In re Deepak Jain (GST AAR Rajasthan)
GST AAR Rajasthan ruling on Deepak Jain’s commercial property lease clarifies GST implications on residential dwellings, emphasizing actual use over designation.
In a recent ruling by the Authority for Advance Ruling (AAR) in the case of Deepak Jain, a Chartered Accountant based in Jaipur, the question of whether the lease of a property for commercial use qualifies as a supply of service under the Goods and Services Tax (GST) Act was addressed. The ruling sheds light on the implications of the recent changes in the taxability of residential dwellings under the GST framework.
Background
Deepak Jain, the applicant, is the owner of a property located at J-10, Lal Kothi Scheme, Sahakar Marg, Jaipur, Rajasthan. The property, referred to as the “Demised Premises,” was leased to Back Office IT Solutions Private Limited for commercial purposes. The applicant sought clarification on the GST implications of leasing the property for commercial use.
The Legal Framework
Before July 18, 2022, the leasing of residential dwellings for use as a residence was exempt from GST, while the leasing of residential dwellings for commercial use was taxable at 18%. However, with changes introduced on July 18, 2022, the leasing of residential dwellings for use as a residence by a registered person became subject to GST under the reverse charge mechanism.
Applicant’s Submissions
The applicant, Deepak Jain, argued that the Demised Premises, though designated as residential by the Jaipur Development Authority (JDA), was intended and used for commercial purposes. The lease agreement explicitly stated that the property would be used solely for commercial activities, and the electricity connection was categorized as “medium industry.”
AAR Findings and Analysis
1. Commercial Use of Property: The AAR found that the property in question had been leased for commercial use based on the terms of the lease agreement and the electricity connection’s commercial categorization.
2. Changes in Taxability: The AAR clarified that the recent changes in taxability, effective from July 18, 2022, brought leasing of residential dwellings for commercial use under the forward charge mechanism (FCM). The lessor (owner) is now liable to pay GST on such transactions.
3. Definition of Residential Dwelling: The ruling emphasized that the definition of a residential dwelling was not explicitly provided in the GST law. However, factors such as the purpose for which the dwelling is used and the length of stay intended by the users were deemed crucial.
4. Relevant Precedents: The AAR referred to precedents from Andhra Pradesh, where it was held that premises not built or used for residence but for the furtherance of a business, such as running hostel accommodations, do not qualify as residential dwellings.
Conclusion
In conclusion, the ruling clarified that the Demised Premises, even though designated as residential by local authorities, was used for commercial purposes as per the lease agreement. Therefore, the lease of the property for commercial use falls under the forward charge mechanism, making the lessor liable to pay GST. This ruling provides insights into the evolving landscape of GST implications on property leases and emphasizes the importance of the property’s actual use over its designated category.
It is crucial for property owners and lessees to be aware of the GST implications and seek professional advice to ensure compliance with the evolving tax regulations. The ruling sets a precedent for similar cases and highlights the need for clarity in defining residential dwellings under the GST framework.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING,RAJASTHAN
Note: Under Section 100 of the CGST/RGST Act, 2017, an appeal against this ruling lies before the Appellate Authority for Advance Ruling constituted under section 99 of CGST/RGST Act, 2017, within a period of 30 days from the date of service of this order.
At the outset, we would like to make it clear that the provisions of both the CGST Act and the RGST 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 provision under the RGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / RGST Act would be mentioned as being under the “GST Act”.
The issue raised by M/s DEEPAK JAIN (hereinafter referred to as “applicant”) is an un- registered applicant engaged in providing Professional service of Chartered Accountant and currently Senior Partner in B D Jain & Co. Chartered Accountants. Applicant is owner (along with family members Shri Padam Chand Jain, Smt. Manju Devi Jain and Smt. Samta Jain hereinafter collectively referred to as “Lessor(s)”) of property situated J-10, Lal Kothi, Sahakar Marg, Jaipur, Rajasthan-302018 (hereinafter referred to as the Demised Premises)is fit to pronounce advance ruling as it falls under the ambit of the Section 97(2) (a), (b) & (e)given as under:
(a) Classification of any goods or services or both;
(b) applicability of a notification issued under the provisions of this Act;
(c) determination of the liability to pay tax on any goods or services or both;
A. SUBMISSION OF THE APPLICANT:(in brief)
A. Deepak Jain (hereinafter referred to as the “Applicant”) is engaged in providing Professional service of Chartered Accountant and currently Senior Partner in B D Jain & Co. Chartered Accountants. Applicant is currently unregistered under GST Act 2017. Applicant is owner (along with family members Shri Padam Chand Jain, Smt. Manju Devi Jain and Smt. Samta Jain hereinafter collectively referred to as “Lessor(s)”) of property situated J-10, Lal Kothi, Sahakar Marg, Jaipur, Rajasthan-302018 (hereinafter referred to as the Demised Premises). The applicant has entered into lease agreement dated 18/01/2022 with Back Office IT Solutions Private Limited, a company incorporated in India within the meaning of Companies Act, 1956 and an existing company under the Companies Act, 2013 with company identification number (CIN) U72200RJ2000PTC016780 having its registered office at F-220-225, EPIP IT Park, Sitapura, Jaipur – 302022 (hereinafter referred to as the “Lessee” which expression shall unless repugnant to the context or meaning thereof, mean to include its successors and permitted assigns) which is inter alia engaged in the business of providing comprehensive, independent fund accounting, reporting, and analytics solutions to fund administrators providing administration services to hedge fund industry.
The Lessors are the absolute owners of the premises. The Lessor(s) and the Lessee have agreed to lease the Demised Premises on terms and conditions as specified attached Agreement. As per terms of the Lease agreement, in consideration of grant of lease to use and possess the aforesaid property, the lessee is required to pay to the applicant a monthly rent of Rs. 99,125/- (Total of Rs. 3,96,500/-.to the Lessors).
Further, as per the terms of the lease agreement, the lessee has the right to sub-lease the aforesaid property during the lease term to any third party with prior intimation to the applicant for the purpose of business of lessee.
B. Land use of property is residential. Lease deed issued by Jaipur development Authority(JDA), Jaipur in the respect of the Demised premised is Residential.
C. As per Lease Agreement the Demised Premises shall be used solely for commercial purposes by the Lessee i.e. for establishing the branch/office of the Lessee. Construction of property is done for use as commercial purposes only.
D. Lessee is registered in GST Act and having GSTIN: 08AABCB5008K1ZT.
E. Electricity connection Category of Lessee is “medium industry”. Copy of latest electricity bill attached.
F. The Lessor has, at their own cost, provided the Demised Premises to the Lessee with the necessary installations, erections, fixtures and set ups including but not limited to lifts, internal partitions, walls, electrical, sanitary and other fixtures and fittings, counters, vaults, lockers, cabinets, doors, gates, air-conditioners, provision of drinking water equipment’s, false ceiling (grid type), flooring in the Demised Premises.
G. DESCRIPTION OF THEDEMISED PREMISES: –
Address: J-10, J BLOCK, LAL KOTHI SCHEME, SAHAKAR MARG, JAIPUR, RAJASTHAN -302015
1. Complete Basement:1600 SQFT with cafeteria furnishing
2. First Floor:1100 SQFT(Super Built up Area) 30 Workstations
3. Second Floor:2600 SQFT(Super Built up Area)70 Workstations
4. Third Floor: 2600SQFT(Super Built up Area)70 Workstations
5. Ground Floor: Parking as per agreed proportion
6. Tank for Water Storage
H. RENT INCLUSIVE INSTALLATIONS AND SERVICES
INSTALLATIONS AND SERVICES IN THE SCOPE OF THE LESSOR
1. Workstations with Network wiring& Electrical Power points as per approved Layout & Design by Lessee
2. Lift
3. Chairs as per approved Design by Lessee
4. AC/VRV
5. Lights as per approved make and Lux level approved by Lessee
6. False Ceiling-Grid Type
7. Blinds on Glazing Sides
8. Exhaust in Pantry & Washrooms
9. Flooring
10. Fire Alarm & Smoke Detections Setup
11. Electrical Panel and Transformer for required capacity as per floor
12. Water Connection & Storage Tank
13. Washrooms-Separate for Male & Female on each floor
14. Meeting Rooms-2 on each Floor
15. Parking will be lent out in proportion of each floor, till no other user, it can be completely used by Lessee.
Cafeteria Furnishing:
1. Tables & Chairs for Seating as per maximum setup available at basement.
2. Air-conditioning & Lighting
3. Washbasin Area and drinking water inlet/Outlet with Sump pump
B. Interpretation and understanding of applicant on question rose (in Brief) The applicant submitted his interpretation which is as under:-
A. Renting of an immovable property is considered a supply of service under GST Act 2017. Upto 17th July 2022, renting of residential dwelling for use as residence was exempted whereas services by way of renting for commercial use (SAC Code —997212) was taxable @ 18%. However, the taxability of renting of residential property under GST has changed from 18th of July 2022. The decision to bring the renting of residential dwellings under the tax net was taken in the 47th GST Council Meeting held on 28th to 29th June 2022 by partially removing the exemption and including the same under RCM services when provided to a registered person. Two notification were issued in this regard one is notification No. 04/2022-Central Tax (Rate) dated the 13th July, 2022 and second is notification No. 05/2022-Central Tax (Rate) dated the 13th July, 2022.
Commercial property is still taxable as forward charge mechanism.
Taxability on Renting of residential dwellings:
