2018 (7) TMI 227 - AAR - GST

GST Applicable on Tenant Compensation for Alternate Accommodation & Delayed Possession

The Authority for Advance Ruling held that the compensation received by the tenant for alternate accommodation and delayed possession from the developer ... Supply - Consideration - Course or furtherance of business - Levy of tax on supply of services - Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act - Compensation for alternate accommodation - Damages for delayed handover of possessionSupply - Consideration - Course or furtherance of business - Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act - Compensation for alternate accommodation - Levy of tax on supply of services - GST is applicable on the compensation for alternate accommodation paid to the tenant by the developer/owner. - HELD THAT: - The Authority examined the tripartite redevelopment agreement and found that the tenant agreed to vacate and tolerate redevelopment in consideration of payments described as compensation for alternate accommodation. Under the GST Act 'supply' includes activities in Schedule II treated as supply of services; clause 5(e) of Schedule II treats 'agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act' as a supply of services. The amounts received by the applicant were linked to the act of vacating and tolerating construction and thus constituted consideration for a supply in the course or furtherance of business. Therefore the receipts characterised as compensation for alternate accommodation attract GST as consideration for supply of services.Compensation for alternate accommodation received by the tenant is liable to GST.Supply - Consideration - Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act - Damages for delayed handover of possession - Levy of tax on supply of services - GST is applicable on the compensation/damages for delayed handover of possession of the new premises paid to the tenant by the developer/owner. - HELD THAT: - The agreement provided for enhanced monthly payments and a specified damages amount if possession of the new premises was not handed over within the stipulated period. Those payments were tied to the tenant's agreement to tolerate the redevelopment and to the developer's failure to deliver possession on time. Such payments are consideration for the tenant's acceptance of or tolerance of a situation and for the developer's breach-related obligation; they therefore fall within the scope of 'supply' under Schedule II clause 5(e) as services. Consequently, these compensation/damages receipts attract GST.Compensation and damages received for delayed handover of the new premises are liable to GST.Final Conclusion: The Advance Ruling holds that the amounts received by the tenant as compensation for alternate accommodation and as compensation/damages for delayed handover of the redeveloped premises constitute consideration for services (within Schedule II clause 5(e)) and are therefore subject to GST. Issues Involved:1. Applicability of GST on compensation for alternate accommodation paid to the tenant by the developer/owner.2. Applicability of GST on compensation for alternate accommodation/damages for delayed handover of possession of new premises paid to the tenant by the developer/owner.Detailed Analysis:Issue 1: Applicability of GST on Compensation for Alternate AccommodationThe applicant, a tenant, vacated the premises for redevelopment by the developer. The developer agreed to pay the tenant Rs. 2,05,000/- per month for the first 24 months as compensation for alternate accommodation. This compensation is paid because the tenant agreed to vacate the premises, facilitating the redevelopment process. As per Section 7 of the GST Act, a supply includes all forms of supply of goods or services made for a consideration in the course or furtherance of business. The act of vacating the premises is considered as agreeing to the obligation to refrain from an act, which is treated as a supply of services under Schedule II, clause 5(e) of the GST Act. Therefore, the compensation received for alternate accommodation is subject to GST.Issue 2: Applicability of GST on Compensation for Delayed Handover of PossessionThe agreement also stipulated that if the developer failed to hand over the new premises within 24 months, the tenant would receive increased compensation for the delay. The compensation would be Rs. 2,25,000/- per month for the next 6 months and Rs. 2,47,000/- per month for the subsequent 6 months. If the delay extended beyond 36 months, the tenant would receive Rs. 5,00,000/- per month as damages. This compensation for delayed possession is also considered as agreeing to tolerate an act or situation, which falls under the definition of supply of services as per Schedule II, clause 5(e) of the GST Act. Consequently, GST is applicable on these amounts as well.Conclusion:The Authority for Advance Ruling held that the amounts received by the applicant, whether for alternate accommodation or for delayed handover of possession, are subject to GST. The compensation for vacating the premises and tolerating the delay in handover is considered a supply of services under the GST Act.Order:1. GST is applicable on the compensation for alternate accommodation received by the tenant.2. GST is applicable on the compensation for alternate accommodation/damages for delayed handover of possession of the new premises received by the tenant.The applicant has the right to appeal this order with the Appellate Authority, Advance Ruling Maharashtra, within the stipulated time frame and as per the prescribed procedure.