SEPTEMBER 18, 2017

By K Srinivasan, IRS

I have so far read two interesting articles on TIOL on renting of Immovable property, penned by erudite writers, where the owner/lessor of the property is located in a state other than the location of the Immovable property.

The articles are –

A. Renting of immovable property located in multiple States /UTs - Why a single registration/GSTIN won't do?

B. Immovable commercial property owner - the GST dilemma

The debate is, which one is the correct place where the person liable to tax on renting of Immovable property in the above instance, should be registered.

The question though develops somewhat in to whether chicken comes first or the egg, but the answer does not seem to be really that elusive, I think.

Since elaborate excerpts of the relevant Laws are already made available by the Learned Authors, I wish to stay off from the clutter for it often acts as a drag at the understanding of the issue.

Coming to the concept behind GST, it aims to ensure that the revenue eventually accrues to the state of consumption contrary to the old practice of giving it to the state of origin. There can be no two opinions on that.

In any transaction under GST involving inter-state trade and commerce, the revenue collected at the place of origin should automatically transfer to the place of consumption with the help of IGST, which is strictly not a tax at but a pass-over apparatus and they are called 'wash' transactions.

Let us now turn to the question on hand. Whether inter-state transactions involving renting of immovable property by mere reason of crisscrossing of interpretations of the subject provisions of CGST/IGST Laws, be made to mean they are intra-state transactions? If not what is the intention of Law?

To illustrate, let us presume lessor 'A' is located in Tamil Nadu and property 'y' is located in Kerala. Basically, here is a transaction between the lessor in Tamil Nadu and the lessee in Kerala, where the property is located is one of an inter-state transaction over which there can be no dispute.

Government, in its wisdom to support the destination based consumption principle, has introduced proxy situations under the IGST laws to substitute for place of actual supply.

What needs to be remembered here is that the 'proxies' introduced by the Act, is only to determine the place of supply and not to determine the location of the person liable to tax, where to be registered.

It might so happen that in some cases both may turn out to be the same place but then it is an exception and not the rule.

Therefore, with reference to renting of Immovable property, the location of the Supplier in my opinion should not be notionally extended to be the same as the place of Supply for that is not either stated anywhere in the Laws nor it could be the intention either.

An attempt to read conjointly the definitions of Sec 2(15) and Sec12(3) of IGST Act and further interspersing it with Sec2(85) of CGST Act, for the above purpose, in my opinion would be totally running counter to the principles of determination of place of supply as they are two sets of provisions mutually exclusive of each other.

It must be appreciated that the determination of the location of the supplier of renting of Immovable property service does not in any way help in deciding the tax shift from origin to destination of consumption.

Correct location of the person liable to tax is important to fix tax liability on him at a place where he has some fixity of living or business or wherewithal and so on.

This must not be confused with where he can be artificially pushed to register and you can't do it at such an unconnected place other than that defined under Sec 2(15) of IGST Act.

After all, what is the problem, if it is an inter-state supply or an intra-state supply with reference to the Immovable property? In either case, the revenue will accrue to the state where the Immovable property is located as per the destination principle.

Going by the spirit of the transaction, even if IGST is charged by the owner to the lessee, IGST can be remitted by the owner net of the possible ITC credits of IGST on various procurements of services made for the property subject to Sec 17(5) of the CGST Act, as IGST involved therein can be utilized for payment of IGST.

Let us assume that IGST liability is 9 lakhs and IGST credits available from the location of property is 1 lakh, then it would suffice for the lessor to pay net of 1 lakh, 8 lakhs IGST. This way the spirit of IGST transaction is not lost and the interplay of the provisions of GST Laws also do not throw up any challenges.

This is perfectly neutral in terms of tax arithmetic and a win-win situation for both the person liable to pay tax on the renting of Immovable property and the Government alike. Above all, the spirit of inter-state transaction is preserved and not spoilt by various interpretations of Law.

In conclusion, place of supply is only to decide to which state the revenue should be routed in inter-state transactions based on sound consumption principles of supply.

It is not meant to determine the place of location of the person causing the supply as that is beside the point in the scheme for shifting the taxing destination from origin to consumption for only then it can be considered a real hallmark of a good GST.

(The author is Assistant Commissioner, GST, Chennai and the views expressed are strictly personal.)