Ambiguity in GST Law regarding ‘Place of Supply’ & ‘Place of Registration’ in relation to Renting of Immovable Property
Whether a person who is already registered in one state has one immovable property in another state, is required to be registered in another state too for providing service related to Renting of Immovable property?
This question is regularly asked by the various assessees as GST departments of different states are prompting out the assesses to take registration in the state where immovable property of the assessee is situated and is rented out for commercial purposes even if the assessee is already registered in some other state. This question of law revolves around the concept of “Place of Supply” and “Location of place of Supplier”. To understand this concept, we should first know that the Goods & Services Tax (“GST”) is not a plain law and may require considerable interpretation of various provisions. Interpretation should be made by deciphering scheme and intention of legislature. In the present article, author will make an attempt to interpret the related provisions in accordance with the scheme of the Act and cull out the legislative intention. Hence, to remove the ambiguity in law, let us understand this concept with an example:
Let’s assume a scenario where one Assessee is engaged in some business having its principal premises in Delhi and for the purpose of GST, is also registered in Delhi. Assessee besides having its business in Delhi, also has one immovable property in state of Haryana. The said property is being leased out to one company for commercial purposes on monthly rental basis. The rental value is chargeable to GST and the assessee has accordingly charged and paid the due IGST on such rental value through its Delhi based GSTIN.
However, one day Assessee is prompted by the Haryana GST Department with an allegation that the assessee is liable to obtain Registration in the state where immovable property is situated i.e. State of Haryana for the rental services provided in Haryana. Then the question in the present scenario arises as follows:
1. Whether the person already registered in Delhi who is in possession of an immovable property in the State of Haryana is required to be registered in the State of Haryana for provision of service related to Renting of Immovable property?
2. Whether the supply of services related to renting of immovable property situated in Haryana is to be treated as inter-state supply if the same is made by the assessee who is registered in Delhi ?
In this regard, it is submitted that the GST Acts were enacted in the year 2017 for the purpose of subsuming various taxes into one integrated form of indirect tax in the country as per policy decision taken by Government of India and to avoid the cascading effect. The scheme of Central/Haryana and Integrated GST Act, 2017 for the purpose of present scenario is detailed hereunder:
I. At the outset, charging section of the GST Acts are considered. Section 9 of the Central GST Act, 2017 deals with the “Levy and collection” of tax. Sub-section (1) of section 9 transpires that tax (CGST) shall be levied on all intra-state supplies of goods or services or both, and collected in such manner as may be prescribed and shall be paid by the taxable person. Relevant part of section 9 of CGST Act is reproduced hereunder:
Levy and collection
9. (1) Subject to the provisions of sub-section (2), there shall be levied a tax 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.
**********
II. The term “Intra-state supply of services” is defined under sub-section (65) of section 2 of the Central GST Act, 2017 and it borrows the definition from section 8 of the Integrated GST Act, 2017. Sub-section (2) of section 8 states that the supply of services where the location of the supplier and the place of supply of services are in the same State or same Union territory shall be treated as intra-State supply and the same is subject to the provisions of section 12 “Place of supply of services where location of supplier and recipient is in India”. Relevant parts of above provisions are reproduced hereunder:
2 (65) “intra-State supply of services” shall have the same meaning as assigned to it in section 8 of the Integrated Goods and Services Tax Act;
Intra-State supply.
********
8. (2) Subject to the provisions of section 12, supply of services where the location of the supplier and the place of supply of services are in the same State or same Union territory shall be treated as intra-State supply:
*********
III. Similarly, IGST Act, 2017 also provides the provision of “Levy and Collection” for inter-state supply which is defined under section 5 of the IGST Act, 2017.
Sub-section (1) of section 5 has the relevance in the context of the present scenario, which states that Integrated GST shall be levied on all inter-state supplies of goods or services or both and collected in such manner as may be prescribed and shall be paid by the taxable person. Relevant part of section 5 of IGST Act is reproduced hereunder:
Levy and collection.
5. (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the integrated goods and services tax on all inter-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 of the Central Goods and Services Tax Act and at such rates, not exceeding forty 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:
*********
IV. Likewise, “inter-state supply” is defined u/s 7 of the IGST Act, 2017 and sub-section (3) of Section 7 “inter-state supply” of IGST Act, 2017 states that subject to the provisions of section 12, supply of services, where the location of the supplier and the place of supply are in two different States; two different Union territories; or a State and a Union territory, shall be treated as a supply of services in the course of inter-State trade or commerce. Sub-section (3) of Section 7 of the IGST Act is reproduced herebelow:
7. Inter-state Supply:
*********
(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.
**********
It is apparent in light of the aforesaid provisions that CGST is charged if a transaction is an intra-state supply, and IGST is charged in the inter-state supply transactions and the both are subject to the provisions of Section 12 of the IGST Act, 2017 i.e. “Place of supply of services where location of supplier and recipient is in India”.
V. Section 12 of the IGST Act, 2017 defines the “Place of supply of services where location of supplier and recipient is in India”. In the context of the present scenario, Sub-section (3) of section 12 specifically deals with the place of supply of services in relation to an immovable property which states that the place of supply shall be the location at which the immovable property is located or intended to be located. Hence, in the present case, “place of supply of service” is in Haryana. Sub-section (3) of Section 12 of the IGST Act, 2017 is reproduced herebelow:
Place of supply of services where location of supplier and recipient is in India
12.
*******
(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 organising 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.
*************
VI. However, “Place of Supply” provides the destination and is not relevant for registration of an assessee. Provisions related to registration is provided under section 22 of the Central GST Act, 2017, which states that every supplier shall be liable to be registered in the State or Union territory, other than special category States, “FROM” where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees. Relevant part of section 22 is extracted herebelow:
22 .Persons liable for registration.
(1) Every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees:
***********
VII. Henceforth, the question involved in the present case is that from which State, taxable supply is made which is determined by “Location of the Supplier of Services” provided under sub-section (71) of section 2 of the CGST Act, 2017 or sub-section (15) section 2 of IGST Act, 2017. Both sections are exactly similar and the same is extracted hereunder:
“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 provisions of the supply; and
(d) in absence of such places, the location of the usual place of residence of the supplier;
Sub-section (71) of Section 2 (supra) contains four clauses (a), (b), (c), (d) to determine the location of the supplier of service which are discussed as follows;
(a) Clause (a) states that location of supplier means a place of business from where the supply is made. In the present scenario, only having an immovable property does not qualify the ‘place of business’ of the assessee. For the meaning of ‘place of business’, reference is made to sub-section (85) of section 2 of the CGST Act, 2017 which is extracted hereunder;
2 (85) “place of business” includes––
(a) a place from where the business is ordinarily carried on, and includes a warehouse, a godown or any other place where a taxable person stores his goods, supplies or receives goods or services or both; or
(b) a place where a taxable person maintains his books of account; or
(c) a place where a taxable person is engaged in business through an agent, by whatever name called;
In the present case, assessee is ordinarily carrying out its business and maintains its books of account from Delhi and thus, only having an immovable property in Haryana does not qualify the ‘place of business’ of the assessee to be in Haryana.
(b) Clause (b) states that if supply is made from a place other than the place of business, then the assessee is liable to be registered at the location where it is having fixed establishment and for this purpose, reference is invited towards sub-section (50) of Section 2 of the Central GST Act, 2017, which is extracted hereunder;
2 (50) “fixed establishment” means a place (other than the registered place of business) which is characterised by a sufficient degree of permanence and suitable structure in terms of human and technical resources to supply services, or to receive and use services for its own needs;
By merely having an immovable property in the State of Haryana, the test of having human and technical resources is not qualified. Hence, the same is not covered under the definition of fixed establishment.
(c) Clause (c) pertains to supply of service from more than one establishment and thus has no application in the present case.
(d) Hence, in the absence of applicability of clause (a), (b) & (c), “the location of usual place of residence of supplier” as per clause (d) shall be the location of supplier of services. “Usual place of residence” is defined under sub-section (113) of section 2 of the CGST Act, 2017 which is extracted hereunder:
2 (113) “usual place of residence” means––
(a) in case of an individual, the place where he ordinarily resides;
(b) in other cases, the place where the person is incorporated or otherwise legally constituted
Thus, in view of section 2(113) of the CGST Act, 2017, “usual place of residence” of the assessee is Delhi where it is ordinarily residing or the person is incorporated and legally constituted.
Therefore, keeping in view the aforesaid provisions of the CGST & IGST Acts as whole, it can be concluded that location of the assessee as supplier of service is in Delhi. Hence, assessee if already registered in Delhi has no liability to get itself registered in state of Haryana and location of recipient of services and place of supply is in the state of Haryana where immovable property is situated. Accordingly, the supply in question would be inter-state supply as per the definition under Section 7 of the IGST Act, 2017. While considering the queries raised by various assessees on the similar cause of action, official twitter handle of the GST-Government of India i.e. GST@GoI on 03.11.2017, tweeted answers to FAQs’ (Frequently Asked Questions) wherein GST@GoI has clarified that merely having an immovable property does not qualify the test of having place of business or fixed establishment and the assessee is liable to take registration in the state of usual place of residence. Hence, the said tweet is in line with the correct interpretation of the law.
Disclaimer:- The contents in this analysis and views expressed in this article are solely for information purpose only. The laws and regulations are subject to change over time and recent changes after the date of this representation may not be reflected on this article.
Author Bio
