Renting of immovable property located in multiple States /UTs - Why a single registration/GSTIN won't do?
SEPTEMBER 14, 2017
By K K Sharma, Member, Central Board of Excise & Customs (Retd.)
1. SUPPLY of real estate services by way of renting of residential property/non-residential property classified under service code No. 997211 / 997212 of the GST tariff and notified vide Notification No. 8/2017-IT(R) dated 28.6.2017 (Sl. No.222 & 223 of the Annexure thereto), is taxable under S. 5(1) of the Integrated GST Act, 2017 (iGSTA). Further, while all real estate services, falling under Heading 9972, are subject to the tariff rate of 18% vide Sl. No.16 of the table appended to the said notification, the Government has exempted (Nil rated) the services by way of renting of residential dwelling for use as residence under Notification no. 9/2017-IT(R) dated 28.6.2017 (Sl. No. 13 of the table). Similar notifications prescribing tax rates and exemptions have been issued under the Central GST Act, 2017 (cGSTA) and respective State GST Acts, 2017 (sGSTA)/Union Territory GST Acts, 2017 (utGSTA). Thus, renting of all non-residential immovable properties as well as residential properties used for purposes other than residential, is taxable @ 18%.
2. The tax on supply of goods or services, including renting of non-residential property, is payable, as mandated by S. 5(1) iGSTA, by the "taxable person" who, in terms of S.2 (107) of cGSTA read with S. 2(24) of iGSTA, "means a person who is registered or liable to be registered under Section 22 or 24". Incidentally, provisions of Ss 22 and 24 of the cGSTA, dealing with persons liable for registration, have been made applicable to iGSTA as well vide S. 20(v) of the latter.
3. According to S. 22(1) of the cGSTA "Every supplier shall be liable to be registered under this Act in the State or Union Territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees:
Provided that where such person makes taxable supplies of goods or services or both from any of the special category States, he shall be liable to be registered if his aggregate turnover in a financial year exceeds ten lakh rupees ".
4. Now, which is the place from where a supplier of service of renting of immovable property, residential or otherwise, is deemed to supply this service? In other words, what is the location of supplier of this service? It is essential to ascertain the location of such a place not only to determine the State/UT where the supplier is " liable for registration" but also the nature of supply in accordance with the provisions of chapter IV (Ss 7-9) of the iGSTA.
5. The "location of supplier of services" has been defined in S. 2(15) of iGSTA to mean:
(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;"
6. Further, S. 2(85) of cGSTA defines a "place of business" thus: "includes-
(a) a place from where the business is ordinarily carried on, and includes a warehouse, a godown or any other place where a taxable person stores his goods, supplies or receives goods or services or both; or
(b) a place where a taxable person maintains his books of account; or
(c) a place where a taxable person is engaged in business through an agent, by whatever name called ;"
7. Reading together above provisions, detailed in paras 3, 5 and 6 supra, it is evident inter alia that the:
(i) place where a supplier supplies services is primarily his place of business. In other words, this place is the location of the supplier of that service ; and
(ii) State or UT wherein this place is located is the State or UT in which the said supplier of service is liable to be registered.
8. In respect of renting of immovable property, a taxable person, i.e. a lessor, can supply the service at no other place than where the property itself is located. Thus, the place where an immovable property is located is the location of supplier of service . Consequently, the State or UT in which this place is located is the State or UT in which the supplier is liable to be registered.
9. It, therefore, follows that if a supplier has immovable properties in more than one State or UT and he supplies the service by way of renting out those properties, he will be deemed to be located in each one of those States/UTs and, subject to exemption threshold of Rs.20 lakh or, as the case may be, Rs.10 lakh, laid down in S. 22(1) of cGSTA, will be liable for registration in each one of them.
Nature of supply
10. In order to determine the nature of supply with respect to renting of immovable property, a reference to S. 7(3) and 8(2) of iGSTA is essential. According to S. 7(3), " subject to the provisions of S. 12, supply of service, where the location of 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 .
11. Similarly, as per S. 8(2), " Subject to the provisions of S. 12, supply of services where the location of the supplier and the place of supply are in the same State or Union territory shall be treated as intra-State supply:
Provided that the intra-State supply of services shall not include supply of services to or by a Special Economic Zone developer or a Special Economic Zone unit."
12. Undoubtedly, in order to determine the nature of supply, we need to know not only the location of supplier but also the place of supply. The rules governing place of supply of services, other than those imported into India or exported from India, are detailed in S.12 of iGSTA. S. 12(3), in particular, deals with determination of place of supply in respect of immovable property. This section is reproduced below:
"(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 services provided by way of grant of rights to use immovable property or for carrying out or co-ordination of construction work; or
(b) by way of lodging accommodation by a hotel, inn, guest house, home stay, club or camp site, by whatever name called, and including a house boat or any other vessel; or
(c) by way of accommodation in any immovable property for organizing any marriage or reception or matters related thereto, official, social, cultural, religious or business function including services provided in relation to such function at such property; or
(d) any service 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 ."
13. Thus, insofar as the service by way of renting of immovable property goes, the location of supplier as well as the place of supply will always be one and the same place, i.e. where the property is located . In accordance with the provisions of S.8(2) of iGST Act, therefore, the supply of service by way of renting of immovable property, under all circumstances will be an intra-State supply chargeable to cGST and sGST. The solitary exception to this rule is the supply to or by a Special Economic Zone (SEZ) developer or a SEZ unit, which is regarded as an inter-State supply chargeable to iGST even if the SEZ developer or unit is located in the same State or UT as its non-SEZ supplier or, as the case may be, recipient of service.
14 . Can a lessor of immovable properties located in multiple States/UTs and having obtained registration in only one State/UT lawfully avoid taking registration in other States/UTs? The answer, is an unequivocal NO, for as explained above, he is liable for registration in the State/UT from where he makes the taxable supply, i.e. where he as a supplier of service is located and in case of taxable supply of service by way of renting of immovable property, he will always be deemed to be located in every State/UT where his properties are located. He will be liable for registration in each one of them. Failure to do so will be a breach of S. 22(1) of the cGSTA as also of the respective sGSTAs and would entail penalty under S. 122(1)(xi) of those Acts.
15. Can such a lessor registered only in one State/UT discharge his tax liability by paying iGST with respect to properties located in other States/UTs? Again, the answer is a loud NO. The cGST and sGST that are payable on supply of service will have to be paid, as the iGST paid instead will be treated, as per S.19(1) of iGSTA, as a tax "wrongfully collected and paid". The taxpayer will, of course, be entitled to refund of this wrongfully paid amount. The only relief he will enjoy is the waiver, as provided in S. 19(2) of iGSTA, of interest payable under S.50 of cGSTA/sGSTA for delayed payment of correct tax.
16 Of far more serious consequence to such a taxpayer will, however, be the loss of credit of tax paid, if any, on any supplies of goods or services or both, received in respect of immovable property in the State/UT where he was liable for registration but was not registered. For illustration, credit of any tax paid on maintenance/renovation service received in respect of a property located in a State where a lessor is not registered will be inadmissible in another State even if he is registered in the latter State.
17. As noted earlier, all supplies made with respect to a rented immovable property would essentially be intra-State and chargeable to cGST and sGST. Now, for the recipient to be eligible for credit of these taxes, both the recipient and the supplier must have GSTINs of the State in which such property is located and these GSTINs must be indicated in the supplier's tax invoice. However, in the case in hand, the recipient (lessor) will not have it and, therefore, he would be ineligible. Even if he receives supplies as unregistered person, the result would be no different. And if the supplier indicates in his tax invoice the GSTIN that the recipient actually has, the supply would amount to inter-State, chargeable to iGST. Here again, any iGST paid on intra-State supply would, as noted earlier, be a tax "wrongfully collected and paid". No credit can lawfully be allowed of any tax which is admittedly and ab initio "wrongfully collected and paid".
18. To conclude, an owner of non-residential properties located in multiple States/UTs engaged in taxable supplies by way of renting them out is liable for registration and, therefore, must get registered in each one of those States/UTs. Further, as the nature of supply in all such cases, except that relating to SEZ developer or SEZ unit, is intra-State supply, he is required to collect and pay cGST and sGST on the rent received by him. It is only where the lessee happens to be an SEZ developer or SEZ unit and the lessor located outside the SEZ or vice versa that the supply would be treated inter-state and, therefore, chargeable to iGST, even though the locations of both are in the same State/UT.
19. Obviously, compared to the facility under Rule 4(2) of erstwhile Service Tax Rules, 1994, which allowed centralized registration of all business premises of a service provider located anywhere in India, the successor provision in GST law as elaborated above, is indeed a retrograde move. It not only inconveniences taxpayers but also adds to the compliance and financial burden. It has seemingly resulted from the insistence on State-wise registration by the States who feared shrinkage of their taxpayer base and loss of revenue to other States. Hopefully, as the GST regime stabilizes, flow of States' due share of iGST as per apportionment mechanism contained in S.17(2) of iGSTA becomes seamless, and the revenue buoyancy in the months ahead meets/beats their expectations, the States would shed their aversion and instead lend support to centralized registration.
(The author is based at Chandigarh and is associated with GSTaxperts as Chief Patron.)
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