GST on reimbursement of municipal property tax by lessee / occupier

In re Kolay Properties Ltd (GST AAR West Bengal)

Authority for Advance Rulings (AAR), West Bengal, examined the applicability of GST on the reimbursement of municipal property tax by a lessee in the case of Kolay Properties Ltd. The applicant had entered into a lease agreement with Andhra Bank (later merged into Union Bank of India) for premises in Kolkata. Under the lease, the bank was obligated to reimburse 50% of the municipal property tax paid by the lessor. The applicant sought clarity on whether GST should be applied to this reimbursement.

The applicant argued that property tax is a statutory levy under the Kolkata Municipal Corporation Act, 1980, and falls within the ambit of Section 15(2)(a) of the CGST Act, 2017. This section states that any taxes, duties, cesses, or fees imposed under a law other than the GST Act and charged separately by the supplier should be included in the value of taxable supply. The applicant contended that lease rent alone should be considered the transaction value, and municipal tax reimbursement should not be subjected to GST.

The Revenue, however, argued that since property tax reimbursement is not covered under Schedule III of the GST Act (which lists non-taxable supplies), it should be included in the value of supply under Section 15. The officer also highlighted that property tax itself is not a supply of goods or services under GST, but if it is charged separately by the lessor to the lessee, it becomes part of the taxable value.