2018 (7) TMI 227 – AUTHORITY FOR ADVANCE RULING – MAHARASHTRA – 2018 (14) G. S. T. L. 429 (A. A. R. – GST), [2019] 61 G S.T.R. 189 (AAR) – Levy of GST – Tripartite agreement – taxability of services – scope of 'supply' – Alternate accommodation to be paid to the tenant of the old building by the developer/owner – compensation for alternate accommodation / damages for delayed handover of possession of the new premises.
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Is GST applicable on the compensation for alternate accommodation to be paid to me (the tenant of the old building) by the developer/owner? – Held that:- For vacating the said premises, the applicant has received/is to receive compensation from the developer – the act of vacating premises for facilitating the developer implies that the applicant has agreed to do an act and such act, of vacating the premises, by the applicant, squarely falls under clause 5(e) of the Schedule II mentioned above and therefore the amounts received by the applicant for having agreed to
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s tolerating the construction cum redevelopment work till possession of new redeveloped premises as per agreement and further for tolerating an act i.e the act of not having completed the redevelopment work within 36 months. In view thereof, the same would definitely be a 'supply' under the GST Act and therefore, there arises an occasion to levy lax under the GST Act on the impugned transactions – Answered in the affirmative.
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Ruling:- GST is applicable on the compensation for alternate accommodation received by them.
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GST is applicable on the compensation for alternate accommodation/ damages for delayed handover of possession of the new premises received by them. – GST-ARA- 29/2017-18/B- 37 Dated:- 22-5-2018 – B.V. Borhade Joint Commissioner of State Tax and Pankaj Kumar Joint Commissioner of Central Tax PROCEEDINGS (under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017) The present application has been filed u
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forth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / MGST Act would be mentioned as being under the "GST Act". 02. FACTS AND CONTENTION – AS PER THE APPLICANT The submission (Brief facts of the case), as reproduced verbatim, could be seen thus- "M/s Future Communications Limited are the owners of a plot of land bearing C.T.S. No. 837 (S.No. 5, H. No. 1, 2, 3, 5, 7, 8. 9 of Village Mohili) admeasuring 4898.61 sq.mtrs. and C.T.S. No. 837 (S.NO. 5. H. No. 6 of Village Mohili) admeasuring 497.89 sq.mtrs. and the commercial building thereon. I, Zaver Bhanushali, am a tenant of the second floor of commercial building mentioned above. The total Area of the said tenanted premises is 2600 sq. ft. carpet area with terrace. M/s Future Communications Limited (the owner), have entered into an agreement with M/s Spenta Residency Private Limited, the Developers, to develop a new building in place of the old building and thereby the
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i.e. 3 years in total). The Developers Owner Are Liable to pay an amount of ₹ 5,00.000 – per month as compensation for alternate accommodation damages for delayed handover of possession. The Income Tax Department does not recognise the above transaction as a rental transaction as per the definition of Rent under The Income Tax Act, 1961 and considers the same as a compensation. It has been clearly established in Income Tax Appellate Tribunal. Mumbai In the case of M/s Sohana Dwellers Private Limited v .s Income Tax Officer 8(3)(1) (ITA No. 5963/Mum 2013) for A.Y. 2010-11. The same is also not liable to TDS u/s 1941 of the Income Tax Act. " On the basis of the above, the questions as reproduced above have been raised. 03. CONTENTION – AS PER THE CONCERNED OFFICER The submission, as reproduced verbatim, could be seen thus- "As per the brief facts given by the applicant, M/s Future Communications Ltd. owned a commercial building at C.T.S. No. 837 wherein Shri Zaver Bhanush
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ax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person. (2) The central tax on the supply of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel shall be levied with effect from such date as may be notified by the Government on the recommendations of the Council. (3) The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such reci
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or paying the tax in relation to the supply of such services: " The Scope of supply has been specified under Section 7 of the Central Goods and Service Tax Act 2017. Section 7 (1)(d) of the Centred Goods and Services Tax Act, 2017 reads as under: "Section 7. (1) For the purposes of this Act, the expression "supply " includes- (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business: (b) import of services for a consideration whether or not in the course or furtherance of business: (c) the activities specified in Schedule I. made or agreed to be made without a consideration. and (d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II. Under Schedule-ll at sr. No. 5(e) it has been specified as under : "agreeing to the obligation to refrain from an
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dation is in furtherance of business and therefore it is taxable. In the instant case, it is also seen that the applicant viz. Shri Zaver Bhanushali is receiver of construction services from Spenta Residency Private Ltd (Developer) Other than the compensation/consideration, the applicant will also get free flat/constructed premises from the developer i.e. M/s Spenta Residency Private Ltd. M/s Spenta Residency Private Ltd would be liable to pay tax on the construction services for permanent alternate accommodation, shop admeasuring 4200 sq. ft. provided to the applicant and the GST paid by the applicant on compensation would be available as input tax credit to the developer. In view of the above this office is of the view that the applicant should take GST registration for compensation received and pay appropriate GST on the same, in respect of consideration received for alternate accommodation. " 04. HEARING The case was taken up for preliminary hearing on dt.27.03.2018 with respe
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tered office at 141, Santosh Towers. 3rd Cross Lane. Lokhandwala Complex. Andheri (West), Mumbai – 400053 hereinafter referred to as the 'OWNERS' (which expression shall unless repugnant to the context or meaning thereof mean and include its successors and assigns) of the PARTIES OF THE FIRST PART, represented by its Director, Mrs. Satish (nee Sattee) Shourie residing at 131/141, Santosh Towers, 3rd Cross Lane, Lokhandwala Complex. Andheri (West), Mumbai – 400053 AND SPENTA RESIDENCY PRIVATE LIMITED (PAN AAMPS22I0H),a company registered under the Companies Act, 1956 and having it's registered office at Rajabahadur Mansion. 1st floor, 20, Ambalal Doshi Marg, Fort, Mumbai – 400023 hereinafter referred to as the 'DEVELOPERS' (which expression shall unless repugnant to the context or meaning thereof mean and include it's successors and assigns) of the Second Part represented by its Directors (1) SHRI FARSHID ASPAN COOPER (PAN : ADVPC59 76F) of Mumbai. Indian Inhabit
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E THIRD PART. WHEREAS: (b) The Owners have purchased the said property from Aditya Textile Industries Private Limited under (i) Deed of Conveyance dated 16/4/2007… (c) By an Agreement for Joint Development dated 15th February, 2010 registered with …..made between the Owners (therein referred to as the Owners) of the One Part and the Developers (therein referred to as the Developers) of the Second Part, the Owners have granted to the Developers the development rights in respect of the said Property for the consideration and upon the terms and conditions therein mentioned. (e) The existing building standing on the plot of land bearing C. T.S. No.837 out of the said Property was constructed somewhere in the year 1970 and the same is consisting of ground and two upper floors having commercial premises. The Tenants are in use, occupation and possession of office premises admeasuring 2600 sq.ft, carpet area on the Second Floor with the terrace premises of the said Budding for use of wate
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are of expenses for getting the said Building repaired heavily. (i) For development of the said Property in pursuance of the said Agreement for Joint Development dated 15th February, 2010, it is necessary to execute the Agreement for alternate Accommodation with the Tenants in respect of the new premises to be provided to the Tenants in the new building and for obtaining from the Tenant the possession of the said Old Premises in their occupation and to obtain nay other facility from the Tenants for development of the said Property. (l) ……Finally the Owners and the Developers have agreed to provide to the Tenants the shops admeasuring 4200 sq. ft. carpet area in the new building free of cost on ownership basis as permanent alternate accommodation upon the terms and conditions agreed by and between the parties hereto which are now recorded in writing by executing this Agreement. NOW THIS AGREEMENT WITNESSETH AND IT IS AGREED BY AND BETWEEN THE PARTIES HERETO AS UNDER – 2. T
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200 sq. ft. carpet area (consisting of 2600 sq.ft, area presently occupied by the Tenants and 650 sq.ft, area being additional 25% of 2600 sq.ft, and 950 sq. ft. additional area in lieu of the new premises being 9 feels 6 inches instead off / 4 feel height) by having three partition walls, free of cost on ownership basis on the ground floor of the New Building to be named as …………… to be constructed by the Developers on the portion of the said Property and delineated on the draft typical floor plan annexed hereto and marked as Annexure : B' and thereon shown surrounded by red colour boundary line (hereinafter referred to as 'said New Premises '). 8. The Owners hereby confirm that the Tenants have paid to the Owners the rent, taxes and other outgoings in respect of the said Old Premises upto date and now no further amount is due and payable by the Tenants to the Owners in respect of the said Old Premises for the period upto the date of this Agreement. The Tenant sha
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basis to any person or party of their choice as the Tenants may deem fit and proper; (iii) The Tenants shall be entitled to use the said New Premises or any part thereof for carrying on nay business therein partnership or on any other basis with any person or party as the Tenants may deem fit and proper; (iv) The Tenants shall be entitled to deal with the said New Premises as the Tenants may deem fit and proper. 17. It is agreed between the parties hereto that during the period of construction of the new building the Tenants shall make their own arrangement for temporary alternate accommodation and the Owners/the Developers shall pay to the Tenants the rent/compensation for the temporary alternate accommodation to be arranged by the Tenants at the rate of ₹ 2,05, 000/-(Rupees Two Lacs Five Thousand only) per month for the period of first 24 months. It is agreed and confirmed that on the execution of this Agreement within 15 days from the date hereof. The Tenant shall hand over q
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control the Developers will be entitled to a grace period of 6 months and additional grace period of further 6 months i.e. in all 12 months subject however to the Owners and/or the Developers paying to the Tenants the rent/compensation for the temporary alternate accommodation at the rate of ₹ 2,25, 000/- per month for the period from 25th month to 30th month and at the rate of ₹ 2,47,000/- per month for the period from 31stmonth onwards, In the event the Developers are unable to handover the possession of the said New Premises within 24 months then in that event at the end of the period of 24 months the Owners/the Developers shall give the post dated cheques to the Tenants towards the rent for the period front 25th month to 36th month at the rate provided hereinabove. 20. Subsequent to what is mentioned in Clause 19 above, the Owners and/or the Developers hereby confirm that in the event the Owners and/or the Developers are unable to handover the possession of the said Ne
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5,00,000/- (Rupees Twenty Five Lacs only) as compensation/corpus fund to enable the Tenants to pay the taxes and outgoings of the said New Premises at a higher rate as compared to the said Old Premises at the time of entering into this Agreement. 24. The Owners and the Developers hereby specifically confirm that till the time the Tenant is given the new premises, the Tenancy rights of the Tenant shall be subsisting subject to the Tenant paying the monthly rent to the Owners/Developers. " It can be seen that the transaction is about the receipt by the applicant, of certain sums towards – a. Compensation for alternate accommodation for the period of first 24 months. b. Compensation for alternate accommodation for the further period from 25th month to 36th month and damages for delayed handover of possession after the period of 36 months. Section 9 of the GST Act says that there shall be levied a tax on supplies of goods or services or both. So we need to understand as to whether the
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uthority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services. (3) Subject to the provisions of sub-sections (1) and (2), the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as- (a) a supply of goods and not as a supply of services; or (b) a supply of services and not as a supply of goods. " SCHEDULE I [See section 7] ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERA TION 1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets. 2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business: Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an em
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y, easement, licence to occupy land is a supply of services; (b) any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services. 3. Treatment or process Any treatment or process which is applied to another person's goods is a supply of services. 4. Transfer of business assets (a) where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, such transfer or disposal is a supply of goods by the person; (b) where, by or under the direction of a person carrying on a business, goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, whether or not for a consideration, the usage or m
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clause- (1) the expression "competent authority" means the Government or any authority authorised to issue completion certificate under any taw for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely: (i) an architect registered with the Council of Architecture constituted under the Architects Act. 1972: or (ii) a chartered engineer registered with the Institution of Engineers (India): or (iii) a licensed surveyor of the respective local body of the city or town or village or development or planning authority: (2) the expression "construction" includes additions, alterations, replacements or remodelling of any existing civil structure: (c) temporary transfer or permitting the use or enjoyment of any intellectual property right: (d) development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software: (e) agreeing to the o
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1) of Section 7 – 'Supply' as per clause (a) is for supply of goods or services or both. It is for a consideration AND has to be in the course or furtherance of business. 'Supply' as per clause (b) is for import of services. It is for a consideration AND may or may not be in the course or furtherance of business. 'Supply' as per clause (c) are the activities specified in Schedule I appended to the GST Act. It is not for a consideration. And though it has not been specifically mentioned in the clause, if we look at Schedule I, as reproduced above, the 'supply' herein would be in the course or furtherance of business. 'Supply' as per clause (d) is the enumeration or categorization as given in Schedule II appended to the GST Act as to which activities should be treated as supply of 'goods' and which activities to be treated as supply of 'services'. The clause does not define 'supply' but classifies the supply into either '
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vacate the premises to facilitate the redevelopment of the building, by the developer. In the process the applicant has agreed to do an act (vacating the premises) to facilitate the supply of service by the developer to the owner, as per conditions reiterated below 1. The Tenant shall continue to pay to the Owners the rent In respect of the said Old Premises at the rate of ₹ 5000/- per month till the date on which the Owners and the Developers handover to the Tenants the possession of the said New Premises as provided in this Agreement. 2. However for vacating the said premises, During the period of construction of the new building the Tenants shall make their own arrangement for temporary alternate accommodation and the Owners/the Developers shall pay to the Tenants the rent/compensation for the temporary alternate accommodation to be arranged by the Tenants at the rate of ₹ 2,05, 000/- (Rupees Two Lacs Five Thousand only) per month for the period of first 24 months and a
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New Premises within 24 months then in that event at the end of the period of 24 months the Owners/the Developers shall give the post dated cheques to the Tenants towards the rent for the period from 25th month to 36th month at the rate provided hereinabove. 4. In continuation, we further find the condition that subsequent to what is mentioned in Clause 3 above, the Owners and/or the Developers hereby confirm that in the event the Owners and/or the Developers are unable to handover the possession of the said New Premises to the Tenants within 36 months the Owners and the Developers shall he liable to pay to the Tenants ₹ 5,00,000/- (Rupees Five Lakhs only) per month as damages without prejudice to the Tenants' other rights under the law and under this Agreement. 5. Thus we find that for vacating the said premises, the applicant has received/is to receive compensation from the developer as per details mentioned above. 6. It is also to be noted that for their premises in the ol
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nstead off 14 feet height) by having three partition walls, free of cost on ownership basis on the ground floor of the New Building to be named as to be constructed by the Developers on the portion of the said Property and delineated on the draft typical floor plan annexed hereto and marked as Annexure : 'B' and thereon shown surrounded by red colour boundary line (hereinafter referred to as 'said New Premises ') ". Thus, the act of vacating premises for facilitating the developer implies that the applicant has agreed to do an act and such act, of vacating the premises, by the applicant, squarely falls under clause 5(e) of the Schedule II mentioned above and therefore the amounts received by the applicant for having agreed to do such an act, would attract tax liability. Thus from the above referred terms of the agreement for redevelopment of the premises referred above we find that even during the period of redevelopment, the applicant remains a tenant of the owner
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levy lax under the GST Act on the impugned transactions. The applicant has also cited the decision of the Income Tax Appellate Tribunal, Mumbai, in the case of M/s Sahana Dwellers Private Limited v/s Income Tax Officer, in support of their contention that the transactions in question are not recognized as a rental transaction by the said Tribunal. Citing the said decision, the applicant has submitted that the said amounts received by them is a compensation and not rental income. They are right to an extent that, the said amounts are in the form of compensation paid to them, to do an act i.e. vacating the premises redevelopment as well as tolerating construction cum redevelopment work during the specified period of redevelopment as per their agreement referred above and also to tolerate an act i.e. the act of not having received the New Premises within 36 months from the developer. 06. In view of the extensive deliberations as held hereinabove, we pass an order as follows : ORDER (under
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