Introduction:
In regard to applicability of GST on renting of residential dwelling, Sl. No. 12 of Notification No. 12/2017-CT (Rate) dated 28-6-2017 is relevant which mandates that services by way of renting of residential dwelling for use as residence is exempted from payment of GST. Now in this regard an interesting issue that can arise is whether such an exemption would be available when residential dwelling is rented to a commercial entity for residential use of its employees.
On the above issue West Bengal AAR ruling in the case of Borbheta Estate (P.) Ltd., [2019] is relevant wherein the AAR adjudged that exemption would be available if such dwelling is used for residential use of employees.
Let briefly discuss the above case.
Facts of the Case:
Applicant has executed agreements for leasing/renting of four dwelling units it owns at different locations in Kolkata. According to the agreements, all of these units are to be used for residential purpose. Three flats have been rented to individuals and one flat (Flat No. 4H, Tower III, South City, Prince Anwar Shah Road, Kolkata – 700068) has been let out to M/s Larsen & Toubro Ltd.
Question of which ruling was sought:
1: Whether supplier is liable to pay GST on renting or leasing of dwelling units for residential purpose?
2: What would be the impact on the taxability if the dwelling units are rented to commercial entity like M/s Larsen & Toubro Ltd although for the purpose of residence of their employees?
Arguments of the Applicant
Applicant argued that he is not liable to pay tax on leasing or renting of dwelling units, as they are all let out for residential purpose, and services by way of renting of dwelling units for residence is exempted under Sl. No. 12 of Notification No. 12/2017-CT (Rate) dated 28-6-2017 (corresponding State Notification No. 1136 – FT dated 28-6-2017), as amended from time to time (hereinafter the Exemption Notification).
Highlights and Ruling in order of AAR:
- Dwelling units rented to individuals, as described in relevant contracts, are meant for residential accommodation. Dwelling unit rented to M/s Larsen & Toubro Ltd is a flat in the housing complex named South City. The South City Apartment Owners’ Association certified that Applicant owned the flat and it is a residential flat and cannot be used for any other purpose. The said association further confirms that an employee of M/s Larsen & Toubro Ltd is staying at the flat.
- The Applicant’s service is classifiable as rental or leasing service involving own/leased residential property (SAC 997211). Applicability of Sl. No. 12 of the Exemption Notification depends upon whether the dwelling unit is used as residence.
- AAR observed that documents produced reveal that all the dwelling units are being used for residence, irrespective of whether they are let out to individuals or a commercial entity. The Applicant’s service of renting/leasing out the dwelling units for residential purpose is, therefore, exempt under Sl. No. 12 of the Exemption Notification.
In view of above the AAR held that the Applicant’s service of renting/leasing out the dwelling units for residential purpose, is exempt under Sl. No. 12 of Notification No. 12/2017-CT (Rate) dated 28-6-2017 (corresponding State Notification No. 1136 – FT dated 28-6-2017), as amended from time to time. The Applicant is, therefore, not liable to pay tax on supply of such service.
Our View:
The ruling is appreciable considering that AAR went into substance of the transaction viz use for residence of employees, rather than on the form viz renting by commercial entity. The ruling reinforces that even if the dwelling unit is being let out to commercial entity, still such supply would be exempt if they are used for residential purposes of employees.
However in case such residential dwelling is not used for residential purposes such renting will lose its exemption and GST shall be applicable thereon.
The order of the West Bengal AAR can be read as under:
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