2019 (4) TMI 805 - AAR - GST

GST not applicable on interest-free security deposits per AAR ruling

IN RE: E-SQUARE LEISURE PVT. LTD.

The Authority for Advance Ruling (AAR) ruled that GST is not applicable to interest-free security deposits as they are not considered as consideration ... Levy of GST - interest free security deposit - notional interest - whether the security deposit taken from lessee on account of security against damages, if any, caused to the furniture, equipment’s, fittings supplied along with the premises or any damage constitute consideration is vis a vis any supply under the provisions of GST Act? Held that:- The definition of consideration is inclusive and the consideration may be in cash or kind. The payment received will not be treated as consideration, if there is no direct link between the payment and supply. From the close scrutiny of above definition it is clear that there should be a close nexus between the payment and supply and thus any payment/exchange/barter etc would be treated as consideration for supply and liable to GST. Prima facie a conclusion can be drawn without much difficulty that a deposit given in respect of the supply shall not be considered as payment made for such supply unless the supplier appropriates such deposit as consideration for the said supply. The security deposit taken by the applicant is to secure or to act as a guarantee as per the terms of agreement against damages to the properties. Further, admittedly applicant has taken security deposit against the damages caused to the furniture, equipment’s, fittings supplied along with the premises or damage done to the properties. The undisputed fact is that the amount of deposit taken by the applicant is Rupees Fifty Seven Crore for the period of 18 years - in the subject case, the deposit received by the applicant cannot be treated as consideration for the supply made by the applicant and therefore they will not be liable to pay GST on such deposit amount received by them. The applicant, for leasing of commercial property has, in addition to rent, also collected interest free deposit from their lessee which is returnable on the completion of the tenure of the lease. Since the entire amount is to be returned back to their lessee, such deposits cannot be considered as consideration for such supply of services as mentioned by them and hence will not be liable to tax. Issues Involved:- Whether GST would be applicable on interest-free security deposits and notional interest, if any.- In case GST is applicable, what would be the value of notional interest for the levy of GST.Detailed Analysis:1. Applicability of GST on Interest-Free Security Deposits and Notional Interest:The applicant, engaged in renting immovable property for commercial purposes, sought clarification on whether GST applies to interest-free security deposits and any notional interest. The security deposit is taken as a guarantee against damages to the property, and it is refundable upon the lease's completion.The definition of 'consideration' under Section 2(31) of the CGST Act specifies that deposits given in respect of the supply of goods or services shall not be considered as payment unless applied as consideration for the said supply. The applicant argued that since the security deposit is refundable and not applied as consideration, it should not attract GST.The Authority for Advance Ruling (AAR) reviewed the facts and submissions, noting that the deposit is taken to secure against damages and is refundable. The AAR concluded that since the deposit is not applied as consideration for the supply, it does not constitute consideration under the GST Act. Therefore, GST is not applicable to the interest-free security deposit.2. Value of Notional Interest for Levy of GST:Given the conclusion that GST is not applicable to the interest-free security deposit, the AAR did not address the question regarding the value of notional interest for the levy of GST.Conclusion:The AAR ruled that GST is not applicable to interest-free security deposits. The question regarding the value of notional interest for levy of GST was not answered due to the conclusion on the first issue.Order:- Question: Whether GST would be applicable on interest-free security deposit and notional interest if anyRs.- Answer: GST is not applicable on interest-free security deposits.- Question: In case GST is applicable, what would be the value of notional interest for levy of GSTRs.- Answer: Not answered in view of the answer to the first question.