NOVEMBER 10, 2017

By K Srinivasan, IRS

AN analysis on the captioned issue was made by me in an earlier article carried on this portal on 18 September 2017.

This is my second attempt to clear the doubts surrounding the subject matter of Inter-state supply of Immovable property Service and Ancillary Services connected with it, especially in the determination of the place of provider of the said services.

Persons renting out their commercial properties located in States other than their place of usual residence are facing a problem of not being able to determine the right place to be registered under GST regime.

The doubt is with regard to -

a) 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.

B) Type of tax Payment to be made i.e. whether IGST or CGST/SGST consequent to the place of registration.

Let us turn to the provisions of the GST Laws to find a satisfactory solution to the above problems.

In terms of 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.

In terms of Section 7of IGST Act, 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, can that alone be the criteria to decide whether supply is inter-state or intra-state is the most important question.

The answer is partly that even the location of supplier would appear to have a bearing on determining the place where the supply of service is said to be made in a given situation like the above.

As per Section 2(15) of the IGST 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 the absence of such places, the location of the usual place of residence of the supplier;

In the present scenario, supply of service cannot be said to have been made from the place of immovable property, 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 State.

In other words, location of the property cannot be termed as "place of business" as defined under Section 2(85) of the CGST Act 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) of Section 2(15) of the IGST Act is ruled out.

Government, in its wisdom to support the destination based consumption principle, has introduced proxy situations under the IGST laws to determine the 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 unless expressly provided as in proviso to Section 12(3) of IGST Act.

As per the said provision, if the said immovable property is located outside India, then the provision makes an exception to the effect to hold the place of supply in such a case to be the location of the recipient of service.

It must be noticed here that the said deeming fiction creates only an Inter-state supply and not an intra-state supply and also it seeks to treat the location of the recipient of service as the place of supply and does not attempt to touch the supplier anywhere to create such a deeming fiction, for that is not either stated anywhere in the Laws nor it could be the intention of the Government 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 purpose of determination of place of supply as they are two sets of activities mutually exclusive of each other.

Further, there must be a clear proviso as in the above case to Section 12(3) to deem explicitly the location of the provider of immovable property service to be the very location of the very location of the immovable property itself, failing which it will be impossible to make any assumptions by making harmonious reading of the provisions to one's own desired ends.

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 which does not depend upon Section 12(3) as Section 7(3) does.

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 on the ITC therein can be utilized for payment of IGST.

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(15)(d), wherefrom he also raises tax invoice on recipient and also keeps records. This is the plain fact of the matter at the end, afterall.

Therefore, in terms of section 2(15)(d) of IGST Act, he is required to be registered at the place of his residence and which would appear, in my personal opinion, to be the normal conclusion based on the prevailing position of GST Law discussed in detail above.

Consider the following illustrations for a better understanding of the subject matter of place of supply under GST Laws as per the above discussion -

Services in relation to immovable property - architects/interior decorators, lodging accommodation & ancillary services

-   Location of such immovable property

-   If immovable property is outside India, then place of supply is location of recipient

-   If located in more than one State, the supply of service shall be treated as made in each of these states in proportion to the value for services separately collected or determined, in terms of the contract or agreement entered into in this regard

-   Mr. A (Builder)- Bangalore

-   Mr. B (Architect)-Bangalore

-   Site of construction-Hyderabad

-   POS- Hyderabad

-   Taxes- IGST

XYZ Ltd, Hyderabad, agreed to provide architect services to ABC Group of Hotel where their immovable properties are located at Hyderabad and Solapur contract value is determined based on the Sq.ft. covered.

Hyderabad: POS Telangana, for total no. of Sq.ft. covered Hyderabad property

Taxes : CGST & SGST of Telangana

Solapur: POS- Maharashtra, for total no. of Sq.ft. covered in Solapur property

Taxes: IGST

Supplied to registered person

-   Location of such person

Supplied to person other than registered person

-   Location of recipient as per records;

-   Otherwise, location of supplier

1. X Ltd, Delhi provided services to Y Ltd, Mumbai, a registered company, then the place of supply is Mumbai.

2. X Ltd, Delhi provided services to Mr. Arjun of Hyderabad, who did not provide his address to the X Ltd then the place of Supply is Delhi.

Apart from the above the FAQ on Immovable property brought out by CBEC supports the above view:

In conclusion, the predicament of taxpayers to decide where the supply of services is considered in the above case as made, somewhat resembles the following statements: -

++ If it is interpreted that service is being provided from the location of the property, the property owner is liable to be registered at that location but the revenue will accrue to the state of location of the property.

++ 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 but the revenue may not go the state of location of the property.

I, therefore, feel that addition of a simple proviso 2 to Sec12 (3) of IGST Act (as visualized below) should do the trick.

"Provided further that in the case of a rental transaction between the lessor and the lessee of an Immovable property placed in different States, the location of the provider of Immovable property service will be deemed to be the location of the Immovable property."

Readers are welcome to share their views.

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