06 Apr GST Implications on Lump Sum Transfer Charges for Leasehold Rights
In a recent ruling by the Uttar Pradesh Authority for Advance Rulings (AAR), Remarkable Industries (P.) Ltd. sought clarification regarding the GST implications on lump sum upfront premium paid as transfer charges for leasehold rights. The case, identified as Advance Ruling No. UP/ADRG/41/2023, offers significant insights into the classification and applicable GST rate concerning the transfer of leasehold rights.
Facts of the Case:
- Remarkable Industries (P.) Ltd. ("the Applicant") operates in the manufacturing and selling of various products.
- The Applicant acquired an industrial plot from the Noida Authority under a lease deed for a 99-year period.
- The lease involved the payment of a lump sum upfront premium and subsequent annual lease charges.
- After utilizing the plot for manufacturing purposes, the Applicant decided to transfer its leasehold rights to M/s S K Industries ("the Assignee") for consideration.
- The transfer process required permission from the Noida Authority, payment of transfer charges by the buyer, and the execution of a fresh lease deed with the Assignee.
- Notably, the transfer did not entail sub-leasing or creation of fresh benefits from the land; it solely involved the transfer of existing leasehold rights for consideration.
Issue:
Whether the activity of transferring leasehold rights by the Applicant constitutes sub-leasing and, if not, what is the appropriate classification and applicable GST rate for the said activity?
Held:
The Uttar Pradesh, AAR in Advance Ruling No. UP/ADRG/41/2023 held as follows:
- The activity of the Applicant is akin to agreeing to transfer one's leasehold rights and does not amount to sub-leasing.
- The transfer represents compensation for agreeing to transfer the leasehold rights to the Assignee without creating additional benefits from the land.
- As per the CGST Act and Schedule II, the transaction is classified as a service rather than a transfer of immovable property.
- The Applicant's right under the lease deed is extinguished after assignment, and there is no creation of fresh benefits from the land.
- The transaction falls under "Other miscellaneous service" (SAC 999792) and is taxable at an 18% GST rate as per Notification No. 11/2017-Central Tax (Rate) dated June 28, 2017.
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