GST On Leasehold Land Emerges As A Big Concern

It has been 10 years since our Honourable Prime Minister Shri Narendra Modi started the Make in India campaign. Even after 10 years, a lot remains desired. One of the biggest examples is the aftermath Covid 19 pandemic that sent waves in the Indian industrial sector of numerous upcoming industries due to the withdrawal of big companies from China, but it was not as expected. On the contrary, countries like Vietnam, Indonesia etc got a much better growth in the industrial sector.

One of the most important issue being faced by the industrial sector is the unreasonable demand of GST on the sale of leasehold industrial land. People have started getting notice for transactions done from July 2017 onwards. All these years the department was silent on GST, and now since the demand can become time-barred, the industry sector is shocked to receive such uncalled notices.

We fail to understand that freehold industrial land has no GST applicable & now the court if ruling that leasehold industrial land has GST applicable @ 18%, since they classify it as a service. A piece of land for industrial purposes, whether on a long-term lease or freehold, being used for the same purpose ie. industrialisation, has different taxation. It is things like these that are hampering our industrial growth. By creating these unwanted demands, we are making things difficult for ourselves.

The government needs to understand for over 7 years, people all over the country have not deposited GST on the sale of leasehold industrial land. Rather, over all these years, they have paid Capital Gain (which arises out of sale of capital assets). Now the government says, this is not a Capital gain, but a sale of service. It would thus mean, there is no question of Capital gain. How, does the government plan to clear all the mess it would have accumulated over these 7 years?

As per Schedule III of the CGST Act, the land sale is neither considered a sale of goods nor a supply of services. The land is an immovable property, the sale of which attracts only stamp duty. Thus, GST does not apply to the sale of land. Then why is leasehold industrial land being considered a service? There is stamp duty being paid for the transfer of leasehold land, so why GST is being charged? The government seriously needs to think about this & act fast as the industry is in a state of shock at the way things are being interpreted & implemented. The industry demands immediate withdrawal of this obnoxious demand.

— Atul Bhatia

(The author of this article is a third-generation entrepreneur who is into manufacturing paints)