In Advance Ruling No. KER/13/2023 -AAR- AAR (Kerala) rules reverse charge liability applicable on Manappuram Finance's payment  to Government of Kerala for changing the description of land from Wetland to Ordinary land in Government records
Members S.L. Sreeparvathy (IRS) & Abraham Renn S. (IRS) [03-04-2023]

Read Order: In Re: Manappuram Finance Limited

Chahat Varma

New Delhi, July 26, 2023: The Kerala bench of the Authority for Advance Rulings has ruled that the reverse charge liability under Notification No. 13/2017 CT (Rate) dated 28.06.2017 was applicable to the payment made by Manappuram Finance Limited (applicant) to the Government of Kerala under Section 27A of the Kerala Conservation of Paddy Land and Wetland Act, 2018. The payment was made for changing the description of land from wetland to ordinary land in government records and obtaining permission for constructing an office complex for business purposes.

The applicant, a non-banking financial company, had contended that the activity undertaken by the State Government as a public authority, in relation to a function entrusted to a Panchayat under Article 243G of the Constitution, did not fall under the category of supply of goods or services according to Notification No. 14/2017 CT (Rate). Therefore, the applicant submitted that there was no supply attracting GST liability, and reverse charge liability should not be applicable.

The coram of S.L. Sreeparvathy (IRS) and Abraham Renn S. (IRS) noted that as per the definitions provided in the Kerala Conservation of Paddy Land and Wetland Act, and the provisions of Section 27A of the Act, the activity in question involved imposing restrictions and levying fees for permitting the use of unnotified land for various purposes, such as residential or commercial use. It was observed that the permission for conversion of unnotified land, which was previously categorized as paddy land or wetland in the basic tax register maintained in Village offices, was primarily for the benefit of the individuals applying for such conversion. The bench concluded that this activity cannot be considered as relating to any of the functions entrusted to the Panchayat under Article 243G of the Constitution. Therefore, the fees charged by the State Government for permitting the conversion of unnotified land should be seen as consideration or compensation for conferring a private benefit, rather than an activity in relation to the public function of conserving paddy land and wetland.

Based on the discussion, the bench concluded that although the activity of allowing the change of nature of unnotified land, subject to conditions and payment of prescribed fees under Section 27A of the Kerala Conservation of Paddy Land and Wetland Act, as amended, was undertaken by the State Government as a public authority, it cannot be considered as an activity related to any function entrusted to a Panchayat under Article 243G of the Constitution. Therefore, the said activity cannot be treated as ‘neither a supply of goods nor a supply of service’ as per Notification No. 14/2017 Central Tax (Rate) dated 28.06.2017.