The Odisha Authority of Advance Ruling (AAR) has held that 18% GST is applicable on agreement refraining from removing erected structures against receipt of consideration as it is a ‘supply of service’.
The bench of Abhay Gupta and Nihar Ranjan Nayak has observed the contractual agreement between the applicant and Odisha Mining Corporation Ltd. (OMCL) in which the applicant effectively agrees to an obligation to refrain from removing the constructed/erected structures for the benefit of OMCL against receipt of consideration of Rs.20,15,16,990/- is covered under the scope of supply under Section 7(1) of the CGST Act and the contractual agreement of agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act is treated as a supply of Service.
The applicant, Essel Mining Industries Ltd. is in the business of mining, iron pellets, Noble Ferro Alloys etc. The applicant had entered into a lease deed with the Government of Odisha in which mining rights in the form of mining lease were granted for Jilling Langalota Iron and Manganese Mines situated at Joda Mining sector of Keonjhar district of Odisha. The period of the lease deed was valid from 1.10.1984 to 30.09.2004, which was further extended up to 31.3.2020 by the Government of Odisha.
To carry out the mining operations at the mines, the applicant had constructed building & Civil Infrastructures along with railway sidings and plant and machinery. The lease deed had exclusively granted the power to the applicant to carry out any operation on the mines which were necessary for carrying out mining operations.
The validity of the lease deed was extended. The Odisha Government decided to grant the mining lease to Odisha Mining Corporation Limited (OMCL) which is a wholly owned corporation of the Government of Odisha. The OMCL approached the applicant and expressed their willingness to acquire the infrastructure constructed by the applicant on the mines. After detailed discussion between the applicant and OMCL, a final understanding was reached between them. It was agreed that the OMCL will take over the buildings, including railway siding and plant and machinery constructed by the applicant on the mines. Subsequently, the Government of Odisha approved the transaction between the applicant and OMCL.
The applicant and OMCL entered into a deed for “handing over and taking over of building & civil structure and Plant & Machinery” on “as is where is basis”. The total consideration agreed upon between the applicant and OMCL, as per deed, was Rs.18,50,36,664/-.
The applicant sought the advanced ruling on the issue whether handover of Building and Civil Structure, including railway siding, by the applicant to OMCL tantamount to sale of building and covered under clause no.5 to Schedule III of the CGST Act, 2017.
The AAR held that the contractual agreement of handing over of Building and Civil Structure, including railway siding, by the applicant against receipt of consideration. Effectively a contractual agreement to refrain from removing the erected structures against receipt of consideration is treated as supply of service as per the Clause 5(e) of Schedule-II of the CGST Act, 2017. It is a service classifiable under other miscellaneous services (SAC 999792) and taxable at the rate of 18% GST.
Applicant’s Name: Essel Mining Industries Ltd.
Ruling Date: 27/08/2024
