of land which is for commercial function and that the said service attracts a GST at the rate of 18 percent.
It notes that RLDA is not awarding industrial plots or plots for development of infrastructure for financial business to applicant but only a portion of land over which some residential infrastructures are meant to be built.
“In the background of its function, especially of generating revenue, RLDA is leasing the parcels of land and thus it is a rental or leasing service of land for commercial function. In a way, clear from facts that RLDA is supplying rental or leasing services involving own land,” it said.
RLDA being the statutory authority of government of India is providing services by way of renting of immovable property to a registered person and renting of immovable property includes leasing also, therefore, the said services are falling under the purview of Reverse Charge Mechanism (RCM). The applicant being the recipient of service of leasing or renting of immovable property is liable to pay GST under RCM, the order said.
Besides the amount of lease premium to be paid for both the plots, the applicant would also have to deposit an annual lease rent of Rs 2 lakh for both the plots to be revised upwards by 15 percent every three years, the order said.“Taxability of long-term lease or 99 years lease has been a matter of perennial litigation, as the same is considered by some as being akin to sale of immovable property not liable to indirect taxes. On the other hand, GST law simply covers all leases irrespective of the duration.” said Harpreet Singh, partner, KPMG.