Transfer of land held under lease by FDMC is Supply of Service: Maharashtra AAR

The Maharashtra Authority of Advance Ruling (AAR) consisting of Rajiv Magoo and T.R. Ramnani ruled in the case of M/s Forest Development Corporation of Maharashtra Limited that the transfer of land held under lease by FDMC comes under supply of service, attracts GST.

M/s Forest Development Corporation of Maharashtra Li0mited filed an application under section 97 of the Central Goods and Services Tax Act 2017 and the Maharashtra Goods and Services Tax Act 2017 seeking an advanced ruling on whether the transfer of land held under lease by FDCM to the Kolsapada Minor Irrigation Project is a supply of service?

FDCM Ltd. Is a Maharashtra State Government venture that specialises in the cultivation and harvesting of teak trees. The Maharashtra State Forest and Revenue Department leased the land to FDCM, and FDCM Ltd. Does not own the land. The leased land is now being used for a small irrigation project run by Maharashtra’s irrigation department. The user agency has reimbursed FDCM Ltd., and a No Objection Certificate for land usage will be given subject to payment of compensation assessed by FDCM Ltd. On the date of transfer.

The ruling is sought on the taxation aspect of the said transaction, where in the service of easement, license to occupy land (by issuing NOC) is being provided by FDCM Ltd For which the Kolsapada Minor Irrigation Project under the Irrigation Department of Maharashtra will compensate FDCM Ltd.

The AAR stated that it is presumed for the purpose of the present ruling that, the amount is directly received from the irrigation department of the Government of Maharashtra and not from anyone else since in spite of specific request to produce the details as from whom payments are received and proof thereof, no details in support of payments received have been produced. However, since the applicant is a government company, their contentions are accepted based on submissions made. Therefore, If the payments received from anyone else other than irrigation department, present advance ruling shall not have any binding effect.

The court also pointed out that the land is owned by the MSFR Department. The petitioner has leased the land from MSFR Department, which owns it. The applicant does not own the property. The MSFR Department has now requested that the applicant hand over a portion of the land to the Irrigation Department, as stated in the application. As a result, in the case of land to be transferred to the Irrigation Department, the transfer will have the effect of making MSFR Department the lessor. The Irrigation Department would be the lessee, with the applicant absent, and the lease payment, if any, would likely be paid by the Irrigation Department to the MSFR Department.

The Court finally stated that Section 5(e) of Schedule II of the CGST Act, 2017, “accepting the duty to perform an act amounts to supply of service.” In the issue at hand, the applicant has consented to perform an act, namely, relinquish its lease right on the subject land in favor of the Irrigation Department, as directed by the landowner, MSFR Department. Thus, the applicant’s behavior is nothing more than a supply of service under the GST law, with the set supply being to the MSFR Department for which the Irrigation Department receives remuneration.

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