Facts of the case
M/S Karnataka Solar power Development Corporation Ltd is a joint venture company of M/S Solar Energy Corporation of India (SECI), Govt of India and Karnataka Renewable Energy Development Limited (KREDL) to establish 2000 MW Solar power plant in Karnataka.
Applicant has taken land on lease for 28 years and has
sub let it to SPD for installation of solar panels. After commissioning of solar project by SPD, an amount of Rs 500000 per MW should be collected in 5 equal yearly installments of 100000each by the applicant from SPD towards Local Area Development Fund which shall be used for the development of villages from which land has been taken on lease.
Now the concern of the applicant in this case is that the Local Area Development Fund is not related to any supply made by the joint venture to SPD and is not an income of the joint venture and no benefit is derived by the joint venture from such transaction and the amount is collected as per the guidelines of MNRE is going to be utilized only for development work. Further the activity is not in the Course or Furtherance of Business.
Questions of the Applicant
1. Whether the amount collected towards Local area Development Fund, which is kept separately and used for the development of the affected area as per the guidelines of MNRE, can be treated as not a supply as per the provisions of CGST/KGST/IGST Act 2017 and not levied to Tax?
2. Without prejudice to the above, if it is treated as supply, what will be the HSN/SAC code under which it would be levied to tax?
3. Without prejudice to above, if it is treated as Supply, will it be exempt as per notification no 12/2017-CT(R) as the activities to be carried out are covered under Article 234G or 234W of the constitution of India?
Finding and Rulings
In this Advance Ruling Authority took the reference of section 15(2)(a) of CGST act 2017 which states that value of supply shall include any taxes, duties, ceses, fees and charges levied under any law for the time being in force other than CGST/SGST/UTGST act, if charged separately by the supplier.
Hence, the amount collected towards the LAD fund constitutes the part of consideration and is directly linked to the Rent/Lease payable and thus is includable in the value of rental/lease service, being provided by the applicant. Further non payment of of amount towards LAD fund will give the applicant the right to terminate the lease agreement. Therefore the said amount collected towards the fund shall be taxable along with rental income under Forward charge mechanism.
Since it is part of Rental/Lease services- SAC code 997212 shall apply on supply of such service.
Further exemption relating to 234 G or 234 W are applicable to only pure services provided to Central Govt/ State Govt/ Union Territory or Local Authority or a Govt Entity by way of any activity in relation to any function under article 234 G or 234 W of constitution of India. In the instant case the amount of LFD fund is a part of the value of rental/leasing services and are not provided to any central govt, State Govt, Union Territory or a Local Authority or Govt Entity.
Therefore the exemption is not applicable in this case.
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