I. Introduction
Recently, it is experienced that when a business applies for new registration in a rented premises, the GST Dept. is asking for registered rent agreement. And if the rent agreement is not registered, the GST registration is being rejected on that ground alone. In Maharashtra, section 55 of the Rent Control Act 1999 is quoted in support of such a requirement. In this article, we will discuss whether such a demand by GST Department is legally valid and whether the interest of the GST Department is adversely affected if the rent agreement is unregistered.
II. Can GST Department reject GST registration only because the rent agreement is unregistered?
In view of the author, GST Department cannot reject GST registration only because the rent agreement is not registered. Because, neither the GST Act nor GST Rules nor any GST notification mandates that rent agreement should be registered if the taxpayer wants to take GST registration in rented premises. Section 55 of Rent Control Act mandates registration of the rent Agreement to protect the interest of the tenant. If the agreement is unregistered, then the section provides that the terms as stated by the tenant shall prevail unless otherwise proved by the landlord. Sec 55 further prescribes punishment to the landlord for non registration of the rent agreement. But this section nowhere invalidates the tenancy or the fact of occupation or use of the premises by the tenant / licensee. Whether section 55 applies to Leave and License is another matter of interpretation. Because section 55 covers tenancy, and licensee is not a tenant. However, what is relevant here is that section 55 does not seek to disregard the fact of possession or occupation or tenancy merely because the rent agreement is unregistered. This section only deals with rights and duties and legal position of the parties namely the tenant and the landlord. In the absence of specific enabling provisions in GST legislation, this section 55 of RCA 1999 cannot be the basis for GST authorities to reject GST registration because the rent agreement is unregistered.
III. Is the interest of the GST Department adversely affected if the rent agreement is unregistered?
As discussed above, the registration of rent agreement only deals with the rights and liabilities between the parties viz. tenant and the landlord, and it does not adversely affect the interest of the GST Department. Since both the tenant and Landlord have admitted the fact of tenancy, the principle of estoppel (u/s 115 of the Evidence Act) will apply to both of them and none of them can take a stand that there was no tenancy / license given to the tenant / licensee. It is true that as per section 17 of Registration Act 1908, a lease agreement for the period more than one year is required to be registered. If it is not registered, then u/s 49C of the Registration Act, the same cannot be produced as evidence of any transaction affecting such property. But this does not compromise the interest of GST Department. Because the interest of GST Department in such rented property of the tenant taxpayer is limited to the access to the premises and sealing of the premises in extreme cases. These are not “transaction affecting such property”. And even they are, then also both tenant and the landlord are bound by the principle of estoppels as discussed above and the interest of the GST Department is not compromised.
IV. Solutions if GST registration is rejected for unregistered rent agreement
It is desirable and recommended that the rent agreement should be registered as contemplated by the Maharashtra Rent Control Act 1999 or Registration Act 1908. In the state of Maharsahtra, the Govt. has appointed several private franchise holders for registration who provide registration facility in easy and time and cost effective way. However, if at all for some genuine reasons, the rent agreement is not registered and a GST registration is rejected, the only remedy is appeal. At clarification stage, the taxpayer can clarify that if it is a Leave and License for 11 months, the taxpayer can clarify that Tenancy Agreement requires registration under RCA and this is Leave and License agreement which does not require registration under MRCA. Further, since the term is less than one year, registration under Registration Act 1908 is not required. And if the businessman has urgency of registration, he may obtain registration at the residence of the proprietor / partner / director which can be done with consent letter. Later he can add the desired rented premises as additional POB. In that case, even if there is rejection, he can afford to spend time in appeal as his GST registration is not delayed.
V. Appreciating the intention of the officers to protect revenue and to curb run away fraudsters:
Previously, GST Department was not strict about the registration of rent agreement. However, after the cases of fake ITC and bogus dealers increased, now the GST registration is being granted by the Department very cautiously. This is correct on the part of the officers. However, a proper balance should be ensured that genuine businessmen do not suffer because of few miscreants. Because, without GST registration, a person who has crossed threshold turnover, cannot do business. Several High Courts have given assessee favouring decisions regarding revocation of GST registration. While the miscreants must be dealt with as strictly as possible, genuine upcoming businesses should not suffer because of them.
VI. Conclusion :
If based on the facts of the case, the rent agreement is required to be registered as per MRCA / RA, the parties must get it registered. If, based on their interpretation, it does not require registration, they may clarify to GST officer the reasons for non registration.
VII. Disclaimer
This article is for educational purpose only and does not constitute any advice. Readers should use their own discretion and take their decisions and positions at their own responsibility. The above article is based on the author’s interpretation of the relevant Laws. In view of the complexity of Property Law and Rent Control Act read with Evidence Act, it is possible that there will be divergent views on the subject. The author does not encourage non registration of rent agreement wherever it is legally required to be so done.
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