Advance Ruling on Transfer of Leasehold Rights: A Case
Study of M.S Fena Pvt Ltd
Authority for Advance Ruling: Uttarpradesh
Application No: UP. ADRG 40/2023 Date:
05-12-2023
M.S Fena
Private Limited
Introduction:
The transfer of leasehold rights is a complex issue under the Goods and
Services Tax (GST) regime in India. Businesses often seek clarity on the
applicability of GST to such transactions. M.S Fena Pvt Ltd approached the
Advance Ruling Authority (AAR) to determine whether the transfer of their
leasehold rights would attract GST and at what rate. This article delves into
the details of this case, examining the facts, the business activities of the
applicant, the questions posed to the AAR, submissions made, and the ruling
provided by the authority.
Brief Facts of the Case:
M.S Fena Pvt Ltd holds leasehold rights for a property which they intended
to transfer. The nature of the leasehold rights and the specifics of the
property were central to the case. The company sought an advance ruling to
understand the GST implications on this transfer.
Business Activity by the Applicant:
The primary business activity of M.S Fena Pvt Ltd includes the
manufacturing and supply of consumer products. However, in this case, the focus
is on their holding and intended transfer of leasehold rights to a property.
This aspect of their business brought them to seek clarity from the AAR
regarding the taxability of such a transaction under GST.
Question of Advance Ruling:
The core question posed by M.S Fena Pvt Ltd to the AAR was:
·
Whether the transfer of leasehold rights by the applicant would be subject
to GST, and if so, what the applicable rate of GST would be.
Submission by the Applicant:
M.S Fena Pvt Ltd submitted that the transfer of leasehold rights should not
attract GST. They argued that such a transfer is akin to the transfer of
immovable property, which is generally outside the scope of GST. Their
submission emphasized that leasehold rights transfer does not constitute a
supply of goods or services as per the definitions under the GST Act.
Discussion and Findings by Authority:
The AAR meticulously examined the submissions made by M.S Fena Pvt Ltd. The
authority analyzed the relevant provisions of the GST Act, particularly
focusing on the definitions of 'goods', 'services', and 'supply'. The AAR
considered previous rulings, judicial interpretations, and the legal framework
governing leasehold rights and their transfer.
Key points from the discussion and findings include:
·
Definition of Supply: Under GST, 'supply' includes all forms of supply of
goods or services, such as sale, transfer, barter, exchange, license, rental,
lease, or disposal made or agreed to be made for a consideration.
·
Leasehold Rights as a Service: The AAR found that the transfer of leasehold
rights fits within the ambit of supply of services as per GST provisions.
·
Applicability of GST: The authority determined that such a transfer is
indeed subject to GST, as it involves the transfer of rights to use immovable
property, which is classified as a service under GST.
Ruling and Conclusions
After thorough examination, the AAR concluded that the transfer of
leasehold rights by M.S Fena Pvt Ltd is subject to GST. The ruling specified
that:
·
GST Rate: The transfer of leasehold rights is taxable at the rate of 18%,
as it falls under the category of leasing services.
·
Classification: The transaction is classified under the heading of 'Other
Miscellaneous Services' (HSN 9972), which includes leasing or rental services
concerning machinery and equipment without operator, and leasing or rental
services concerning other goods.
Implications and Compliance:
This ruling has significant implications for businesses engaged in the
transfer of leasehold rights. It underscores the importance of understanding
the GST law's reach concerning immovable property and rights related to it. For
M.S Fena Pvt Ltd, and similarly placed entities, the ruling provides a clear
directive on how such transactions should be treated under GST, ensuring
compliance with tax regulations.
Conclusion:
The Advance Ruling in the case of M.S Fena Pvt Ltd provides valuable
insights into the applicability of GST on the transfer of leasehold rights. By
classifying such transfers as taxable services, the AAR has clarified a grey
area under the GST regime. Businesses must heed this ruling to ensure proper
tax treatment of their leasehold right transactions, thereby avoiding potential
disputes and penalties. For a detailed understanding, refer to the original
AAR document.
Disclaimer: All the
Information is based on the notification, circular and order issued by the
Govt. authority and judgement delivered by the court or the
authority information is strictly for educational purposes and on the
basis of our best understanding of laws & not binding on anyone.
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