In re Market Cooperative Shops & Warehouses Society Ltd (GST)
Get insights into GST implications on lease renewal and premium payments. Key rulings on Reverse Charge Mechanism, collection from shareholders, and more.
The ruling provided by the Authority for Advance Ruling (AAR) in the case of M/s The Surat Textile Market Cooperative Shops & Warehouses Society Ltd, Gujarat, addresses several questions related to the GST implications of lease renewal and premium payments. Here is a summary of the key points:
GST on Lease Renewal Amount: The applicant is liable to pay GST under Reverse Charge Mechanism (RCM) in terms of Section 9(3) of the CGST Act, 2017, for the lease renewal amount payable to Surat Municipal Corporation (SMC).
GST on Premium on Lease Renewal Amount: The applicant is also liable to pay GST under Reverse Charge Mechanism (RCM) in terms of Section 9(3) of the CGST Act, 2017, for the premium on the lease renewal amount payable to SMC.
GST on Collection from Shareholders/Shop Owners: The collection made from shareholders/shop owners by the applicant for making payment of lease and lease premium is considered a supply under Section 7 of the CGST Act, 2017. GST under forward charge is applicable to the collection made from shareholders/shop owners for lease and lease premium.
Effect of Circular No. 101/20/2019-GST: The applicant is not entitled to exemption under Sr. No. 41 of Notification No. 12/2017-CT (Rate) dated 28.6.2017, as amended, and clarification issued vide Circular 101/20/2019-GST dated 30.4.2019.
Input Tax Credit (ITC) for Shareholders/Shop Owners: The ruling does not provide a clear answer to the question of whether the applicant’s shareholders/shop owners who are reimbursing the lease and lease premium amount are eligible for ITC of the GST charged by the applicant. It suggests that the applicant does not have the locus standi (legal standing) to seek a ruling on behalf of their members in this regard.
It’s important to note that this ruling is specific to the case presented by M/s The Surat Textile Market Cooperative Shops & Warehouses Society Ltd and may not be directly applicable to other cases.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, GUJARAT
Brief facts:
M/s The Surat Textile Market Cooperative Shops & Warehouses Society Ltd, Surat Textile Market, Ring Road, Surat, Gujarat — 395 002 [for short — `applicant’] is cooperative society, formed for the purpose of maintenance & service of the Surat Textile Market. Their GST registration number is 24AACCT5245K1Z9.
2. The applicants primarily takes care of the day to day maintenance activity of the premises such as security, common lightings, common toilet, cleaning, other repairs, parking and maintenance etc. of the Surat Textile Market. Surat Textile Market, comprises of more than 1000 shops of various sizes & each shop owner is a shareholder of the applicant.
3. Surat Textile Market is built on 24,435 sq. mtr. of land, leased by the Surat Municipal Corportation [for short — `SMC’]. The said lease expired in the year 2018. SMC has now come up with a lease proposal to renew it for a further period of 99 years. The consideration to be paid for renewal of the lease is as under viz
a) Lease renewal [24,435 sq mtr x Re 1 x 99 years] 24,19,065/-
b) Premium on lease renewal [24,43 5 sq mtr x Rs. 52,250] 1,27,67,28,750/-
The aforementioned amount is to be paid in 5 instalments, annually.
4. The applicant, being a non-profit association, with the primary activity as listed supra, lacks such huge funds & therefore the payment which has to be made will have to be recovered from the owners of the shops in the Surat Textile Market, who are also shareholders of the applicant.
5. In view of the foregoing, the applicant has sought advance ruling on the below mentioned questions viz
(i) Do we have to pay tax under Reverse Charge Mechanism u/s 9(3) or 9(4) for lease renewal amount payable to SMC ?
(ii) Do we have to pay tax under Reverse Charge Mechanism u/s 9(3) or 9(4) for premium on lease renewal amount payable to SMC ?
(iii) Will collection made from shareholders/shop owners for making payment of lease and lease premium amounts be considered as supply and GST under forward charge is applicable on the same?
(iv) What will be the effect of circular no. 101/20/2019-GST dated 30.4.2019 on the transaction? Will it exempt the applicant from payment of tax under Reverse Charge Mechanism?
(v) If answer to question no. (iii) is in affirmative, then will applicant’s shareholder/shop owners who are reimbursing the lease and lease premium amount get ITC of the GST charged by the applicant’?
6. Personal hearing was held on 29.8.2023 wherein Shri Abhishek Soni, CA, appeared and reiterated the facts as stated in the application.
Discussion and findings
7. At the outset, we would like to state that the provisions of both the CGST Act and the GGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the GGST Act.
8. We have considered the submission and additional submission made by the applicant in their application for advance ruling as well as submissions made during the course of personal hearings. We have also considered the issue involved, the relevant facts & the applicant’s submission/interpretation of law in respect of questions on which the advance ruling is sought.
9. Before moving further, it would be prudent to reproduce the relevant provision in vogue for the sake of ease of reference viz.
Section 7. Scope of supply.-
(1) For the purposes of this Act, the expression – “supply” includes-
(a) 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;
I[aa) the activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration.
Explanation .-For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in .force or any judgment, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another;]
(b) import of services for a consideration whether or not in the course or furtherance of business; 2 [and:]
(c) the activities specified in Schedule I, made or agreed to be made without a consideration: 3[.****]
(d) 4 [****].
*Enforced w.e.f: 1st July 2017.
1. Inserted w.e.f: 01st July, 2017 by s. 108 of The Finance Act, 2021 (No. 13 of 2021) – Brought into force on 01st January, 2022 vide Notification No.. 39/2021-C.T:, dated 21st December, 2021.
10. Multiple issues have been raised by the applicant. The first issue on which ruling is sought is whether the applicant is liable to pay tax under Reverse Charge Mechanism [RCM] u/s 9(3) or 9(4) on lease renewal, payable to SMC. Section 9(3) of the CGST Act, 2017 empowers the Government to issue notification, on the recommendations of the GST Council, specifying categories of supply of goods or services or both wherein tax shall be paid on RCM basis by the recipient,. Section 9(4), ibid, on the other hand, empowers Government to issue a notification to specify a class of registered persons who shall in respect of supply of specified categories of goods or services or received from an unregistered supplier, pay tax on RCM basis In this connection, we find that Notification No. 13/2017-Central Tax (Rate), dated 28-6-2017 has been issued viz
[Notification No. 13/2017-Central Tax (Rate), dated 28-6-2017]
Payment of CGST on specified services on Reverse Charge basis
In exercise of the powers conferred by sub-section (3) of section 9 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government on the recommendations of the Council hereby notifies that on categories of supply of services mentioned in column (2) of the table below, supplied by a person as specified in column (3) of the said table, the whole of central tax leviable under section 9 of the said Central Goods and Services Tax Act, shall be paid on reverse charge basis by the recipient of the such services as specified in column (4) of the said Table:-
TABLE
