No GST on upfront premium paid for hospital plots under 30 years lease: Allahabad HC

Allahabad: The Allahabad High Court bench recently held that the premium amount paid upfront for plots allocated for hospitals under lease extending up to 30 years or more is exempted from Goods and Service Tax (GST).

The case was considered before the High Court bench comprising Justices Saumitra Dayal Singh and Vinod Diwakar when M/S Ram Kamal Healthcare Pvt. Ltd approached the bench challenging the demand letter issued by the Advisor to Yamuna Expressway Industrial Development Authority (YEIDA) required the petitioner to deposit GST at the rate of 18% on the premium of Rs 3.80 crores charged by the Authority against a plot allotted to the petitioner back in the year 2015.

Observing it to be exempted from GST, the HC bench quashed the demand letter issued by YEIDA and further opined that the authority could not point out which conditions of the exemption had been violated by the petitioner.

"Consequently, the writ petition is allowed. The impugned communication dated 24.08.2018 is quashed. Any amount that may have been deposited by the petitioner pursuant to the impugned communication may be refunded forthwith within a period of one month, failing which the same shall attract interest at the rate of 8% from the date of deposit till the date of refund," ordered the bench

The matter goes back to 2015 when YEIDA allotted an Institutional Plot H-02, Sector 22-A, YEIDA measuring 4,000 square meters to the petitioner. However, through the letter dated 24.08.2018, YEIDA asked the petitioner to deposit GST at the rate of 18% on the premium Rs 3.80 crores paid upfront.

Approaching the HC bench, the counsel for the petitioner argued that the exemption granted by the Central Government under Section 11 of the Goods and Services Tax Act, 2017 vide Notification No. 12/2017, dated 28th June, 2017 read with Notification No. 32/2017, dated 13th October, 2017 was also applicable to the petitioner.

Further, the petitioner's counsel argued that no demand of tax was raised by the Revenue Authorities, either on YEIDA or on the petitioner as YEIDA had applied before the authority for Advance Ruling under Section 97 of the Act vide application dated 9th March, 2018. The concerned authority allowed the application for advance ruling and it attained finality as the ruling was never challenged by the revenue.

Besides, the counsel argued that YEIDA is a State authority within the meaning of Article 12 of the Constitution of India and it is obligated to act fairly and reasonably. Contending that there is no legal mandate for the demand of any GST on premium paid by the petitioner to YEIDA for allotment of an Institutional Plot to set up a Hospital, the counsel for the petitioner claimed the demand letter dated 24.08.2018 to be wholly illegal and without authority of law and arbitrary.

Meanwhile, the counsel for the State submitted before the bench that as on date the revenue has not intervened. It has neither demanded any tax nor it has taken any view over the matter. Further, the State Counsel confirmed the existence of the Exemption Notification referred to by the petitioner's counsel and submitted that there is no doubt that the order of the Authority for Advance Ruling dated 06.06.2018 has attained finality.

However, it was contended that YEIDA had demanded the tax as the petitioner does not fulfill the conditions of the Exemption Notification. However, as to the condition not complied by the petitioner, the counsel could not informed the bench regarding any specific condition existing under the Exemption Notification or the compliance that may not have been made by the petitioner.

Further, it was submitted by the counsel that the demand of tax made by the YEIDA was only provisional and the petitioner may seek a refund of the amount from the revenue authorities after depositing the same.

Taking note of the submissions, the HC bench referred to the Notification No. 12/2017-Central Tax (Rate) and Notification No. 32/2017-Central Tax (Rate) and noted, "Perusal of the said Notifications clearly reveals that the Central Government granted specific exemption to upfront amounts, by whatever name called, when paid with respect to service of grant of long term lease of 30 years or more of industrial plots, by the Development Corporations/ Undertakings etc."

"The plain letter of the law, as noted above, does not allow for any elaborate submissions to arise. At the same time, it is a fact that YEIDA had not entertained any doubt that the disputed transaction is for execution of a lease deed for a period in excess to 30 years by a Government Industrial Development Authority. The doubt that was entertained, was with respect to availability of exemption to allotment made for public health care purpose such as to set up a Hospital or Nursing Home or Diagnostic Centre etc," observed the bench.

The Court further referred to the disclosure made by YEIDA before the Authority for Advance Ruling and noted, "Thus, a specific doubt was expressed by the YEIDA, to the Authority for Advance Ruling, whether GST was chargeable on premium and lease rent on plots allotted to hospitals against lease granted for more than 30 years."

It was further observed by the Court that the Authority for Advance Ruling cleared the doubt raided by YEIDA and ruled, "GST is not applicable i.e. exempted on upfront amount, if the conditions are satisfied as mentioned Sl. No. 41 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 32/2017-Central Tax (Rate) dated 13.10.2017”

Referring to this, the HC bench observed,

"In absence of any challenge raised to that order by any party and it being a fact that the said order has attained finality, it is strange to note that the YEIDA which is not the revenue authority chose to issue the communication dated 24.08.2018, to the petitioner."

Therefore, the bench opined that the stand taken by YEIDA was wholly unfounded in law and noted,

"Any doubt that may have arisen from the language of the Exemption Notification stood resolved by the Authority for Advance Ruling. A specific query had been raised by the YEIDA, if the premium charged on the plot allotted to set up a Hospital would be covered under the exemption notification."

Opining that the Authority for Advance Ruling answered the queries of YEIDA in unequivocal terms, the bench noted, "It has specifically held that the premium amount described as upfront amount charged by the YEIDA was exempt from tax under serial no. 41 of Notification No. 12/2017, dated 28.06.2017 as amended by Notification No. 32/2017, dated 13.10.2017. Therefore, as to tax of exemption of the transaction in question, there could never arise any doubt as to its basic applicability. The only rider that was added by the Authority for Advance Ruling was that such exemption would be available subject to conditions as mentioned at serial no. 41 of the above described Notifications."

The bench opined that the legislation consciously decided to grant unconditional exemption to payment of upfront amounts and noted,

"...the Exemption Notification though does contain Column no. 5, to specify the condition for grant of exemption yet, against Entry no. 41 of that Notification there never existed any specification or condition for grant of exemption. In fact, the original Notification No. 12/2017, dated 28th June, 2017 mentions the word ‘Nil’ against Column no. 5, against Entry no. 41 thereto. Thus the legislature chose to grant unconditional exemption with respect to payment of upfront amounts. While amending that Notification, vide Notification No. 32/2017, dated 13th October, 2017 though other changes were made to add by way of an activity for which allotment of plots were made exempt from tax and certain Corporations were also sought to be included wherein ownership of the Central Government or the State Government etc. may exceed 50%, at the same time, no amendment was made to the original Notification to introduce any condition for grant of that exemption."

Allowing the plea, the bench further observed,

"Seen in that light, we find, the exemption made available to the petitioner by virtue of the original Notification issued under Section 11 read with order of the Authority for Advance Ruling, is unconditional. Consequently, the letter dated 24.08.2018 issued on behalf of YEIDA is wholly unfounded in law and also in facts. Besides absence of conditions imposed by the legislature while granting exemption, no fact allegation has been made in the said communication of any specific condition having been violated by the petitioner."

To view the order, click on the link below:

https://medicaldialogues.in/pdf_upload/allahabad-hc-order-223127.pdf

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