Digest of Advance Rulings Under GST

RULINGS OF ADVANCE RULING AUTHORITIES

  1. Supply of Die to foreign customers :

    Facts : Applicant first manufactures steel die as per requirement and specifications given by foreign customer. After seeking approval from foreign customer, applicant uses steel die for making aluminium and zinc die castings. These manufactured aluminium and die castings are exported to overseas customers along with sub-assemblies and other components against order. However, applicant retains steel die till completion of export order or completion of life of die.

    Applicant raises tax invoice for steel die in name of overseas customer in foreign currency for receipt of payment though die is not physically exported to foreign customer. After completion of export order, applicant either exports dies to overseas customer or scraps die at applicants end as per instructions of customer.

    Applicant seeks the procedure to be followed under GST Act for discharging GST liability.

    Observations & Findings : The applicant raises invoice after the manufacture of the die in the name of the foreign customer in foreign currency for receipt of payment. The date of issue of tax invoice by the applicant is the time of supply of die to the foreign customer as per section 12 of the CGST Act, 2017. Further, on date of issue of tax invoice the die is with the applicant and it is not moved either by the applicant or by the foreign customer. Hence the place of supply of goods, other than supply of goods imported into, or exported from India, shall be the location of such goods at the time of the delivery to the recipient as per clause (c) of sub section (1) of section 10 of the IGST Act 2017. Therefore, the place of supply of die in this case is the location of the applicant.

    In view of the above, the location of the supplier of die and place of supply of the die to the foreign customer are one and the same i.e., location of the applicant and such being the case said transaction shall be treated as infra-State transaction as per sub section (1) of section 8 of the IGST Act 2017 and the applicant has to issue the CGST and SGST tax invoice to the foreign customer and liable to collect and pay the CGST and SGST tax. Further if the said steel die is scrapped at applicant’s end without moving out of the country, as per the instruction of the overseas customer, the applicant has to issue intra/interstate tax invoice depending upon the nature of the transaction and collect and pay the applicable tax as per the provisions of the GST Act 2017, while supplying the die scrap.

    Ruling : In the case of manufacture of die by the applicant and invoiced to the recipient, without moving the goods, the applicant has to raise the tax invoice addressed to the foreign buyer. Since it is an intra-State supply, he has to collect the CGST and SGST and discharge the liability. The applicant is not eligible to claim said payment as input tax credit on the invoice raised by him as he is not the recipient. Further if the said steel die is scrapped at applicant’s end as per the instruction of the overseas customer without moving out of the country, while supplying the die scrap to the third party, the applicant has to issue intra/interstate tax invoice depending upon the nature of the transaction and collect and pay the applicable tax as per the provisions of the GST Acts.

    [[2020] 116 taxmann.com 746 (AAR – KARNATAKA) – Dolphine Die Cast (P.) Ltd.]

  2. Renting of immovable property :

    Facts : The applicant along with four others collectively has let out a Residential complex to a Company which is engaged in the business of providing affordable residential accommodation to students on a long term basis. The applicant contends that “renting of immovable property” is covered under Schedule II of CGST Act 2017 which defines it as the supply of services on which the applicable GST rate is 18%. The applicant further states that Schedule Il enlists activities to be treated as supply of goods or as supply of services. Entry 2(b) reads as 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. The applicant further refers to the Notification No. 9/2017 – lntegrated Tax (Rate) dated 28th June, 2017 in which certain exemptions have been prescribed for specified activities. Entry 13 of such Notification provides that: “Services by way of renting of residential dwelling for use as residence” are exempt from GST.

    Further, the Company has entered into sub lease agreement with students for providing residential accommodations with living amenities, security, entertainment facilities for a long stay for a period. Thereby, the Company has concluded that the rental accommodation services provided by yhem to the students will not attract GST. Consequently, there would be no GST obligation on them in case of lease arrangement with their lessor too, the applicant . Therefore, the Company is of the opinion that the lessor should not charge GST to them when issuing the invoice for the lease service.

    Observations & Findings : The lessor, of which the applicant is a part, is providing the right to use the immovable property without transfer of the ownership of the immovable property. For this transaction, they are collecting an amount which is the consideration for such transfer of right to use the property. This is in the course or furtherance of business and hence as per Section 7 (1) of the CGST Act, 2017, the transaction between the lessor and the Company would constitute a “supply”. Further, this would be a supply of service as per section 7 (1-A) of the CGST Act, 2017 read with the entry no. 2(b) of the Second Schedule to the CGST Act, 2017.

    With respect to “renting of residential dwelling” “for use as residence”. The contract of the applicant group with the Company is that what is given is an immovable property consisting of only rooms with attached toilets as per the Layout of the leased premises annexed to the Lease agreement and does not fit into the meaning of a dwelling which means a house. Even if the same is given for residential purposes, the services provided is not for use as residence by the lessee. Services by a hotel, inn, guest house, club site or campsite, by whatever name called, or other commercial places for residential or lodging purposes are covered by different entries in the schedule of this notification or under different notifications and this shows that rooms though given on rent for residential purposes would not amount to residential dwelling and hence the entry is not applicable for the transaction of the lessor with the lessee.

    Ruling : The lease services does not fall under the exemption “Services by way of renting of residential dwelling for use as residence” as listed in entry 13 of Notification No. 9/2017 – Integrated tax (Rate) dated 28th June 2017.

    [2020 (4) TMI 692 – AAR, Karnataka – Sri. Taghar Vasudeva Ambrish]

  3. Independent activity :

    Facts : NHAI has executed an agreement with a Contractor for the development of a four-lane highway. Under this agreement, the scope of work of the Contractor involves the four-lining of the highway, as well as highway facilities that are listed in Schedule of the Agreement. The service is categorised as construction of road as classified under Entry No. 3(iv)(a) of Notification No. 11/2017-CT (Rate), dated 28-6-2017 (as amended) and is taxable at 12% GST.

    The applicant is proposing to submit a bid for shifting / erection of electrical lines only to the main Contractor of NHAI. Thus the activity to be carried out by the applicant is restricted to shifting / erection of electrical lines only. Further, the details mentioned in the agreement, as description of work mentioned therein specifically indicates the independent nature of work to be carried out by the applicant for which such cost will be borne by the authority or by the owning entity of the respective utility.

    Further, such cost will be borne separately by the Authority or the utility owning entity. Hence, the payment of the above said work which will be made to the concessionaire (Main Contractor) is not part of the/main contract (concession agreement) which also indicates the work is of independent nature.

    The applicant sought to know, whether in the facts and circumstances of the case, does the activity carried out by the Applicant falls under Entry No. (iv)(a) of Notification No. 11/ 2017-CT(R)? Alternatively, whether in the facts and circumstances of the case, does the activity carried out by the Applicant falls under Entry No. (ix) of Notification No. 11/ 2017- CT(R)?

    Observations & Findings : We observe that the entry number 3(iv)(a) of the Notification No 11/2017-CT (Rate) dated 28.6.2017 allows concessional rate in case of works contract is for construction of road, bridge, tunnel or terminal for road transportation for use by general public. We observe that in the present case the proposed activity carried out by the applicant is of shifting /erection of 11 KV < lines only and the same cannot be categorised as construction of road as classified under Entry number 3 (iv)(a) of the Notification No 11/2017-CT (Rate) dated 28.6.2017 (as amended).

    We further, observe that since such cost of the above said activity will be borne by the Authority or by the entity owning such utility therefore such payment of above mentioned activity is not the part of the main contract i.e. construction of road as awarded to main contractor by NHAI. Thus, there establish no nexus between the main contract awarded for construction of road by the NHAI and the work proposed to be undertaken by the applicant. Therefore, the question of covering the activity under entry number 3(iv)(a) of the Notification No 11/2017-CT (Rate) dated 28.6.2017 does not arises.

    Ruling : a) The activity proposed to be undertaken by the applicant does not fall under entry no. (iv)(a) of the Notification No. 11/2017- CT(R) dated 28.6.2017.

    b) The activity proposed to be undertaken by the applicant does not fall under entry no. (ix) of the Notification No. 11/2017-CT(R) dated 28.6.2017.

    [[2020] 116 taxmann.com 734 (AAR- RAJASTHAN) – Sri. Gaurish Sharma]

  4. Storage and ware housing of agricultural produce :

Facts : The activity of the applicant is :

  1. They are dealing in services which are in the nature of storage and ware housing of agricultural produce, food grains including pulses and rice etc.;

  2. They are renting or leasing of agro machinery or vacant land with or without structure incidental to its use, in relation to agricultural produce;

  3. They are using leased premises for storage of agricultural produce which is exempted from GST and lessor is insisting to pay GST on lease charges and the lessee is denied to pay GST on lease charges where the lessee is using the premises for storage of agricultural produce only.

The taxpayer have contended that:

  1. Supply of services by way of renting immovable property for commercial purpose is a taxable supply under GST law and attracts levy of GST @ 18%;

  2. Having said so, services in the nature of storage and ware housing of agricultural produce, food grains including pulses, rice etc., are fully exempted from GST;

  3. Further, renting or leasing of agro machinery or vacant land with or without a structure incidental to its use, in relation to agricultural produce would also be exempt.

Observations & Findings : As per Sl. No. 54(e) of Notification Number 12/2017-CT (R) dated 28.06.2017 provides for exemption from GST in respect of supply of services rendered for storage in relation to the agricultural produce. It is noticed that the term ‘agricultural produce’ has been defined under clause 2(d) of the Notification ibid. Thus, the supply of service for storage or warehouse of goods is exempted if the same is provided in connection with storage or warehousing of ‘agriculture produce’ as defined in clause 2(d) of Not. No. 12/2017-CT (R) dated 28.06.2017 as amended. We further find that the notification is with regard to service supplied and not person specific. As such, the entry No. 54(e) is equally applicable for storage services in respect of agricultural produce of both the farmers and the traders.

Coming to the issue of tax liability on leasing services availed by the applicant with regard to the cold storage facility, we opine that if the agreement is purely for renting/leasing of the premises of cold storage by one entity to another entity, then the said activity amounts to renting/leasing of immovable property and does not fall within the ambit of storage services. In terms of clause (a) of para 5 of the Schedule II (appended to the GST Act), read with Section 7 of the GST Act, renting of immovable property is to be treated as supply of service. Thus, providing non-residential property on rental basis is a supply of service which is classifiable under SAC No. 997212. The said supply of service is chargeable to tax @18% under residuary entry at Sl. No. 35 of Not. No. 11/2017-CT (R) dated 28.06.2017 as amended.

Ruling : Using leased premises for Cold Storage purpose of agriculture produce on Leasing Charges is taxable @ 18%. Cold Storage Leased on rent for storage with or without preservation and maintenance to Private Enterprises is taxable @ 18%. Storage or Warehousing Seeds/Agricultural produce on behalf of Farmers and Traders is exempted from payment of GST.

[2020 (6) TMI 201 – AAR, Telangana – Gubba Cold Storage P Ltd.]

  1. Ex-factory supplies :

Facts : The applicants are manufacturers of cement having two cement plants in Telangana. They occasionally make inter-State sale of cement on ex-factory/works basis from their plants. As per section 10(1)(a) of IGST Act, 2017, place of supply shall be where movement of goods terminates; When they make ex-factory sales from their plant, delivery terminates at their factory gate itself and therefore, CGST and SGST should be charged on such type of supplies. However, in the said section it is also mentioned that the movement of goods can be by supplier or the recipient or any other person and place of supply shall be location of recipient where delivery terminates to recipient. In respect of exfactory sale, though for them supply terminates at factory gate, yet further movement is carried by the recipient or transporter (other person) of goods up to the billing address state. They sought to know what tax should be charged on ex-factory inter-State supplies made by them.

Observations & Findings : The ‘place of supply’ and ‘location of supplier’ determine whether a supply can be treated as an intra-State supply or an inter-State supply. In the case on hand, the applicant has no uncertainty as regards to ‘the location of supplier’ and they sought clarity only with regard to the ‘place of supply’. This leads us to refer to section 10(1)(a) of IGST Act, 2017 which contains provisions relating to determination of ‘place of supply’ of goods where the supply involves movement.

As stated by the applicant, there is a scope for inference that in case of ex-factory sales, since the delivery of goods to recipient takes place at factory gate so far as supplier is concerned, location of the supplier’s factory can be reckoned as place of supply. However a careful appraisal of the provisions of section 10(1)(a) does not suppose such inference. We noted that the usage of the words ‘whether by the supplier or by recipient’ after the words ‘where the supply involves movement of goods’ under the said section perceptibly indicates that the movement can be effected by the supplier or by the recipient or by any other person authorized by the recipient. This leads to the conclusion that, in terms of section 10(1)(a), movement of goods in case of ex-factory inter-State sales does not conclude at factory gate but terminates at the place of destination where the goods finally are destined as per the billing address.

Ruling : IGST is chargeable on ex-factory inter-State supplies.

[[2020] 116 taxmann.com 876 (AAR- TELANGANA) – Penna Cement Industries Ltd.]

ORDERS OF APPELLATE ADVANCE RULING AUTHORITIES

  1. Joint Development Agreements :

Facts : The Appellant is a Private Limited Company engaged in the business of property development. The Appellant has entered into a Joint Development Agreement (JDA) on 08/11/2017 with Land Owners for development of land into residential layout along with specifications and amenities. Cost of development shall be borne by Appellant. The consideration was agreed on revenue sharing basis in the ratio of 75% [for Land Owners] and 25% [for Developer / Appellant]. Pursuant to the JDA, the Appellant entered into an agreement with customers for sale of developed plots of land for consideration. In this connection the Appellant sought an advance ruling in respect of the following question:

  1. Whether the activity of development and sale of land attracts tax under GST?

  2. If the answer to the above question is yes, for the purpose of taxable value, whether provision of Rule 31 can be made applicable in ascertaining the value of land and supply of service?

The Advance Ruling Authority held that the activities as envisaged in the agreement between the Appellant and the Land Owners amount to supply of service and is liable to be taxed under GST. Rule 31 applies in the instant case and the value of the supply equals to the total amount received by the Applicant, which is equal to 25% of the market value of each plot.

Aggrieved by the above ruling, the appellant has filed this appeal.

Observations & Findings : The issue to be decided in this appeal is whether the activity of development and sale of land by the Appellant is a liable to tax under GST. The liability to GST arises when there is a supply of either goods or services or both. According to section 7 of CGST Act, 2017, the expression “supply” includes 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, and includes activities specified in Schedule II to the CGST Act, 2017. However, as per entry 5 of Schedule III, the activity of sale of land has been treated as neither a supply of goods nor a supply of service. It is the contention of the Appellant that they are primarily engaged in the sale of land which has been developed by them and the development activity is incidental to the sale of land and hence they are not liable to GST in terms of the Schedule III of the CGST Act. However, a transaction shall be out of GST net only if the activity is exclusively dealing with transfer of title or transfer of ownership of land, which is immoveable property. If the transaction of sale of land is coupled with another activity such as infrastructure works, then this exclusion will not apply. Hence, the substance of the agreement between the parties is important.

The landowner approached the Appellant-Developer and offered the property for joint development given the Appellant’s expertise in residential plotted developments. Accordingly, based on the representations made by the landowner, the Appellant has agreed to develop the project on the property.

The Appellant has argued that the transaction in terms of the JDA is a composite supply where the principal supply being the sale of land is outside the purview of GST in terms of entry 5 of Schedule III of the Act. When we examine the provision of what constitutes a ‘composite supply’ as defined in Section 2(30) of the CGST Act, we find that composite supply means a supply made by a taxable person to a recipient.

  • consisting of two or more taxable supplies of goods or services or both, or any combination thereof,

  • which are naturally bundled

  • and supplied in conjunction with each other

  • in the ordinary course of business, one of which is a principal supply.

The definition of composite supply must be read with the definition of taxable supply and exempt supply. Sub-section (108) of section 2 defines a taxable supply as under:

“taxable supply” means a supply of goods or services or both which is leviable to tax under this Act;”

Sub-section (47) of section 2 defines an exempt supply as under:

“exempt supply” means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply;”

In the instant case there are two activities involved, viz: development of land and sale of plots. The transaction relating to the sale of land is not a supply of either goods or service under GST (entry 5 of Schedule III of the CGST Act refers). This activity of sale of land cannot be considered as an ‘exempt supply’ for the reason that the activity is not at all a supply and hence the question exempting it under Section 11 of the Act does not arise. On the other hand, the activity of development of land is a supply in terms of Section 7 of the CGST Act. A combination of two activities one of which is not a supply under GST cannot be said to be a composite supply. We therefore, disagree with this contention of the Appellant.

The Appellant has also contended that there is no supply of any service by him to the landowners; that the JDA has been executed with a mutual agreement by both the parties to jointly develop the land and share the revenues out of the sale of land. In real estate transactions involving plotted development, one party owns the land and another party has the expertise to develop the land. The two parties come together with the common intention of developing the land and sharing the revenue accruing for the sale of the developed plots in the land. However, the landowners give the rights of using the land to the developer in exchange for which, the developer gives the service of developing the land of the owners. While the Joint Development agreement is entered into for the two parties to jointly reap the benefits of the sale of the land to customers, there is a clear rendering of a service by the developer to the landowner in developing the land which belongs to the landowner. Therefore, we hold that the activity of developing the land is a supply of service by the Appellant.

Order : We uphold the ruling passed by the Advance Ruling Authority and the appeal filed by the appellant stands dismissed on all accounts.

[2020 (5) TMI 415 – Appellate AAR, Karnataka – Maarq Spaces P Ltd.]

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