CESTAT Rules 999-Year Lease Is Permanent Transfer, No Service Tax on One-Time Premium
Tribunal says ultra-long leases amount to ownership transfer, not renting of immovable property
Judgment offers clarity for real estate developers, industrial bodies, and taxpayers on service tax liability
By Our Legal Correspondent
New Delhi: December 03, 2025:
In a landmark decision, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that a 999-year lease is effectively a permanent transfer of property rights and cannot be treated as “renting of immovable property” under service tax law. Consequently, no service tax is payable on the one-time premium (salami) collected for such leases.
The ruling came in the case of Rajasthan State Industrial Development & Investment Corporation Ltd (RIICO) vs. Commissioner of Central Excise & Service Tax, Alwar, where the tribunal examined whether ultra-long leases should be taxed as renting or treated as permanent transfers.
Background of the Case
- RIICO’s Role: RIICO, a government-promoted company, allotted industrial plots to businesses.
- Lease Terms: The plots were leased for 999 years, with lessees paying a one-time premium (salami) along with nominal annual charges.
- Tax Dispute: The tax department argued that the premium was consideration for “renting of immovable property” and liable to service tax.
- RIICO’s Argument: The corporation contended that a 999-year lease is practically a permanent transfer of property rights, not mere renting.
- Tribunal’s Decision: CESTAT agreed with RIICO, ruling that such leases amount to ownership transfer and are outside the scope of service tax.
Tribunal’s Observations
The CESTAT bench, comprising Justice Dilip Gupta (President), Ms. Binu Tamta (Judicial Member), and Shri P.V. Subba Rao (Technical Member), made several key observations:
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- Nature of Lease: A 999-year lease is so extensive that it is equivalent to ownership transfer.
- One-Time Premium: The premium paid is not rent but consideration for permanent rights.
- Service Tax Scope: Renting of immovable property under service tax law covers temporary leases, not ultra-long transfers.
- Legal Precedents: The tribunal relied on earlier judgments, including Riico Ltd. v. Commissioner of C. Ex., Jaipur-I (2017), which held that long-term lease premiums are not liable to service tax.
Wider Context: Renting vs. Transfer
The ruling clarifies a grey area in tax law:
- Renting of Immovable Property: Defined under service tax law as temporary use of property for consideration.
- Permanent Transfer: Ultra-long leases (e.g., 99 years, 999 years) are treated as ownership transfers.
- Tax Implications: Renting attracts service tax, while permanent transfers are subject to stamp duty and registration charges, not service tax.
This distinction is crucial for real estate developers, industrial bodies, and taxpayers dealing with long-term leases.
Implications of the Ruling
The CESTAT’s decision has several implications:
- Relief for Taxpayers: Businesses and individuals entering ultra-long leases will not face service tax liability on premiums.
- Clarity for Real Estate: Developers offering long-term leases can structure transactions with certainty.
- Revenue Impact: Tax authorities may lose potential service tax revenue but gain clarity on scope.
- Legal Precedent: Strengthens jurisprudence distinguishing renting from permanent transfers.
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Expert Views
Tax experts welcomed the ruling, noting that it provides much-needed clarity. According to practitioners:
- Fairness Restored: Taxing 999-year leases as renting was illogical, as such leases are effectively ownership transfers.
- Consistency in Law: The ruling aligns service tax interpretation with property law principles.
- Guidance for GST: Though service tax has been subsumed by GST, the judgment may influence future disputes under GST’s “renting of immovable property” provisions.
Lessons for Taxpayers
✅ Do’s
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- Check Lease Tenure: Ultra-long leases (99 years or more) are treated as permanent transfers.
- Maintain Documentation: Ensure lease agreements clearly specify tenure and premium.
- Pay Stamp Duty: Permanent transfers attract stamp duty, not service tax.
- Seek Legal Advice: Consult experts before entering long-term lease agreements.
❌ Don’ts
- Don’t Confuse Premium with Rent: One-time premiums are not rent for service tax purposes.
- Don’t Ignore Registration: Long-term leases must be registered under property law.
- Don’t Assume All Leases Are Tax-Free: Short-term leases still attract GST/service tax.
- Don’t Delay Compliance: Ensure timely payment of stamp duty and registration charges.
Conclusion
The CESTAT ruling that a 999-year lease is a permanent transfer, not renting of immovable property, marks a significant development in tax jurisprudence. By holding that no service tax is payable on one-time premiums, the tribunal has provided clarity and relief to taxpayers, developers, and industrial bodies.
The judgment reinforces the principle that tax law must align with property law realities. For taxpayers, the message is clear: ultra-long leases are ownership transfers, not rentals—and service tax cannot apply.
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