Partner providing rent-free property to partnership firm constitutes taxable supply under Section 7(1)(a) and Schedule I

The AAR Tamil Nadu held that a partner providing rent-free property to a partnership firm constitutes a taxable supply under GST. The partner, who owned properties and held 2/3rd partnership shares as Managing Partner, was deemed to be providing services in course of business furtherance. Since the partner and firm are separate but related persons, the rent-free accommodation qualifies as supply without consideration under Section 7(1)(a) read with Schedule I of CGST Act, 2017. The economic benefit accruing indirectly through firm profits makes this a taxable transaction. Valuation must follow Rule 28 of CGST Rules, 2017, using open market value or comparable property rates for related person transactions.

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Issues Involved:
1. GST liability on property used by the partnership firm at free of rent.
2. Relevant section or rule under GST law for GST on notional rent.
3. Mandatory execution of rental deed between partner and partnership firm.
4. Applicable valuation rule when consideration is not fixed and not received.

Issue-wise Detailed Analysis:

1. GST Liability on Property Used by Partnership Firm at Free of Rent:
The applicant, a managing partner in a partnership firm, owns properties used by the firm without charging rent. The Advance Ruling Authority examined whether this arrangement attracts GST liability. According to Section 7(1)(a) of the CGST Act, 2017, "supply" includes all forms of supply of goods or services made for a consideration by a person in the course or furtherance of business. The property used by the firm is considered a "supply" even if no rent is charged, as per Schedule I of the CGST Act, which treats transactions between related persons as supply even without consideration. The applicant and the partnership firm are "related persons" under Section 2(84) and Section 15 of the CGST Act.

2. Relevant Section or Rule Under GST Law for GST on Notional Rent:
The ruling clarified that the supply of property by the partner to the partnership firm, even without consideration, is taxable under Section 7(1)(a) read with Schedule I of the CGST Act, 2017. The valuation of such supply should follow Rule 28 of the CGST Rules, 2017, which stipulates that the value of supply between related persons should be the open market value or, if not available, the value of supply of like kind and quality.

3. Mandatory Execution of Rental Deed Between Partner and Partnership Firm:
The question regarding the mandatory execution of a rental deed was deemed procedural and not answered. However, it was clarified that the activity of renting property to the partnership firm is in furtherance of business, and thus, subject to GST.

4. Applicable Valuation Rule When Consideration is Not Fixed and Not Received:
The valuation of the supply of property to the partnership firm, when no rent is charged, should be determined as per Rule 28 of the CGST Rules, 2017. This rule requires the adoption of the open market value or, if not available, the value of supply of like kind and quality. The financial statements showed that the applicant had charged rent post-GST implementation, indicating that the supply was not entirely without consideration.

Ruling:
1. GST is liable to be paid on properties rented out by the applicant to the partnership firm even if it is free of rent, as the activity is in furtherance of business and amounts to supply under Section 7(1)(a) read with Schedule I of the CGST/TNGST Act, 2017.
2. The value for GST purposes shall be determined as per Rule 28 of the CGST/TNGST Rules, 2017.

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