Leasehold-right assignment by corporate debtor attracts GST at 18%: AAR

The West Bengal bench of the Authority for Advance Ruling has held that the leasehold-right assignment by a corporate debtor attracts GST at the rate of 18%. This ruling is in reference to the applicability of indirect tax on transactions related to assets under liquidation, an issue that has been under debate for quite some time. According to the AAR, the activity of the assignment is in the nature of agreeing to transfer one’s leasehold rights which does not amount to further sub-leasing. In this case, the assignment of asset — leasehold factory unit with car parking space leased by the West Bengal Development Corporation (sub-lessor to corporate debtor) — is a service taxable as ‘Other Miscellaneous Service’. 

As per the case, a liquidator appointed by the NCLT in a matter related to Kolkata-based Enfield Apparels sought clarification from the West Bengal bench of the AAR on whether GST is payable in the consideration received on such an assignment and if so, what will be rate of tax and whether or not ITC can be claimed 

One of the assets under liquidation in this case is the leasehold property, given for a period of 99 years. One of the conditions of lease was that it can be sub-leased after five years from the date of signing of deed. The AAR held that, “Neither does it create fresh benefit from land other than the leasehold right. It is like a compensation for agreeing to do the transfer of rights in favour of the assignee.”

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