In re Shanmuga Durai (GST AAR Tamilnadu)
Section 15(1) stipulates the transaction value as the value to be adopted in cases where the supplier and recipient are not related. In the present situation, the applicant and the firm are related persons. Therefore, the value to be adopted is to be arrived at following the Valuation Rules as per Section 15(5) of the Act. The relevant valuation rules are as follows:-
Rule 28. Value of supply of goods or services or both between distinct or related persons, other than through an agent. –
The value of the supply of goods or services or both between distinct persons as specified in subsection (4) and (5) of section 25 or where the supplier and recipient are related, other than where the supply is made through an agent, shall-
(a) be the open market value of such supply;
(b) if the open market value is not available, be the value of supply of goods or services of like kind and quality;
(c) if the value is not determinable under clause (a) or (b), be the value as determined by the application of rule 30 or rule 31, in that order:
From the above, it is observed that where the supply is between related persons, the value of such supply shall be the open market value of such supply. Where the open market value is not available, the value of supply of goods or services of like kind and quality will be the taxable value. In the instant case, the property being rented and the supplier and recipient being related Rule 28 of CGST/TNGST Rules 2017 applies and the value should be arrived at accordingly for the purposes of GST.
To sum up, the activity of renting out the Immovable Properties owned by the applicant as an individual person to the partnership firm, another individual person in which he is a major shareholding partner and Managing Partner even without consideration is a taxable supply under Section7(1)(a) read with Schedule I of the CGST Act,2017. The value of taxable supply shall be as stipulated under Rule 28 of the CGST Rules,2017.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, TAMILNADU
Note: Any appeal against the Advance Ruling order shall be filed before the Tamil Nadu State Appellate Authority for Advance Ruling, Chennai under Sub-section (1) of Section 100 of CGST ACT/TNGST Act 2017 within 30 days from the date on which the ruling sought to be appealed against is communicated.
At the outset, we would like to make it clear that the provisions of both the Central Goods and Service Tax Act and the Tamil Nadu Goods and Service Tax Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the Central Goods and Service Tax Act would also mean a reference to the same provisions under the Tamil Nadu Goods and Service Tax Act.
Tvl. SHANMUGA DURAI, No. 24/14, RAMANATHAN STREET, T.NAGAR, CHENNAI-600017(hereinafter called the Applicant) are registered under GST with GSTIN33AAQPS8495KlZO.The applicant has sought Advance Ruling on the following questions:-
1. Whether GST liability does arise in respect of property of the partner used by the Partnership Firm to carry out the business by the firm at free of rent?
2. If so, what is the relevant section or rule or provision in GST law under which the partner of the firm is required to pay GST on notional rent?
3. Is it mandatory to execute rental deed between partner and Partnership firm, when there is no furtherance of business for that partner?
4. What is the applicable valuation rule, when consideration is not fixed and not received by the Partner?
The Applicant has submitted the copy of application in Form GST ARA – 01 and also submitted a copy of Challan evidencing payment of application fees of Rs.5,000/- each under sub-rule (1) of Rule 104 of CGST rules 2017 and SGST Rules 2017.
2.1 The applicant has stated that he is the Managing Partner in the partnership and firm having certain properties in his name. The firm in which he is partner is carrying out the business in those properties at free of rent. He has stated that under the Income Tax Act, it is clear that when the partner uses his property for business carried out by the firm, then deemed rent does not arise. The applicant has sought the Advance Ruling Authority to seek clarity under GST law for the above scenario.
2.2 On interpretation of law the applicant has referred to Schedule I of GST Act which includes activities to be treated as supply even if made without consideration. The applicant has stated that as per SI.No. 2 of the Schedule supply of goods or services or both between related persons or between distinct persons as specified in Section 25, when made in the course of furtherance of business, it is to be treated as Supply, however, in their case the applicant as a partner has no furtherance of business. Applicant has stated that he has not done anything in relation to business carried out by partnership firm to mean furtherance of business. The applicant has also referred to press release of CBIC dated 13.07.2017 wherein it is clarified that,-
“sale of old gold by an individual is for a consideration, it cannot be said to be in the course or furtherance of his business (as selling old gold jewellery is not the business of the said individual), and hence does not qualify to be a supply.”
3.1 Due to the prevailing PANDEMIC situation and in order not to delay the proceedings, the applicant was addressed through the Email Address mentioned in the application to seek their willingness to participate in a virtual Personal Hearing in Digital media. The applicant consented and the hearing was held on 30.11.2021.
The Authorised Representative Shri.V. Narendran, Chartered Accountant appeared for the hearing virtually and stated that the owner has allowed the firm in which he is the Managing Partner, to function from the places owned by him. He referred to the submissions made, referred to Circular dated 13.07.2017 and stated that the property is used for the firm in which the owner is the Managing Partner and requested to clarify whether the activity amounts to ‘Supply’ and if so, what should be the Value to be adopted’. He stated that the owner has more than seven properties, the properties are used as godowns and retail shops and the owner is the Managing Director of the partnership firm. He stated that since no rent is collected, it is not accounted. The applicant was asked to give the following documents in a weeks’ time.-
i. Details of the places in relation to which Ruling is sought
ii. Details of activities carried on in such places
iii. Details of EB, water charges in respect of such places
iv. Copy of P&L statement and Balance sheet for two years
v. Copy of partnership deed
3.2 The applicant vide their letter dated 15.12.2021 submitted the following facts:
> Details of the places in relation to which advance ruling is sought and the activities carried on each place:
