Query 1

Nature of GST to be levied

The supplier is registered in Maharashtra. The supplier has commercial vacant office at Tamil Nadu. Supplier is not registered in Tamil Nadu nor carrying on any other activity in Tamil Nadu. The supplier has entered into agreement for renting of commercial place of Tamil Nadu. Supplier will receive rent for which GST is payable. Supplier is of the opinion that, he is liable to pay IGST in Maharashtra. Which is the correct tax payable?

Reply: The transaction referred is about renting of office i.e. immovable property. Schedule II to CGST Act specifies the transactions which are to be considered for supply of service and for supply of goods.

Entry 5 in Schedule II provides as under:-

“SCHEDULE II

[See section 7]

ACTIVITIES TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES

5. Supply of services

The following shall be treated as supply of services, namely:—

(a) renting of immovable property;”

Therefore, the given transaction is for supply of services. Under GST, the taxability under particular Act i.e. whether IGST or CGST / SGST depends upon two factors. Therefore, two factors, i.e. location of supplier of service and place of supply of service are two aspects which are first to be decided. If the location of supplier of service as well as place of supply of service is in same State, then the supply transaction will be intra state and the liability will be under CGST/SGST. However, if the location of supplier is in one State and place of supply falls in other State, then it will be inter-state supply and IGST will apply.

For deciding above factors, reference is to be made to the relevant legal provisions.

Section 2(15) of the IGST Act defines location of supplier of service, which is reproduced below:-

“(15) “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 absence of such places, the location of the usual place of residence of the supplier;”

The ‘place of supply’ for services is defined in section 12 of IGST Act. The said section is reproduced below to the extent required:-

“12. (1) The provisions of this section shall apply to determine the place of supply of services where the location of supplier of services and the location of the recipient of services is in India.

(2) The place of supply of services, except the services specified in sub-sections (3) to (14),––

(a) made to a registered person shall be the location of such person;

(b) made to any person other than a registered person shall be,––

(i) the location of the recipient where the address on record exists; and

(ii) the location of the supplier of services in other cases.

(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) by way of lodging accommodation by a hotel, inn, guest house, home stay, club or campsite, by whatever name called, and including a house boat or any other vessel; or

(c) by way of accommodation in any immovable property for organizing any marriage or reception or matters related thereto, official, social, cultural, religious or business function including services provided in relation to such function at such property; 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:

Provided that if the location of the immovable property or boat or vessel is located or intended to be located outside India, the place of supply shall be the location of the recipient.

Explanation.– Where the immovable property or boat or vessel is located in more than one State or Union territory, the supply of services shall be treated as made in each of the respective States or Union territories, in proportion to the value for services separately collected or determined in terms of the contract or agreement entered into in this regard or, in the absence of such contract or agreement, on such other basis as may be prescribed.”

It can be seen that in relation to immovable property the place of supply is the place where the immovable property is situated as per section 12(3)(a).

Further, the location of supplier of service is the place where the place of supplier is registered.

In the given case, it is fact that the querist is registered in Maharashtra. The immovable property is situated in Tamil Nadu. It is also fact that querist has no any other activity in Tamil Nadu and it is also not registered in Tamil Nadu. Therefore, location of supplier is in Maharashtra and place of supply is in Tamil Nadu.

Since location of supplier and place of supply are in different states, the transaction becomes interstate supply as per section 7. This position is clear from the reading of section 7(3) of IGST Act, which reads as under:-

“(3) Subject to the provisions of section 12, supply of services, where the location of the supplier and the place of supply are in––

(a) two different States;

(b) two different Union territories; or

(c) a State and a Union territory, shall be treated as a supply of services in the course of inter-State trade or commerce.”

Renting is service relating to immovable property. Therefore, applying above provisions of inter-state supply of service, the tax should be paid under IGST in Maharashtra.

Even if property is located in Tamil Nadu still, since as per the definitions, supply of service is from other state, the liability will be under IGST.

In our opinion, the view of the querist is correct.