Amount Paid Upfront As Premium For Lease Of Hospital For 30 years Or More, Exempt From GST: Allahabad High Court

The Allahabad High Court has held that premium for plots allocated for hospitals under lease extending up to 30 years or more falls under the definition of ‘amount paid upfront’ and is exempt from Goods and Service Tax.

While quashing the demand letter by Yamuna Expressway Industrial Development Authority issued to the petitioner, bench comprising of Justices Saumitra Dayal Singh and Vinod Diwakar observed that YEIDA had failed to show which conditions of the exemption notifications were not fulfilled by the petitioner.

Factual Background

Petitioner challenged the letter issued by the Advisor to Yamuna Expressway Industrial Development Authority (YEIDA) requiring the petitioner to deposit GST at the rate of 18% on the premium Rs. 3.80 crores charged by the YEIDA against Institutional Plot H-02, Sector 22-A, YEIDA admeasuring 4,000 square meters, allotted to the petitioner.

Counsel for petitioner argued that the exemption granted by the Central Government under Section 11 of the Goods and Services Tax Act, 2017 vide Notification No. 12/2017, dated 28th June, 2017 read with Notification No. 32/2017, dated 13th October, 2017 is applicable to the petitioner. Further, no demand of tax was raised by the Revenue Authorities, either on YEIDA or on the petitioner as YEIDA had applied before the Authority for Advance Ruling. The said order was never challenged by the revenue, hence attained finality.

Further, it was contended that YEIDA, being State within the meaning of article 12 of the Constitution of India is obligated to act fairly and reasonably. The demand letter is wholly illegal as there is no legal mandate for demand of any GST on premium paid by the petitioner to YEIDA for allotment of Institutional Plot to set up a hospital.

Counsel for Revenue/State submitted that revenue had not raised any demand of tax in this case. Further, applicability of exemption notifications was not contended by the counsel for revenue. Per Contra, counsel for YEIDA alleged that the petitioner fails to fulfil the conditions, thus, exemption notifications are not applicable to the petitioner.

High Court Verdict

The Court observed that since the allotment was made in 2015, GST provisions were applicable only on the installments paid on or after 01.07.2017. The Court noted that that the Central Government through the notifications granted specific exemption to amounts paid upfront with respect to service of grant of long term lease of 30 years or more of industrial plots, by Development Corporations/ Undertakings etc.

The Court held that though YEIDA accepted that the lease was for 30 years or more, it disputed the application of exemption notifications to the petitioner. Such dispute was in teeth of the order by the Authority for Advance Ruling which on query made by YEIDA itself had ruled that “GST is not applicable i.e. exempted on upfront amount, if the conditions are satisfied as mentioned Sl. No. 41 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 32/2017-Central Tax (Rate) dated 13.10.2017.”

The Court held that query of YEIDA as to whether premium charged on plot allotted to set up a hospital would be covered under the exemption notification was answered by the Authority. Once premium charged by YEIDA falls under the definition of ‘upfront amount’ under theexemption notifications, there was no occasion for YEIDA to issue the demand order.

“As has been extracted above, the Exemption Notification though does contain Column no. 5, to specify the condition for grant of exemption yet, against Entry no. 41 of that Notification there never existed any specification or condition for grant of exemption. In fact, the original Notification No. 12/2017, dated 28th June, 2017 mentions the word ‘Nil’ against Column no. 5, against Entry no. 41 thereto.”

Accordingly, the Court held that the legislature consciously made the decision to grant unconditional exemption with respect to payment of upfront amounts.

“While amending that Notification, vide Notification No. 32/2017, dated 13th October, 2017 though other changes were made to add by way of an activity for which allotment of plots were made exempt from tax and certain Corporations were also sought to be included wherein ownership of the Central Government or the State Government etc. may exceed 50%, at the same time, no amendment was made to the original Notification to introduce any condition for grant of that exemption.”

Accordingly, the writ petition was allowed and YEIDA was directed to refund any amount deposited by the petitioner pursuant to the impugned demand.

Case Title: M/S Ram Kamal Healthcare Pvt. Ltd. v. Union Of India And 3 Others [WRIT TAX No. - 1435 of 2018]

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