AUGUST 28, 2017

By R K Hasija, Advocate and H S Sharma, Consultant

Hitherto under Service Tax regime, renting of immovable property for commercial purpose was not taxable if the total taxable value of the service provider did not exceed Rs.10 lakhs in a financial year irrespective of the location of the property. Under GST regime with effect from 01.07.2017, there is change in the scenario. The landlords, who have rented out their commercial properties located in States/UTs other than their place of usual residence, are facing a dilemma under GST regime. The confusion is with regard to registration under GST whether to apply in the State of place of their residence or in the State of location of their property where they do not maintain any record and have no physical presence. Payment of type of tax i.e. IGST or CGST/SGST is consequential to registration.

Relevant provisions of GST are discussed are discussed hereinafter. Section 7 of the IGST Act provides for the scope of inter-state supply as under:

7. Inter-State supply - (1) …

(3) Subject to the provisions of section 12, supply of services, where the location of the supplier and the place of supply are in--

( a ) two different States;

( b ) two different Union territories; or

( c ) a State and a Union territory,

shall be treated as a supply of services in the course of inter-State trade or commerce.

…

In terms of Section 7of IGST, in order to ascertain whether a particular supply is inter-state or intra-state, two things are important i.e. (i) location of the supplier and (ii) place of supply.

Place of supply provisions have been made under the IGST Act. Section 12 provides for place of supply of services in respect of immovable property as under:

(3) The place of supply of services,--

(a) directly in relation to an immovable property, including services provided by architects, interior decorators, surveyors, engineers and other related experts or estate agents, any service provided by way of grant of rights to use immovable property or for carrying out or co-ordination of construction work; or

(b) …..

(c) ……. or

(d) any services ancillary to the services referred to in clauses ( a ), ( b ) and ( c ),

shall be the location at which the immovable property or boat or vessel, as the case may be, is located or intended to be located:

From the above, it becomes clear that the place of supply of service is the location where property is located. But that alone cannot be criteria to decide whether supply is inter-state or intra-state. Location of supplier is also important.

In terms of section 2(71) of the CGST Act, “location of the supplier of services” means:-

(a) where a supply is made from a place of business for which the registration has been obtained, the location of such place of business;

(b) where a supply is made from a place other than the place of business for which registration has been obtained (a fixed establishment elsewhere), the location of such fixed establishment;

(c) where a supply is made from more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the provision of the supply; and

(d) in absence of such places, the location of the usual place of residence of the supplier.

In the present case scenario, supply of service cannot be said to have been made from the immovable property place of business of the service provider merely on the ground that the place of supply of service in terms of clause (3) to section 12 of the IGST Act, is the location of immovable property which is located in another States/U.T.s. In other words, location of the property cannot be termed as “place of business” as defined under Section 2(85) inasmuch as none of the activities such as business is ordinarily carried on and/or where a warehouse or godown or any other place for storage of goods is located and/or books of accounts are maintained and/or the business is carried on through an agent. Therefore, application of clause (a) is ruled out.

Although clause (b) appears to be applicable as supply is being made from a place other than the place of business, but this clause also has to be ruled out as the service provider has no fixed establishment there, which as per section 2(50) of CGST Act, is defined as a place (other than the registered place of business) characterized by a sufficient degree of permanence and suitable structure in terms of human and technical resources to supply services, or to receive and use services for its own needs. As service provider generally has no human and technical resources at immovable property, application of clause (b) is also ruled out. Clause (c) is also inapplicable as supply is not being made from more than one establishment as the property owner has made no such provisions at the location of his properties. Therefore, only clause (d) is applicable in the instant case i.e. usual place of his residence. Therefore, landlord leasing out commercial property in other State is providing inter-state service and liable to pay IGST regardless of turnover and has to be compulsorily registered.

Now coming to section 22(1) of the CGST Act relating to registration, every supplier shall be liable to be registered under this Act in the State or Union territory from where he makes a taxable supply of goods or services or both. As per section 12(3) of the IGST Act, place of supply of service of renting out is the location of the immovable property. The question, therefore, arises from where the supply of services is being made. If it is interpreted that service is being provided from the location of the property, the property owner is liable to be registered at this location. If the interpretation is that service is being provided from the usual place of residence, then registration is not required at the location of the property but is required at the place of residence subject to threshold limit of Rs. 20/ 10 lakhs.

Logically, since the property owner has no fixed establishment at the location of his property, his location is, therefore, his place of residence in terms of section 2(71)(d), wherefrom he also raises tax invoice on recipient and also keeps records. Therefore, in terms of section 2(71)(d) of CGST Act, he is required to be registered at the place of his residence.

One more interesting point arises here. While making inter-state supply, the exemption from registration on account of threshold limit of Rs. 20/10 lakhs is not available. In other words, person making inter-state supply has to be compulsorily registered and has to discharge IGST liability irrespective of the turnover. In case of intra-state supply, exemption from registration is available provided the aggregate turnover remains within threshold limit turnover of Rs. 20/ 10 lakhs for the same entity in all the States/ UTs put together.

In a situation where the property owner is lawfully bound to be registered, the property owner is in dilemma in which location to apply for registration; whether at the location of his immovable property in terms of section 12(3) of IGST Act or at the location of his residence. Views of experts on this issue are divided. Some are of the view that GST registration has to be obtained at place of residence and IGST can be paid as inter-state supply. Others differ and contend that GST registration has to be obtained in the State where property is located and CGST/SGST can be paid as intra-state supply. Answers to twitter questions given by Government of India to various tweets have also been found to be contradictory.

The confusion further escalates. A view is being taken by some of the experts that if the property owner gets himself registered at his place of residence in terms of section 2(71)(d) of CGST Act, he has to raise tax invoice on service receiver charging IGST as the property is located in another State/U.T., and in turn, would forego input tax credit in case he engages other local service provider for repairs, maintenance, architect, construction, etc. for his property as the service provider would charge him CGST/SGST and he cannot avail input tax credit so paid, as it has been charged in another State/U.T. and SGST paid in one State cannot be utilized if registered in some other State.

With due respect, the above view is incorrect. Section 16 of CGST Act allows credit of input tax. As per Section 2(62) of CGST Act, the term “input tax” includes, IGST, CGST and SGST payable under respective State GST Act. As per Section 2(104) State Tax means the tax levied under any State Goods and Services Tax Act. Therefore, ITC of CGST and SGST would be available to the service provider in such a case. Now as per Section 49, utilisation of ITC has been prescribed as IGST to be used for payment of IGST first, remaining to be used for payment of CGST and still remaining, can be used for payment of SGST. ITC of CGST first can be used for payment of CGST, if remaining can be used for payment of IGST. Similarly, ITC of SGST can be used for payment of SGST first and if remaining can be used for payment of IGST. However, under the State GST Act, the State Tax would mean tax leviable under that State GST Act. The marked difference of the definition of State Tax can be noticed in CGST Act and State GST Act. What follows from this analysis is that while ITC of IGST can be used for payment of IGST and ITC of CGST, CGST can be used for payment of CGST and IGST. ITC of State GST of other State cannot be used for payment of local State GST. However, this can be used for payment of IGST inasmuch as under Section 20 of IGST Act, provisions of CGST Act for ITC and payment of tax have been made mutatis mutandis applicable to IGST Act.

Conclusion

In view of the above analysis, landlord of property located in other State need not get registered in that State. However, being inter-state supply, IGST has to be paid. Further, ITC of the CGST/ SGST paid would be available of all the input services so received at the location of such property inasmuch as there is no specific bar in the provisions.

(The views expressed are strictly personal.)