GST ON IMMOVABLE PROPERTY LIQUIDATED DAMAGES Sujit Ghosh

GST ON IMMOVABLE PROPERTY & LIQUIDATED DAMAGES Sujit Ghosh Advocate, Delhi High Court & Supreme Court of India August, 2020

Sale of Land vs Interest in Land • Schedule III – Section 7 – Activities treated neither as supply of goods or supply of services Ø Sale of Land, Sale of Building ( Post OC) • Can sale of Sale of Land include interest in land ? • Concept of Profit Prendre Ø A profit a prendre is a right to take something off another person's land. It may be more fully defined as a right to enter another's land to take some profit of the soil, or a portion of the soil itself, for the use of the owner of the right. Ø Profit a prendre as an interest in land disposition must be in writing Ø The subject matter of a profit a prendre, namely the substance which the owner of the right is by virtue of the right entitled to take, may consist of animals, including fish and fowl, which are on the land, or of vegetable matter growing or deposited on the land by some agency other than that of man, or of any part of the soil itself, including mineral accretions to the soil by natural forces. © 2020 Chambers of Sujit Ghosh. All rights reserved. 2

Sale of Land vs Interest in Land • Ø The right may extend to the taking of the whole of such animal or vegetable matters or merely a part of them. Ø Rights have been established as profits a prendre to take acorns and beech mast, brakes, fern, heather and litter, thorns, turf and peat, boughs and branches of growing trees, rushes, freshwater fish, stone, sand shingle from the seashore and ice from a canal; also the right of pasture and of shooting pheasants. Immovable Property – Land – Benefit arising out of Land - meaning ? Ø Section 3 (26) of General Clauses Act, 1897, defines "immovable property" as including inter alia "benefit to arise out of land". Ø Section 2 (f) of the Registration Act 1908 - The definition of "immovable property "includes. . . rights to ways, lights ferries, fisheries or any other benefit to arise out of land". Ø Section 3(a) of Land Acquisition Act, 1894, “land” includes benefits that arise out of the land things attached to the earth or permanently fastened to anything which is attached to the earth. Ø Section 3(4) of Bombay Land Revenue Code, 1879 defines “land” includes benefits to arise out of land things attached to the earth or permanently fastened to anything attached to the earth. © 2020 Chambers of Sujit Ghosh. All rights reserved. 3

Sale of Land vs Interest in Land • In Ananda Behra and Anr. v. The State of Orissa and Anr. (1955) 2 SCR 919 this Court has held that a Ø • Profit a prendre is a benefit arising out land that in view of Clause (26) of Section 3 of the General Clauses Act, it is immovable property within the meaning of the Transfer of Property Act. State of Orissa v. Titaghur Paper Mills AIR 1985 SC 1293 – Ø It is an interest in land © 2020 Chambers of Sujit Ghosh. All rights reserved. 4

Section 17 (5) (c) & (d) • Sweep • Issues • P&M • Arbitrariness © 2020 Chambers of Sujit Ghosh. All rights reserved. 5

Liquidated Damages • Schedule II – Section 7 – Activities treated as supply of goods or supply of services Ø • • Agreeing to the obligation to refrain from an act, to tolerate an act or a situation or to do an act Definition of “tolerate” (The Encyclopedic Law Dictionary with Legal Maxims, Latin Maxims and Words & Phrases: 3 rd Edition Reprint 2007, by P. Ramanatha Aiyer) ; “ Ø Allow the existence or occurrence of anything Ø To allow, so as not to hinder; to permit, as something not wholly approved; to suffer; to endure; to admit. ” It implies knowledge of the thing tolerated. Ø The act or practice of permitting or enduring something not wholly approved of; the act or practice of allowing something in a way that does not hinder Concept of Liquidated Damages Ø Section 73 of the Contract Act and Section 74 of the Contract Act Ø Concept of restitution to the injured party in the same position in which he would have been, had he not sustained the injuries of which he complains. Ø Wholly different from Consideration ( Section 2 (d) of the Indian Contract Act © 2020 Chambers of Sujit Ghosh. All rights reserved. 6

Liquidated Damages • • Position in the United Kingdom Ø UK VAT Instruction Manual VATSC 35600 -, Liquidated damages have been clarified as not to be a consideration for supplies and are outside the scope of VAT Ø Entry 22. 3 of the VAT Notice 708 issued by HM Revenue and Customs, UK - “Liquidated damages are agreed pre-estimated sums to be paid in the event of a breach of contract by one of the parties. The amount is either a set figure or determined by a formula. If you receive liquidated damages, you are not receiving payment for a supply by you and no VAT is due on that amount Advance Ruling under Indian GST law Ø • Maharashtra State Power Generation Co ltd GST ARA 15/2017 -18/B-30 dated 8/5/2018 Recent Larger Bench Order of Tribunal © 2020 Chambers of Sujit Ghosh. All rights reserved. 7

THANK YOU CHAMBERS D 71, First Floor, Saket, New Delhi – 110017 sujit@lawchambersofsg. com 09811019857 Disclaimer: Pursuant to the Bar Council of India rules, we are not permitted to solicit work and advertise. You, the reader acknowledges that there has been no advertisement, personal communication, solicitation, invitation or inducement of any sort whatsoever from us or any of our members to solicit any work herein. The information provided is solely available at your request and is for informational purposes only, it should not be interpreted as soliciting or advisement. We are not liable for any consequence of any action taken by the reader relying on material/ information provided herein. In cases where the reader has any legal issues, he/she must in all cases seek independent legal advice. Any information obtained or materials used from this presentation is completely at the reader’s volition and any transmission, receipt or use of the contents of this presentation would not create any lawyer-client relationship. © 2020 Chambers of Sujit Ghosh. All rights reserved.