Registered Tenant, Unregistered Owner - Who Should Receive the Maintenance Invoice under GST?

The Commercial Arrangement Creates a Genuine GST Question

A common commercial arrangement raises an interesting GST issue. Suppose Aayra Developers, a registered developer, has allotted two commercial shops to Mr. R, an individual not registered under GST. Mr. R subsequently lets out these shops to Harpreet Ltd., a company registered under GST. Apart from rent payable to Mr. R, maintenance charges for the commercial complex are payable to Aayra Developers.

Since Mr. R is unregistered, a practical difficulty arises. If Aayra Developers raises the maintenance invoice in Mr. R's name, the GST charged on maintenance may become a cost, as Mr. R cannot avail ITC. Harpreet Ltd., on the other hand, is GST-registered and uses the shops for its business. The parties therefore consider an arrangement under which Harpreet Ltd. would directly pay the maintenance charges to Aayra Developers, and the developer would issue the tax invoice in the name and GSTIN of Harpreet Ltd.

At first sight, this may appear commercially reasonable because Harpreet Ltd. occupies the premises and actually enjoys the maintenance facilities. However, GST does not determine entitlement to ITC merely by asking who ultimately enjoys the economic benefit or who makes the payment. The more fundamental question is: who is the recipient of the maintenance service under the underlying contractual arrangement?

The Statutory Meaning of "Recipient" Is the Starting Point

Section 2(93) of the CGST Act, 2017 is of central importance. Where consideration is payable for a supply of goods or services or both, the "recipient" is the person liable to pay that consideration. Accordingly, in a case involving maintenance services for which consideration is payable, identifying the recipient requires examining who bears legal liability for paying the maintenance charges.

This must be read with Section 2(31), which defines "consideration" broadly. Payment for a supply may be made by the recipient or by any other person. Consequently, the person making the payment and the recipient of the supply need not be the same person. If, under the original allotment or maintenance agreement, Mr. R alone remains liable to pay maintenance charges to Aayra Developers, the fact that Harpreet Ltd. directly pays those charges does not, by itself, make Harpreet Ltd. the recipient of maintenance service.

This distinction between liability to pay and actual payment is crucial. The GST position cannot be altered merely by directing the tenant to make the payment or by inserting the tenant's GSTIN in the invoice. The contractual relationship giving rise to the maintenance service must support the person shown as the recipient in the tax invoice.

Payment by the Tenant Does Not by Itself Transfer the Right to ITC

Suppose the original allotment agreement provides that every shop owner or allottee is liable to pay maintenance charges to the developer or maintenance agency. Mr. R then leases the shops to Harpreet Ltd. and provides in the lease agreement that the tenant will directly discharge those maintenance charges. If Aayra Developers retains its contractual right to recover maintenance from Mr. R, Harpreet Ltd.'s direct payment may merely represent payment of Mr. R's liability.

This is particularly significant because Section 2(31) of the CGST Act, 2017 expressly permits consideration to flow from a person other than the recipient. Thus, payment by Harpreet Ltd. cannot, by itself, establish that the maintenance service has been supplied to Harpreet Ltd. Similarly, the fact that the tenant physically occupies the premises and enjoys security, common-area maintenance, lifts, lighting, or other facilities is commercially relevant but does not alone determine the statutory identity of the recipient.

Accordingly, merely requesting Aayra Developers to replace Mr. R's name with Harpreet Ltd.'s name and GSTIN on the maintenance invoice would carry considerable risk. The invoice should reflect the underlying supply; the underlying supply should not be artificially reconstructed merely to produce an ITC-bearing invoice.

ITC Requires More Than Possession of an Invoice

The issue is more significant because Harpreet Ltd. ultimately intends to avail ITC on the GST charged by Aayra Developers. Entitlement to ITC cannot rest merely on possession of an invoice bearing the company's name and GSTIN. The statutory scheme requires the credit to relate to an inward supply actually made to the registered person, subject to fulfilment of the conditions prescribed under Section 16 of the CGST Act, 2017.

The tax invoice therefore has evidentiary significance, but it cannot operate independently of the transaction it records. Rule 46 of the CGST Rules, 2017 requires a tax invoice issued to a registered recipient to contain prescribed particulars relating to the recipient, including its name, address and GSTIN. Those particulars should identify the actual recipient of the underlying supply, rather than merely the person commercially interested in obtaining the credit.

If the Department subsequently examines the ITC claimed by Harpreet Ltd., it may go beyond the invoice and examine the allotment agreement, lease deed, maintenance agreement, correspondence between the parties, accounting treatment and payment arrangements. A mismatch between the invoice and the substantive contractual arrangement can therefore expose the ITC to dispute.

A Genuine Tripartite Arrangement Can Strengthen Direct Invoicing

The position can differ significantly when the commercial arrangement is prospectively restructured. A tripartite agreement or addendum may be signed among Aayra Developers, Mr. R, and Harpreet Ltd., stipulating that throughout the lease term, Aayra Developers will provide specific maintenance services directly to Harpreet Ltd., who will then be responsible for paying the agreed consideration to the developer.

Such an agreement should do more than just authorise the developer to include Harpreet Ltd.'s GSTIN on the invoice; it should clearly establish that Aayra Developers considers Harpreet Ltd. as the direct entity liable for the maintenance consideration during the lease, with Harpreet Ltd. accepting this liability in its own right. Mr. R must also authorise and agree to this direct arrangement. The developer's records, invoices, and accounting practices should consistently reflect this commercial structure.

This approach aligns more closely with statutory requirements since Section 2(93) defines the recipient as the person liable for paying consideration. If the tripartite arrangement genuinely makes Harpreet Ltd. directly responsible to Aayra Developers for the maintenance services, then the case for treating Harpreet Ltd. as the recipient is considerably stronger.

A Mere Direction by the Owner Is Not Equivalent to a Tripartite Restructuring

A distinction should therefore be maintained between two situations. In the first, Mr. R remains liable to Aayra Developers but merely instructs the developer: "My tenant will make the payment; kindly issue the invoice in the tenant's name." In substance, nothing may have changed except the payer's identity and the name appearing on the invoice. Such an arrangement poses a significant ITC risk.

In the second situation, Aayra Developers itself becomes a party to a genuine contractual modification under which Harpreet Ltd. assumes direct liability for the maintenance charges and Aayra Developers agrees to provide and bill for the maintenance services accordingly. This is not merely a payment instruction. It alters the legal relationship regarding the supply of maintenance during the tenancy.

This distinction matters because consideration can be paid by a third person without that person becoming the recipient. Therefore, the documents must establish not merely that Harpreet Ltd. will pay the maintenance charges, but that it is itself liable to pay Aayra Developers for the maintenance services supplied to it.

The Lease Agreement and Allotment Documents Must Tell the Same Story

The tripartite agreement cannot be considered in isolation. The original allotment agreement between Aayra Developers and Mr. R should first be examined to determine whether the maintenance obligation is permanently attached to the allottee or whether the contractual framework permits the occupier or tenant to become directly liable for maintenance. Similarly, the lease deed between Mr R and Harpreet Ltd. should align with the proposed direct arrangement.

If the allotment agreement continues to make Mr. R unconditionally liable to the developer, while the tripartite document simultaneously describes Harpreet Ltd. as solely liable for precisely the same charges, the inconsistency may itself invite scrutiny. Ideally, the documents should be amended or supplemented so that the rights and obligations of all three parties are internally consistent. The developer's customer master, maintenance ledger, invoices and receipt records should reflect the same arrangement.

This is particularly important in a real transaction because GST consequences follow the substance of the contractual and commercial relationship, not an isolated clause drafted solely for tax purposes. A well-drafted document is useful evidence, but its strength depends on whether the parties actually conduct themselves in accordance with it.

Direct Payment May Also Affect the Value of the Renting Service

Another issue should not be overlooked. Section 15(2)(b) of the CGST Act, 2017 provides for including in the value of a supply an amount the supplier is liable to pay in relation to that supply, which has been incurred by the recipient and is not already included in the price. Thus, where a landlord is contractually liable for an expenditure connected with the renting supply but the tenant incurs that expenditure on the landlord's behalf, a separate valuation question can arise.

Therefore, the lease agreement should clearly state whether maintenance is the landlord's obligation forming part of the renting arrangement, or whether the tenant independently contracts for and bears maintenance in its own right. Merely directing the tenant to discharge an expense that legally remains the landlord's responsibility can have consequences beyond the ITC issue.

This reinforces the need to examine the transaction as a whole. The question is not simply "Who should receive the maintenance invoice?" The corresponding questions are who contracts for the service, who is liable for its consideration, whether the payment discharges somebody else's obligation, and how the arrangement interacts with the value of the renting service.

Prospective Restructuring Is Safer Than Retrospective Rewriting

Where the existing documents identify Mr. R as the recipient and liable for maintenance charges, it would be inadvisable to revise old invoices retrospectively in favour of Harpreet Ltd. solely to enable the latter to avail ITC. Such retrospective alteration may be difficult to reconcile with the contractual position prevailing when the services were actually supplied.

A more defensible approach is prospective. The parties may examine the existing allotment, lease and maintenance arrangements and, where contractually permissible, execute an appropriate tripartite addendum from a clearly identified prospective date. Thereafter, the parties can invoice maintenance services consistently with the revised arrangement, provided they act in accordance with it.

This distinction also protects the developer. A registered supplier should not issue a B2B invoice containing a person's GSTIN merely because that person wishes to claim ITC. The developer should have documentary support demonstrating why that person is being treated as the recipient of the maintenance service.

Precautionary Note - Even a Tripartite Agreement Does Not Eliminate Litigation

A properly structured tripartite agreement undoubtedly makes direct invoicing to the registered tenant more defensible, but it should not be regarded as a litigation-proof solution. The Department may still examine the original allotment terms, lease deed, nature of the maintenance facilities, liability for payment, accounting entries, the actual flow of consideration, and the parties' conduct to determine whether the tenant is genuinely the recipient of the maintenance service.

If, despite the tripartite agreement, the substantive arrangement still shows that the maintenance liability belongs to the owner and that the tenant merely pays on the owner's behalf, the Department may dispute the tenant's ITC. Conversely, where the entire contractual framework genuinely transfers direct liability for the maintenance consideration to the tenant and the developer accepts the tenant as the recipient, the defence is considerably stronger. The distinction must rest on commercial substance, supported by consistent documentation, not merely on tax-efficient drafting.

Accordingly, the tripartite structure should be described as a more defensible arrangement rather than an assured ITC mechanism. In a substantial-value case, examine the precise wording of the allotment agreement, lease deed, and proposed tripartite addendum together before changing the invoicing pattern.

The Invoice Must Follow the Real Supply

The central principle is simple. GST invoicing should follow the underlying supply, and ITC should follow the genuine recipient of that supply. The fact that a registered tenant occupies the premises, bears the economic cost of maintenance, and wishes to avail ITC does not, standing alone, justify issuing the developer's invoice in the tenant's name.

At the same time, the law does not prevent a genuine commercial arrangement in which the developer directly supplies maintenance services to the tenant and the tenant becomes directly liable for the consideration. A properly structured tripartite arrangement can therefore provide a reasonable basis for direct B2B invoicing, provided it reflects the actual relationship among the parties and is consistently implemented.

The safest approach is therefore not to ask how the invoice can be issued so that ITC becomes available, but to first determine who is legally the recipient of the maintenance service. Once that question is answered by the agreements and the actual conduct of the parties, the invoice and the ITC consequence should ordinarily follow.

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