The Gujarat Authority for Advance Ruling (AAR) in the case of M/s Kedaram Trade Centre vide Advance Ruling no. GUJ/GAAR/R/2023/15 dated 31.03.2023, has held that a one-time premium received by the applicant on allotment of completed commercial units or buildings would be taxable supply in terms of Section 7 of the CGST Act, 2017 and would be attract tax at the rate of 18% in terms of Notification No. 11/2017-CT(Rate) dated 28.6.2017.

In this case, the applicant is engaged in a business relating to the construction of immovable properties. The applicant wishes to allot developed units to prospective buyers on a long-term lease basis for a period of 90 years. The applicant in fact has received bookings for certain units before getting BU (Building Usage) permission, and he has charged the GST at the applicable rate on the entire amount of the consideration received for the bookings done before BU permission. The lessee shall pay a one-time premium to the applicant as a consideration for allotment of the commercial unit on long term lease period of 90 years. 

The applicant has sought an advance ruling on the issue of whether the one-time premium received by the applicant on allotment of a completed building would be treated as a taxable supply or not.

The applicant contended that since this is a sale of a building wherein consideration has been received after the issuance of a completion certificate, in terms of S. No. 5 of Schedule III, the transaction shall be treated neither as a supply of goods nor a supply of service.

The AAR held that the lease of a plot for 90 years by the applicant is not a “sale of land,” but a lease, and therefore does not fall within the ambit of clause 5 of Schedule III of the CGST Act, 2017. Hence, the activity of leasing commercial units on payment of a one-time lease premium and an annual premium is a ‘supply' falling within the ambit of section 7(1) of the CGST Act, 2017, which defines supply as 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, read with clause 2 of Schedule II of the CGST Act, 2017, which specifies that lease of land or building as a supply.