Summary: The Authority for Advance Ruling (AAR) in Tamil Nadu addressed the applicability of GST on increased rents for past periods in the case of M/s. Metropolitan Transport Corporation. The case arose from a lease agreement with the Government of Tamil Nadu, originally established in 2005. Due to unresolved negotiations, a rent revision had been delayed until a mutual agreement was reached in the fiscal year 2023-24 to increase the rent by 15% every three years. The total differential amount to be paid by the Regional Transport Officer was calculated at ₹1,60,42,203. The applicant contended that since the revised rent pertains to a period prior to the introduction of GST on July 1, 2017, it should not be subject to GST. However, the AAR determined that under Section 142(2)(a) of the CGST Act, any upward price revision in a contract initiated before the appointed day requires the issuance of a supplementary invoice or debit note within 30 days of the revision. This ruling established that the increased rents from September 1, 2005, to June 30, 2017, would indeed be treated as a supply under GST, thus making the entire increased amount liable for tax. This decision underscores the continuity of tax obligations despite transitional provisions related to the introduction of GST.
The Authority for Advance Ruling, Tamil Nadu, in the case of M/s. Metropolitan Transport Corporation, In Re [Ruling No. 12/ARA OF 2024 dated June 25, 2024], ruled that in pursuance of a contract entered into prior to appointed day, if, price of any goods or services or both is revised upwards on or after appointed day, then, in case of such upward price revision, a registered person will issue a supplementary invoice or debit notes within 30 days from date of revision and such revision shall be treated as ‘supply’ under Central Goods and Services Tax Act, 2017 (“the CGST Act”) Act. Hence, GST is payable.
Facts:
M/s Metropolitan Transport Corporation (“the Applicant”) was a government undertaking and was governed by the Board of Directors appointed by the Government of Tamil Nadu. The Applicant’s primary business activity was providing passenger transportation services, which fall under the exempted category as per the GST laws.
The Applicant entered into a lease agreement on March 20, 2007, for the rental of premises owned by the Applicant, with the Government of Tamil Nadu which was represented by the Regional Transport Officer (“RTO”) Chennai. The lease agreement commenced from September 9, 2005, for the monthly rent of Rs. 1,00,000/-. The RTO, tenant, had initially occupied the premises on September 01, 2002 and partially vacated the rental premise on July 11, 2017. The Applicant was using the leftover premises till date.
According to the agreement both the parties, agreed to revise the rent once in every three years based on the existing government orders. However, due to unresolved negotiations the rent revision was not implemented.
During the fiscal year 2023-24, both the parties mutually agreed to revise the enhanced rent, settling on 15% increase in every three years and this revision was calculated from the September 1, 2005. Therefore, RTO will pay the differential amount of Rs.1,60,42,203/- to the Applicant upon the submission of the Supplementary invoices.
The Applicant, contented that tenant had agreed to pay the enhanced rent for the retrospective years and the GST, does not apply on the enhanced rent amount. However, that the CGST Act came into effect only after July 1, 2017, and the invoices related to the period prior to the said date are not subject to GST and such enhanced revision in rent pertains to the period when Service Tax was applicable.
Issue:
Whether GST is applicable on increased rent for past periods?
Held:
The AAR, Tamil Nadu in Ruling No.12/ARA of 2024 held as under:
- Observed that, GST is a significant reform in the field of indirect taxes in our country. Multiple taxes levied and collected by the Centre and States have been replaced by one tax called GST. As GST sought to consolidate multiple taxes into one it was very essential to have transitional provisions to ensure that the transition to the GST regime is very smooth and hassle free and no ITC/benefits earned in the existing regime are lost. The makers of the GST law have incorporated provisions foreseeing the issues which may arise post transition into GST era.
- Opined that, section 142(2)(a) of the CGST Act, which governs “miscellaneous transitional provisions”, which specifically states that in pursuance of a contract entered into prior to the appointed day, the price of any goods or services or both is revised upwards on or after the appointed day, the registered person who had removed or provided such goods or services or both shall issue to the recipient a supplementary invoice or debit note, containing such particulars as may be prescribed, within thirty days of such price revision and for the purposes of the CGST Act such supplementary invoice or debit note shall be deemed to have been issued in respect of an outward supply.
- Held that, upward price revision, a registered person will issue a supplementary invoice or debit notes within 30 days from the date of revision and such revision shall be treated as supply under the CGST Act and hence the tax is payable. Therefore, the Applicant had entered into contract for provision of renting of immovable property services as seen from the lease agreement intends to revise the price-upwards and issue supplementary invoices for the said supply for the upward revision of rent. Hence, in the instant case collection of increased rents for the past period e.September 1, 2005 to June 30, 2017 shall also be treated as “supply” under GST and the entire increased rent amount of Rs. 1,60,42,203/-, for the period from September 1, 2005 to August 31, 2022, shall be liable to GST.
Our Comments:
The Authority for Advance Ruling, Telangana, in the case of M/Jaiprakash Associates Limited, In Re [Ruling No. A.R. Com/14/2023 dated May 26, 2023] ruled that any amount received because of price revision done with respective a contract entered prior to the appointed day shall be deemed to be an amount received towards a supply under the CGST Act. Therefore, the said amount attracts GST.
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