GST update on taxability of assignment of leasehold right in immovable property

Sale of land is out of the ambit of GST Act as it is an entry in the schedule III but there are some services related with the land are liable to GST. These services include:

• Construction services wherein consideration is received prior to completion certificate.
• Leasing services associated with the land.

Now the latest update is regarding taxability of assignment of leasehold right in immovable property and admissibility of input tax credit thereon which was raised before the AAR in the case of M/s ENFIELD APPARELS LTD.

Case of M/s ENFIELD APPARELS LTD:

• The NCLT, Kolkata Bench, passed an order on 06/08/2018, initiating the corporate insolvency resolution process, admitting the applicant as the corporate debtor, and appointed Sri Kanchan Duatta as Interim Resolution Professional (IRP).
• The applicant is under liquidation and one of the assets under liquidation is leasehold property, taken on lease for 99 years from the West Bengal Industrial Development Corporation Ltd. The one of the condition of lease was that it can be sub-leased after 5 years from the date of signing of deed after taking approval of the West Bengal Industrial Development Corporation Ltd. on payment of transfer fees i.e. 10% according to prevailing market value of the property as assessed by the Registering Authority of the State Government.
• Now the query arises before the AAR was whether GST is payable on the consideration received on assignment of leasehold right in property to another person and whether ITC can be claimed on transfer fees or not.
• The schedule 2 (para 2) of the CGST Act provides that with respect to transactions relating to land and buildings, any lease, tenancy, easement, license to occupy the land, letting out of a building including a commercial, industrial or residential complex for business or commerce is the supply of services.
• This simply means that benefits arising from land mentioned above will be treated as supply of service for the purpose of GST Act and are not treated as transactions in immovable property.
• Now the query arises that whether the activity of assignment of leasehold right in factory can be considered as sub- leasing so as to attract GST?
• It was observed that the West Bengal Industrial Development Corporation has no title or ownership on immovable property which is central to sale of any immovable property within the meaning of Transfer of Property Act, 1882. The activity of assignment is in the nature of agreeing to transfer one’s leasehold rights which does not amount to further sub-leasing. The observed things are that it does not create any fresh benefit from land other than the leasehold right. This is to considered as compensation for agreeing to do the transfer of rights in favour of the assignee.

Thus this clarifies to be a service under ‘Other Miscellaneous services’ and liable to 18% GST. Furthermore, it was held that as GST is payable on the activity of assignment of leasehold right in immovable property, the ITC of tax paid on transfer fee is admissible to the applicant.