Advance Ruling Denied for Failure to Examine Whether Land

Advance Ruling Denied for Failure to Examine Whether Land Conversion Fee Constitutes a Supply.

Issue

Whether the AAR and AAAR were justified in rejecting an advance ruling application by only deciding the exclusion under Section 7(2) of the CGST Act without first determining whether the payment of land conversion fees constitutes a “supply” under Section 7(1).

Facts

The petitioner-company paid a statutory fee under Section 27A of the Kerala Conservation of Paddy Land and Wetland Act, 2008, to change a land description and obtain permission to construct an office complex for its business.
The petitioner sought an advance ruling to clarify its liability under the Reverse Charge Mechanism (RCM) pursuant to Notification No. 13/2017-CT (Rate).
To resolve the RCM liability, the application required a composite two-step determination:
1. Whether the payment of the statutory fee is a “supply” under Section 7(1) of the CGST Act.
2. In the alternative, whether it qualifies for exclusion under Section 7(2) via constitutional notifications (Articles 243G and 243W).
The Authority for Advance Ruling (AAR) and the Appellate Authority for Advance Ruling (AAAR) addressed only the second aspect, ruling that only activities strictly falling under Articles 243G and 243W of the Constitution are excluded from being a supply or service.
Both authorities completely failed to answer the primary, foundational question of whether the activity falls within the scope of Section 7(1) in the first place.
The petitioner filed a writ petition challenging the incomplete orders passed by the AAR and AAAR.

Decision

The High Court held that the two statutory limbs—determining inclusion under Section 7(1) and exclusion under Section 7(2)—form an inseparable, composite inquiry.
The Court observed that because the authorities only answered the second limb and skipped the foundational analysis of Section 7(1), the entire adjudication process was legally vitiated.
The Court ruled that an advance ruling cannot be left half-answered or decided on assumptions regarding the nature of a “supply.”
Consequently, the orders passed by both the AAR and the AAAR were set aside.
The matter was remitted back to the Kerala Authority for Advance Ruling for a fresh, comprehensive reconsideration of both issues after giving all parties a proper hearing.

Key Takeaways

Adjudication Must Be Composite: Advance ruling authorities cannot issue partial or fragmented rulings. They must comprehensively address all interconnected questions raised in an application, especially when one question forms the legal basis for the next.

Section 7(1) is the Gateway: Before jumping to whether an activity is excluded from GST under Section 7(2), authorities must first establish that the activity qualifies as a “supply” under Section 7(1). If there is no supply, the question of exemption or exclusion becomes redundant.

Remand for Omission: When an authority fails to exercise its jurisdiction to answer a fundamental question of law, the appropriate judicial remedy is to set aside the order and remand the matter back for complete adjudication.

HIGH COURT OF KERALA

Manappuram Finance Ltd.

Union of India^*

Devan Ramachandran and Basant Balaji, JJ.

WP(C) NO. 48331 OF 2025

MARCH 11, 2026

Anish P., Akhil Shaji, R. Jaikrishna, Kum.Narayani Harikrishnan, C.S.Arun Shankar and K. Suresh Chandran, Advs. for the Petitioner. Renjish S. Menon, CGC, P.R.Sreejith and Smt Thushara James, Advs. for the Respondent.

JUDGMENT

Devan Ramachandran, J.- The petitioner – which is stated to be a company – challenges Ext.P3 order issued by the 3^rd respondent – Kerala Authority for Advance Ruling; as also Ext.P5 Appellate order issued by the 4^th respondent – Appellate Authority for Advance Ruling, Kerala, on various grounds.

2. Sri.R.Jaikrishna – learned counsel for the petitioner, pointed out that the question that his client posed, through Ext.P2 application for an advance ruling, was “whether reverse charge liability under Notification No.13/2017-CT (Rate) dated 28.06.2017 is attracted on the payment made to the Government of Kerala under Section 27A of Kerala Conservation of Paddy Land and Wetland Act 2018 for change of description of land from wetland to ordinary land in Government of Kerala Village office records and for permission for construction of office complex for the purpose of business.” (sic). He pointed out that the 3^rd respondent – Kerala Authority for Advance Ruling, framed the following issues, as evident from Ext.P3:

(i)

Whether there was any supply of service within the meaning of Section 7 of CGST Act 2017; and

(ii)

Whether there was any consideration for rendering the service by the service provider.

3. Sri.R.Jaikrishna, however, complained that the 3^rd respondent – Authority, did not consider whether the fees paid by his client under Section 27A of the Kerala Conservation of Paddy Land and Wetland Act, 2008 (‘Act’ for short), would comprise ‘supply’, to thus fall within the meaning of Section 7 of the Central Goods and Services Tax Act, 2017 (‘CGST Act’) ; but went on to then hold that such activity cannot be treated as “not falling under supply of goods or supply of services.” He contended that the holdings of the Advance Ruling Authority are in error; but that, even though his client challenged it before the 4^th respondent – Appellate Authority, the opinion rendered was the same, as evident from Ext.P5. He explained that his client, therefore, has no other option, but to approach this Court through this Writ Petition.

4. Sri.P.R.Sreejith – learned Standing Counsel for respondents 4 and 5, in refutation, submitted that the holdings of the Authorities as reflected in Exts.P3 and P5 are without error because, going by the notification in question, only those activities which come squarely within the ambit of Articles 243G and 243W of the Constitution of India, are exempted from being treated as ‘supply’ or ‘sale’; and that therefore, the payment of charges under Section 27A of the ‘Act’ would certainly stand excluded.

5. Smt.Thushara James – learned Senior Government Pleader and Sri.Renjish S. Menon -learned Central Government Counsel, adopted the afore submissions of Sri.P.R.Sreejith; affirming that the impugned orders are without error.

6. We face a practical impediment in deciding this matter on its merits at the first instance, for the reasons we will presently state.

7. No doubt, the question encompasses two issues, as has also been found by the Kerala Authority for Advance Ruling, as reflected in Ext.P3, extracted supra.

8. The argument of the appellant is also two fold, namely, that the fee paid under Section 27A of the ‘Act’ does not fall within the purlieus of Section 7(1) of the ‘CGST Act’; and alternatively, that, even if it were so, the notification issued under Section 7(2) thereof would render it exempt.

9. No doubt, both Exts.P3 and P5 orders answer the second limb affirmatively, saying that it is only those activities which fall within the sweep of Articles 243G and 243W of the Constitution of India that can be treated to be not a ‘supply’ or not a ‘service’; however, the question whether the activity falls within the umbra of Section 7(1) of the ‘CGST Act’ has not been answered.

10. We have little doubt that, while the question was answered, both the afore limbs ought to have been granted due consideration and opinion on them recorded. In answering the question posed, the opinion on these two are virtually composite, rather than disjoint; and if it is found that the first limb is worthy, then obviously, the answer would have been different. However, this was never considered either by the 3rd respondent or the 4th respondent.

11. We are, therefore, constrained to remit the matter to the 3rd respondent – Kerala Authority for Advance Ruling, who will reconsider Ext.P2 application in terms of law, adverting to both the issues raised, which are reflected in paragraph No.4.2 of Ext.P3.

In summation, we allow this Writ Petition and set aside Exts.P3 and P5; with a consequential direction to the 3rd respondent – Kerala Authority for Advance Ruling, to reconsider Ext.P2 application of the petitioner, adverting to our observations above and after affording necessary opportunities to both sides; thus culminating in an appropriate fresh order, answering both the limbs of the contentions and the issues noticed, as expeditiously as is possible.

Needless to say, we have not entered into the merits of any of the rival contentions, nor have we spoken approvingly or otherwise on the findings already entered in Exts.P3 and P5; and reiteratingly clarify that all issues shall be considered afresh in terms of our afore directions.