By TIOL News Service

MUMBAI, APRIL 10, 2018: FACTS: Petitioners are challenging an order levying/collecting the Goods and Service Tax (GST) on the one-time lease premium charged by respondent CIDCO while letting plots of land on lease basis. By prayer clause (b), the petitioners seek a writ of mandamus or any other appropriate writ, order or direction in the nature thereof directing the respondents not to collect the Central Goods and Service Tax on the long term lease granted by the respondent.

Grounds:

+ The petitioners argue that their members are reputed Builders and Developers of Navi Mumbai and areas surrounding it. They have contributed to the growth and development of Navi Mumbai by constructing and developing several residential and commercial properties. These projects are undertaken and carried out after the fourth respondent CIDCO, which is registered as a company under the Companies Act, 1956, exercises the statutory functions in terms of section 113(3A) of the Maharashtra Regional and Town Planning Act, 1966 ("the MRTP Act").

+ It is stated that in its ordinary and normal course of business, the fourth respondent invites offers from various entities to acquire, on lease, residential-cum-commercial plots and three/four star hotel plots in Panvel and Navi Mumbai from time to time. One such invitation was issued in April, 2017 inviting offers for various plots at Navi Mumbai and Panvel. The members of petitioner no. 1 applied for allotment of various plots. The members were allotted these plots. Under the scheme, the tenderer/bidder is required to make an offer by quoting a rate per square meter on account of payment of lease premium. The plots are to be allotted on long term lease of 60 years. A base price is already fixed for the plot in the annexure to the tender for the payment of one-time lease premium amount and the tenderer is required to quote a price above the base price per square meter of the plot which the tenderer is interested in acquiring. After the offers are scrutinised, respondent no. 4 usually allots plots on lease basis to the bidder quoting the highest rate per square meter of the one-time lease premium amount provided such a bidder is eligible as far as the remaining terms and conditions of the tender document.

+ Thus, the petitioners have obtained plots in the above areas, but what they are questioning is that when the allotment letter was issued, the allottee was called upon to pay, on the one-time lease premium amount, the GST separately by a Demand Draft drawn in the name of the fourth respondent payable at Mumbai/Navi Mumbai. The fourth respondent collected GST on the total one-time lease premium amount payable by the successful allottee at the rate of 18%.

+ In these circumstances, a grievance was raised by approaching the Goods and Service Tax Commissionerate as to how the GST is collected on the above amount and demanded from the petitioners.

+ Since the authorities did not respond, the present petition has been filed.

After considering the elaborate arguments made by both sides, the High Court observed thus -

++ The GST Act is an Act to make a provision for levy and collection of tax on intra-state supply of goods or services or both by the Central Government and for the matters connected therewith or incidental thereto.

++ Chapter I contains preliminary provisions and section 2 therein defines certain expressions and words. The term "business" is defined in inclusive manner in section 2(17). The expression includes any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit. It also includes any activity or transaction undertaken by the Central Government or State Government or any local authority in which they are engaged as public authorities. The other definition, which is material and relevant is to be found in section 2(31) is of the word "consideration".

++ A perusal of sections 7, 8, 9, 10 and 11 falling in this Chapter leaves us in no manner of doubt that the expression "supply" 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. By sub-section (2) and which opens with a non-obstante clause, such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services. Equally, subject to the provisions of sub-sections (1) and (2), the Government may, on the recommendation of the Council, specify, by notification, the transactions that are to be treated as a supply of goods and not as a supply of services or a supply of services and not as a supply of goods. Pertinently, no notification and traceable to sub-section (2) of section 7 has been brought to our notice.

++ 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. Therefore, if one refers to Schedule II, section 7, then, Item No. 2 styled as land and building and any lease, tenancy, licence to occupy land is a supply of service. Any lease or letting out of a building, including commercial, industrial or residential complex for business, either wholly or partly is a supply of service.

++ It is settled law that such provisions in a taxing statute would have to be read together and harmoniously in order to understand the nature of the levy, the object and purpose of its imposition. No activity of the nature mentioned in the inclusive provision can thus be left out of the net of the tax. 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 therefor as a premium/one-time premium is a measure on which the tax is levied, assessed and recovered.

++ We are concerned here with the GST Act and the tax on supply of goods and services. It is not disputed that the position of the CIDCO for the purpose of orderly planning and development will be of no assistance in the sense while developing a new township, the objective of the planning authority is not to earn money, but to develop the area so that the purpose of setting up a township is achieved by more people wanting to live in the area in lieu of the various amenities provided in the area. The CIDCO is one such authority. It is entirely for the legislature, therefore, to exercise the powers conferred by sub-section (2) of section 7 of the GST Act and issue the requisite notification. Absent that notification, merely going by the status of the CIDCO, we cannot hold that the lease premium would not attract or invite the liability to pay tax in terms of the GST Act.

++ With respect, it cannot be said that the activities performed by sovereign or public authorities under the provisions of law, which are in the nature of statutory obligations are excluded from the purview of the present enactment. Pertinently, the dividing line between governmental and non-governmental, sovereign and regal functions and otherwise is not very thin and post globalisation, liberalisation and privatisation.

As for the case laws cited, the High Court noted thus –

+ Panbari Tea Co. Ltd. (2002-TIOL-1509-SC-IT-LB) is entirely misplaced.

+ R. K. Palshikar (2002-TIOL-1850-SC-IT) - that is an assessment of the tax on income.

+ Shri Ramtanu Cooperative Housing Society Ltd. (1970 SCC 323) is of no assistance.

+ Commissioner of Central Excise, Nashik vs. MIDC (2017-TIOL-2629-HC-MUM-ST): The issue raised related to collection of service charges, but whether the services rendered are taxable services or not. The Division Bench noted that this consideration is an amount received for the facilities and amenities provided. That is a statutory function. It is in these circumstances that the Revenue's appeal was dismissed.

+ N. Nagendra Rao and Co. vs. State of Andhra Pradesh AIR 1994 SC 2663… Relied upon

+ Agricultural Produce Market Committee vs. Ashok Hari Kuni AIR 2000 SC 3116…relied upon

+ Greater Noida Industrial Dev. Authority vs. Commissioner of Customs, Central Excise - 2015-TIOL-1008-HC-ALL-ST …relied upon

Conclusion:

++ Demand for payment of GST is in accordance with law. The said demand cannot be said to be vitiated by any error of law apparent on the face of the record.

++ No merit in the Writ Petition, hence dismissed.

(See2018-TIOL-2767-HC-MUM-GST)