Odisha AAR Holds GST Applicable on Capital Contribution of Developed Leasehold Land and Hotel Structure to LLP as Supply of Service

Background and Transaction Structure
The applicant, Aryapride Hotel and Convention Private Limited, is the leaseholder of a one-acre plot in Bhubaneswar, Odisha, leased from the Orissa Industrial Infrastructure Development Corporation (IDCO) for the establishment of a hotel-cum-commercial project. The project comprises a jewellery mall (ground to 4th floor) and a hotel (5th to 22nd floor). Upon completion, the applicant proposes to form a Limited Liability Partnership (LLP) with another party, contributing the hotel portion and associated infrastructure as its capital contribution, while the other party will contribute remaining works and working capital.

Key Issues for Ruling
The applicant sought advance ruling on whether GST liability would accrue on the transfer of the developed leasehold land and constructed hotel structure as capital contribution to the LLP, whether the transaction constitutes a sale of immovable property or a supply of service, and whether GST is attracted, particularly for the under-construction portion.

Submissions and Legal Framework
The jurisdictional tax authority submitted that transfer of completed developed leasehold land and constructed hotel building as capital contribution does not constitute a supply under Section 7 of the CGST Act, 2017, as sale of land and completed buildings are excluded from GST by Schedule III. However, for under-construction portions, GST would be applicable as per Schedule II if consideration is received before completion certificate or first occupation.

Authority’s Analysis and Reasoning
The Authority examined the nature of the transaction under Section 7 of the CGST Act, which defines ‘supply’ to include all forms of supply of goods or services for consideration in the course or furtherance of business. It was emphasized that capital contribution in kind is not automatically excluded from GST; what matters is whether goods or services are provided by one distinct person to another for consideration.

The Authority noted that the applicant and the proposed LLP are two distinct persons under Section 2(84) of the CGST Act. The applicant’s contribution of the hotel project to the LLP, in exchange for partnership interest and profit-sharing rights, constitutes non-monetary consideration as defined under Section 2(31). The Authority further observed that the applicant does not transfer absolute ownership of the land but transfers the right to use and enjoy the leasehold land and constructed structure for the duration of the lease. Entry 2(a) of Schedule II deems any lease, tenancy, easement, or licence to occupy land as a supply of service.

Importantly, the Authority found that the transaction is not a passive capital restructuring but an integral step in a pre-planned business model for commercial exploitation of the property. The construction and transfer to the LLP were conceived from the outset as part of a commercial arrangement. The economic substance of the transaction, rather than its nomenclature, determines its taxability under GST.

Legal Principle and Ruling
The Authority concluded that the proposed contribution by the applicant to the LLP is a structured commercial transaction and not a mere capital contribution. The activity constitutes a supply of service under Section 7 read with Schedule II of the CGST Act, 2017. Accordingly, GST is leviable on the transfer of developed leasehold land and constructed hotel structure as capital contribution to the LLP, with the consideration being the partnership interest and profit-sharing rights received.

Final Decision
1. GST liability would accrue on the transfer of the developed leasehold land and constructed hotel structure as capital contribution to the LLP.
2. The transaction is to be treated as a supply of service under the GST framework.
3. The transaction is considered a supply made in the course or furtherance of business and attracts GST, particularly in respect of the under-construction portion.

This ruling clarifies that structured commercial arrangements involving transfer of rights in immovable property to an LLP as capital contribution, where consideration is received in the form of partnership interest and profit-sharing, are taxable as supply of service under GST.