Impact of Covid 19 on Real Estate Sector under GST

# Introduction:

It is well known that the large number of businesses in India are rented shops or offices or godowns and mostly in metros like Delhi,Mumbai, Bangalore, Kolkata etc. The sluggishness of the economic phase in India due to Covid 19 led to a situation that a lot of them became unable to pay the rent. Due to the lockdown on account of COVID 19 Pandemic, the Lessee/Tenant could not use the rented property for the intended purposes.

# What is an Issue??

Renting of Commercial Property is treated as continuous supply and hence GST is payable on accrual basis. Now the question arises whether the rent is payable for such lockdown period and if yes, what would be the value of supply in case the rent amount is being modified or postponed or waived off .

# Considerations by authority:

Initially the Central Government had issued directives not to collect rent during such lockdown period. Later, these directions were challenged in the Court where it held that the issue regarding waiver, remission or suspension in rental payment would depend on the type of arrangement between the Landlord and the Tenant.

There may be following arrangements:-

• Contract containing ‘Force Majeure’ clause or any other clause: Force majeure means an event which is beyond the control of people. In such case, Contract becomes void .
• In absence of such clause: Here the Tenant may invoke the doctrine of ‘Frustration of Contract’. This doctrine applies to the situations where performance of contract become impossible. Hence again Contract becomes void. However, Such Doctrine would not apply in cases of leases which are of executory nature.

NOTE: The provisions would not apply where the Landlord itself waived off the rent amount. For instance, in case of DLF , it has waived off 75% of the amount of rent for its tenants for the period starting from 23rd mar till 15th Jun and 50% thereafter till the lockdown period.

# What are GST provisions??

Section 15 of CGST Act talks about the value of taxable supply as ‘ The value of supply of Goods or Services or Both shall be the transaction value i.e. the price actually paid or payable for the said supply of Goods or Services or Both where –

• The Supplier and the Recipient are not related, and
• Price is the sole consideration.

# Conclusion:

GST is payable when there is a supply , otherwise value shall be nil.

Hence, when contract becomes void , it would not tantamount to Supply. Also there is no need to issue Tax invoice in such case.