Note on Sole Concessionaire under GST
Under GST, as given under explanation to Section 15 of the Central GST Act,2017, the term ‘related person’ includes persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, of the other. Now it is time to understand about what the meaning of Sole agent, Sole distributor, and Sole concessionaire is.
- As per Sec 182 of Indian Contract Act, 1872, An “agent” is a person employed to do any act for another, or to represent another in dealings with third persons.
- As per Sec 2(5) of CGST Act,2017, “Agent” means a person, including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another;
- A sole agency contract is one where the agent expects to be the only one with the right to sell as per the contract entered. In such case, the agent is said to be a Sole agent.
- A sole distributor is the only distributor of the supplier’s product in a defined territory, where as it is to be noted that sole distributor is to be separately understood from exclusive distributor.
- An exclusive distributor is the only one to sell the supplier’s product in a defined territory.
- Concessionaire as per Oxford dictionary means “the holder of a concession or grant, especially for the use of land or commercial premises or for trading rights”.
- As per Cambridge dictionary, it means “someone who has been given a concession to sell or do something”.
- As per Business dictionary website, Concessionaire is explained more clearly to understand in GST terms. Concessionaire means “Person or firm that operates a business within the premises belonging to another (the grantor) under a ‘concession’, usually as the only seller of certain goods or services”.
- In business English, “Concession” means a person or company who has an official permission from a government or a company to do business in a particular place.
- “Concession agreements” refer to agreements between the owner of a facility and the concession owners or concessionaires that grant the latter exclusive rights to operate a specified business in the facility under specified conditions.
- In India, concessions are an especially feasible way of carrying out Public Private Partnership (PPP) projects when state or local authorities need to mobilize private capital and know-how to supplement scarce public resources. Under a concession arrangement, the ownership of the project asset remains with the authority, while constructive possession of the assets is passed on to the concessionaire together with certain rights and obligations in relation to the project. On expiry or termination of the Concession Agreement, all the project assets (including assets purchased by the concessionaire for the purpose of the project) revert to the authority.
- Some examples for concession agreement are:
- Concession Agreement for the Development, Construction, Operation and Maintenance of the Bangalore International Airport between Ministry of Civil Aviation, Government of India and Bangalore International Airport Limited 5th July 2004.
- Concession Agreement for the Development, Construction, Operation and Maintenance of the Hyderabad International Airport between Ministry of Civil Aviation, Government of India and Hyderabad International Airport Limited 20th Dec 2004.
- Various NHAI (and State authorities or State-owned development corporations for construction of roads) agreements with concessionaires for construction of public roads.
- Therefore, any concessionaire who is being only person to enter into a concession agreement with another party to agreement is to be considered as “Sole concessionaire”.
GST implications involving a concessionaire:
- Taxation on the transactions involved in the concessionaires is always complicated. One needs to understand the various persons and activities involved in it. The government or its agency shall provide the land to the concessionaire for a consideration of either upfront fee or for annuity. This would be renting of immovable property supply. Then the concessionaire himself may build/construct the required infrastructure on the said land or he may sub-contract it. If the same is subcontracted, the contractor will charge GST and the same becomes inward supply to the concessionaire. Further, the concessionaire shall provide the service to the ultimate end user. This could be in the nature of renting of immovable property service, business support service, management, maintenance or repair service, sale of space for advertisement, etc. It is also possible that the concessionaire may fully outsource the commercial exploitation of the infrastructure developed to another person and may receive consideration for the same. All these types of arrangement would amount to supply and liable for payment of GST.
- Annuity amounts received by concessionaires from NHAI for construction of highways is exempt: Exemption to annuity paid by NHAI (and State authorities or State-owned development corporations for construction of roads) to concessionaires for construction of public roads vide notification no. 32/2017 dated 13.10.2017 by inserting entry 23A – “Service by way of access to a road or a bridge on payment of annuity”.
Conclusion: After understanding from above, persons who are associated in business of one another & one of the persons falling within the meaning of Sole agent & Sole distributor and Sole concessionaire are to be treated as related persons under GST. Therefore, any agreements or concession agreements entered with a Sole agent/distributor or Sole concessionaire respectively regarding “agency/commission fee” or “concession fee” (as the case may be) are subject to compliance with valuation provisions under Rule 28 of CGST Rules. Any services provided or agreed to provide without consideration are subject to GST considering as an activity under Schedule I of CGST Act,2017.