AAR: One Time Premium Received on Allotment of Completed Units/Building is Taxable Supply under Section 7 of GST Act

AAR: One Time Premium Received on Allotment of Completed Units/Building is Taxable Supply under Section 7 of GST Act

The Authority for Advance Ruling (AAR), Ahmedabad has ruled that one-time premium received by the applicant on allotment of completed commercial units/building is taxable supply in terms of section 7 of the CGST/GGST Act, 2017 and attracts 18% tax rate.

In the present case, the applicant was engaged in a business relating to the construction of immovable properties. The applicant wished to allot the developed units to prospective buyers on a long-term lease basis for a period of 90 years. In fact, the applicant had received bookings for certain units before getting BU permission, and he has charged the GST at the applicable rate on the entire amount of the consideration received for the bookings done before BU permission.

The applicant had filed the application to sought AAR on the issue of whether the one-time premium received by the applicant on allotment of a completed building would be treated as a taxable supply or not.

The applicant had submitted that since it was a sale of a building wherein consideration was received after the issuance of a completion certificate, in terms of entry number 5 of Schedule III of the Central Goods and Services Act, 2017, (CGST) the transaction shall be treated neither as a supply of goods nor a supply of service.

In this regard the two-member bench comprising of Amit Kumar Mishra and Milind Kavatkar, noted that in terms of Schedule II of the CGST Act, 2017, any lease, tenancy, easement, license to occupy land is a supply of service. It further observed that, any lease or letting out of building including a commercial, industrial or residential complex for business or commerce, either wholly or partially is a supply of service.

Furthermore, the AAR had noted that during the course of personal hearing, the authorized representative of the applicant was harping on the specific point highlighting that the transaction would not attract GST levy. However, to the specific query as to how a sale can be executed by someone who does not hold a title of the property/goods, evoked no response was received from the authorized representative of the applicant, recorded the bench.

The applicant had submitted that a lease of 90 years is as akin to sale, however, the bench while pursuing the definition of lease as per Section 105 of the Transfer of Property Act, 1882, observed that, definition of lease clearly showed lease could be of perpetuity. Therefore, quantum of time has no relation in determination of lease or sale, opined the bench.

The AAR was of the view that, lease of plot for 90 years by the applicant is not ‘sale of land’ but is a lease and therefore, does not fall within the ambit of clause 5 of Schedule III of CGST Act, 2017.

Hence, the AAR concluded that this activity i.e. lease of commercial units on payment of one time lease premium and annual premium is a ‘supply' falling within the ambit of section 7(1) of CGST Act,2017, which defines supply as “all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business” read with clause 2 of Schedule II of CGST Act, 2017, which specifies that lease of a land or building as a supply.

Therefore, the AAR ruled that, “one-time premium received by the applicant on allotment of completed commercial units/building is taxable supply in terms of section 7 of the CGST/GGST Act, 2017. The supply of the applicant is classified under SAC 9972 and would be leviable to tax at the rate of 18% (i.e., 9% GGST and 9% SGST) in terms of Notification No. 1 I 0 I 7-CT(Rate) dated 28.6.2017.”