Bombay HC Upholds Levy Of GST On One-Time Premium Charged For Letting Land On Lease Basis [Read Judgment]

The Bombay High Court has upheld the Goods and Services Tax (GST) levied by the Central Industrial and Development Corporation of Maharashtra Limited (CIDCO) on one-time lease premium charged for letting out plots of land on lease basis.

The bench of Justice SC Dharmadhikari and Justice PD Naik were hearing a writ petition filed by the Builders Association of Navi Mumbai and another realtor based out of Navi Mumbai. They challenged the levy of 18% GST on one-time lease premium charged and sought directions to refrain CIDCO from levying GST on members of the petitioner association as well as the second petitioner for such transaction.

Case Background

CIDCO is a special planning authority for the areas of Navi Mumbai and was incorporated on March 17, 1970 with the specific aim for creating a new planned, self-sufficient and sustainable city on the mainland across Thane Creek adjoining the Mumbai City. CIDCO then disposed of the land for development for 60 years to various builders and developers under the Navi Mumbai Land Disposal (Amendment) Regulation, 2008 by charging them a onetime lease premium. In addition to this one-time lease premium, a separate lease rental is charged annually for the period of lease.

The petitioners won the bid for securing lease of such land from CIDCO in areas of Navi Mumbai and Panvel. However, the petitioners questioned the levying of GST separately on the one-time lease premium amount at the time when allotment letter was issued.

Submissions and Final Judgment

Senior advocate Vikram Nankani appeared for the petitioners and submitted that a long-term lease of 60 years tantamounts to sale of the immovable property, since the lessor is deprived of, the right to use, enjoy and possess the property.

Nankani argued that since CIDCO discharges a statutory obligation, under Article 36 Schedule I to the Maharashtra Stamp Act, 1958, the present transaction is treated as a conveyance. Such an instrument styled as conveyance and conveying a right, title and interest in the immovable property is brought into existence. Hence, the whole transaction is akin to sale, which would mean that Section 7 of the GST Act cannot be applied, Nankani said.

Nankani also submitted that the respondent’s reliance on the Allahabad High Court judgment in the case of Greater Noida Industrial Dev. Authority vs. Commissioner of Customs, Central Excise, is misplaced.

Pradeep Jetly, who appeared for Central Goods and Tax Commissionerate and Union of India, argued that the petition seeks to pre-empt the levy assessment and recovery of GST and if the GST has been paid, then, the issue raised is purely academic.

Jetly submitted that the law does not make any distinction and the supply of goods or services attracts GST whether it is governmental or non-governmental agencies.

Referring to the GST Act, the court noted the definition of a ‘person’ under the Section 2(84) of the Act. It said-

“On a plain reading of the GST Act, we do not see how we can agree with Mr. Nankani. Mr. Nankani also relies upon Schedule II, which is preferable to section 7. These are the activities to be treated as supply of goods or services. The substantive provision section 7 in clearest terms says that the activities specified in Schedule I made or agreed to be made without a consideration and the activities to be treated as supply of goods or supply of services referred to in Schedule II would be included in the expression “supply”. However, clause (a) of sub-section (1) of section 7 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. We referred to the definitions simply to reinforce our conclusion that the CIDCO is a person and in the course or in furtherance of its business, it disposes of lands by leasing them out for a consideration styled as one-time premium.”

The court further noted:

“Once this law, in terms of the substantive provisions and the Schedule, treats the activity as supply of goods or supply of services, particularly in relation to land and building and includes a lease, then, the consideration therefore as a premium/one-time premium is a measure on which the tax is levied, assessed and recovered. We cannot then probe into the legislation any further.”

Thus, the demand for GST for the said transaction was declared to be in accordance of the law and petition was dismissed.