By, S.V.S. RAGHAVENDRA RAO, Advocate & Tax Consultant
Every Commercial property owner in India are in quagmire due to contradictory provisions on levy of GST on renting of commercial Property and Landed property.
So it is important to examine, the levy of GST on lease of Immovable property under Schedule II (2) versus exemption on sale of Land and Building under Schedule III.
“Sec 7(2)(a): activities or transactions specified in schedule III, shall be treated neither as a supply of goods nor a supply of services.”
“Schedule III. Activities or Transactions which shall be treated neither as a Supply of Goods nor a Supply of Services.
(5) Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.”
Thereby no GST is payable on supply of Immovable property like land and Building by the owner of the property.
But as per sec 7(1A) where certain activities or transactions, constitute a supply in accordance with the provisions of sub- section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II–
“Activities to be treated as supply goods or supply of services
(2). Land and Building ::
(b) any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services. “
(SAC 9972 :: Real Estate Services)
So it may construed that, both the Sub-sections Under sec 7 and Schedule Entries under Schedule II and III are contradicting with each other. Is this Against the law? Let us examine.
ELIGIBILITY OF ITC ON CONSTRUCTION OF AN IMMOVABLE PROPERTY, IF DONE AFTER OBTAINING GST REGISTRATION :
“Sec 16(1) of GST– Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in Section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.”
Therefore it is very clear that if any registered person who constructed Commercial Complex intended for Leasing for a consideration in furtherance of his business is eligible to take ITC under sec 16, provided the construction should takes place after obtaining registration under GST.
Sec 17(5)(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.
It seems the above section has limited scope in restricting ITC under GST, in circumstances where an individual constructs a Building as an unregistered persons under GST act for his own use or for letting out in the capacity of a Building owner. The same principle was affirmed by the Hon’ble Orissa High Court in the case of Safari Retreats (P.) Ltd. v. Chief Commissioner of Central Goods & Service tax, [2019] 105 taxmann.com 324/74 GST 500 as follow :
“…Retaining the property and is not using for his own purpose but he is letting out the property on which he is, covered under the GST, but still he has to pay huge amount of GST, to which he is not liable. In that view. of the Matter, in our considered opinion the provision of Section 17(5)(d) is to be read down and the narrow restriction as imposed, reading of the provision by the Department, is not required to be accepted, inasmuch as keeping in mind the language used in (1999) 2 SCC 361 (supra), the very purpose of the credit is to give benefit to the assessee. In that view of the matter, if the assessee is required to pay GST on the rental income arising out of the investment on which he has paid GST, it is required to have the input credit on the GST, which is required to pay under Section 17(5)(d) of the CGST Act.”
And the Hon’ble Custom, Excise & Service Tax Tribunal, Chandighar, in the case of Dlf Ltd v. Delhi Appeal No. 53907/2014, Dated 22-10-2019 adjudged that, “As the said issue has already been examined by this Tribunal in the case of DLF Cyber City Developers Ltd., vide Final Order No.60018/2018 dated 03/01/2018, this Tribunal has observed that the inputs, capital goods and input services used by the appellants for providing output services, in terms of Rule 2(a)(ii) of the Cenvat Credit Rules, 2004, the appellant is entitled to avail Cenvat Credit. Further, this Tribunal observed as “It is undisputed that the services are utilized for bringing to existence building which is used by the appellants for hospitability business and is used for rendering output services like mandap keeper and health club and fitness centre and dry cleaning service and internet café services. It is an unimaginable that a hotel can render these services without a building in its place. In our considered view, the input services are availed by the appellant in respect of works contract services, project management services and architectural professional services used for construction of a building, which subsequently is put into use for rendering taxable output services.”
Therefore it is very clear that the Input Tax Credit is Eligible against supply of Building or Land on Lease by Registered Tax Payers.
IS IT CORRECT TO LEVY ON RENTING OF IMMOVABLE PROPERTY – WHEN THE MATTER IS SUB-JUDICE :
The Hon’ble Supreme Court of India in the case of Union Of India v. Utv News Ltd.[2018] 93 taxmann.com 238/67 GST 444 on 5 April, 2018, adjudged that –
“The question arising is whether “service tax” under Section 65(105)(zzzz) of the Finance Act, 1994 on renting of immovable property or any other service in relation to such renting, for use in the
course of or, for furtherance of, business or commerce is within the legislative competence of the
Union Parliament. The above question is directly relatable to the scope and ambit of Entry
49 of List II of the Seventh Schedule to the Constitution of India dealing with “Taxes on
lands and buildings”. If the impost/levy is directly relatable to the lands/buildings contemplated
in Entry 49 of List II of the Seventh Schedule to the Constitution of India we would have had no
hesitation in saying that the Union Parliament would lack legislative competence to enact the
particular provision in the Finance Act, 1994. At this stage, we are unable to take the said view as
has been advanced before us on behalf of the individual Assessees. However, in the present case,
since prima facie there appears to be some conflict between the decision of this Court in State of W.B. v. Kesoram Industries Ltd. [(2004) 10 SCC 201] which decision has been delivered by a Bench
of five Judges of this Court and the decision delivered by a seven-Judge Bench of this Court in India Cement Ltd. v. State of T.N.[(1990) 1 SCC 12], reference to the Bench of nine Judges is
requested. The office is directed to place the matter on the administrative side before the Chief
Justice for appropriate orders.” In view of the above, we are of the opinion that these matters
should await the decision of the nine judges Bench where after the hearing of these matters will be
taken up once again in the course of which it will be open for the parties to urge such additional
points as may be considered relevant.”
Supreme Court – Daily Orders in Union of India v. UTV News Ltd. [2018] 93 taxmann.com 238/67 GST 444 (SC)
O R D E R :
C.A. No. 8390/2011 Let I.A. Nos. 67307, 67312, 67314 and 67317/2020 be listed along with IA No 67254/2020 INTERVENTION IMPLEADMENT after a week IA 71963/2020 in C.A. No. 9026/2011 List the application after a week (MEENAKSHI KOHLI (PRADEEP KUMAR) ASTT. REGISTRAR -cum-PS COURT MASTE
CONCLUSION :
(1) No GST can be levied on leasing or renting of Immovable property when sale of Land and Building are neither supply of goods nor supply of services and if the Revenue desires to levy consideration towards renting of Building or Land, it is mandatory to allow Input Tax Credit on all Inputs including Input Services.
(2) The levy of Service tax on letting of Building and Landed property is now sub-judice, so the levy may not be correct under GST, till the Larger Bench of Highest Court decides the Matter.
Disclaimer: Views and Opinions expressed in the article are my personal. This article do not construe any suggestion or a professional or legal advice.
Authored By, S.V.S. RAGHAVENDRA RAO, Advocate & Tax Consultant
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