Advance Ruling - A Legal weapon against the Supplier?
JUNE 29, 2018
By Akhil Varghese
IN this article, we shall analyse the ruling pronounced by the Karnataka Advance Ruling Authority in respect of the application filed by M/s Tathagat Health Care Centre LLP.- 2018-TIOL-35-AAR-GST.
Brief facts in the ruling reveal that the applicant is a cardiology specialised hospital providing cardiology related, lifesaving, health care services to the patients. The applicant has taken premises of one floor on rental basis from the existing building of Mallige Hospital for carrying out health care services. The applicant has sought advance ruling on the issue "whether GST is leviable on the rent payable by it?" – while determining the Advance Ruling Authority pronounced that the said service is covered under 'rental or leasing services involving own or leased non-residential property' and is taxable under GST.
We shall now analyse the following questions, in light of the decision pronounced in the aforementioned advance ruling.
- Whether the ruling given by Authority is in consonance with the GST Law and
- Whether the authority was right in entertaining the application?
Whether the ruling given is in consonance with GST Law?
Section 7 of the CGST Act inter alia provides that supply includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange , license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. From the above definition, it can be concluded that activities such as rental, leasing, etc. made for a consideration in the course or furtherance of business shall qualify as a supply for the purpose of GST.
Notification No. 12/2017 – Central Tax (Rate) dated 28.06.2017 provides a list of services which shall be exempt from levy of GST. Among others, it provides that health care services shall be considered as exempt supply. The term "Health Care Services" has been defined under the said notification to mean any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised system of medicines in India and includes services by way of transportation of the patient to and from a clinical establishment .
In the present case, the applicant is the recipient of services. The actual supplier being Mallige Hospital, primarily engaged in healthcare services under GST Law. The premises taken on lease by the applicant is used for providing healthcare services. However, it needs to be noted that the services provided by Mallige Hospital to the applicant would not come within the ambit of definition of health care services. Thus, in view of the author, the said service is squarely covered under GST Law under Entry 5(a) of Schedule II of the CGST Act, wherein it provides that renting of immovable property shall be treated as supply of service and it is a taxable supply under GST Law.
Therefore, the Advance Ruling Authority after analysis of the above aspects has arrived at the decision that the said service is leviable to GST, which is in consonance with the GST Law.
Whether the Advance Ruling Authority is right in entertaining the application?
The second and the most important aspect to be analysed in the light of this ruling is whether the authority was right in passing a ruling on the said application.
Chapter XVII of the CGST Act, 2017 deals with the provision of 'Advance Ruling'. Section 94(a) of the CGST Act defines 'advance ruling' which means a decision provided by the Authority or the Appellate Authority to an applicant on matters or on questions specified in Section 97(2) or Section 100(1), in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant.
From the definition of advance ruling, it is clear that advance ruling should be in relation to the supply undertaken or proposed to be undertaken by the applicant. However, in the instant case, the applicant is not undertaking any supply in the form of renting of immovable property rather the applicant is receiving the said services. Therefore, the Advance Ruling Authority should not have entertained this application.
Admitting the application in respect of transactions undertaken by any person other than the supplier will create problems since the same can be used as a legal weapon by the department against the activities provided by the supplier.
In future, if the Advance Ruling Authority rightfully rejects an application filed by the recipient of supply citing lack of locus standi, then the fate of this advance ruling may have to be re-determined.
(The author is Associate, Lakshmikumaran & Sridharan, Bangalore and t he views expressed are strictly personal.)
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