The Advance Ruling Authority ( AAR ), Kerala has held that the quit rent or lease rent paid to the Government for the use of land for agricultural purpose is exempted from GST.
The applicant, under a lease agreement with the Kerala State Government, is paying quit rent or lease rent to Government through Forest Department. Forest Department is demanding 18% GST and therefore, the same is exempted from GST.
As per HSN 9986 renting or leasing of vacant land for use relating to the cultivation of plants or agricultural produce is exempted from tax.
The authority noted that the taxable event under GST is ‘supply’ of goods or services or both. So, a transaction to become taxable it must cover within the meaning & scope of ‘supply’. As per Sec 7 of the GST Laws the expression ‘supply’ includes 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. Therefore, the term ‘lease’ is covered within the meaning and scope of “supply”.
“Sale of land doesn’t attract GST as the State imposed stamp duty and registration fee on such transaction. But the grant of lease constituted ‘supply’ for a ‘consideration’ and thereby the lease transactions covered under the category of ‘Supply of Services’. Quit-rent is a tax or land tax imposed by Government on occupants of freehold or leased land in lieu of services to a higher landowning authority,” the authority observed.
“As per Notification. No.12/2017- Central Tax (Rate) / SRO.No.371/2017 Government has exempted intra-state supply of services covered under Heading 9986. As per this notification services relating to the cultivation of plants or agricultural produce by way of ‘vacant land with or without a structure incidental to its use’ is exempted from tax liability. In the instant case, vacant land was given by erstwhile Cochin State to the applicant for cultivation on lease rent. Accordingly, the petitioner converted the vacant land to Coffee Plantation. Therefore the lease rent collected by Government through Forest Department is exempted from GST,” the authority said.
It was also observed that the lease rent received in relation to agricultural activities was also exempted under Service Tax regime also.
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