Service recipient cannot seek GST exemption ruling as only suppliers can claim exemptions under law

The AAR West Bengal rejected an advance ruling application filed by a service recipient seeking exemption from GST on upfront premium for land leasing services under entry 41 of Notification No. 12/2017. The Authority held that GST exemptions are intended for suppliers, not recipients, as suppliers are responsible for accounting outward exempt supplies to determine aggregate turnover and claim exemptions. Since the applicant was a service recipient rather than supplier, and any ruling would only bind the recipient and jurisdictional officers but not the supplier, the application was deemed inappropriate and rejected for lack of maintainability.

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Issues Involved:
1. Whether the applicant, as a recipient of services, can seek an advance ruling under the GST Act.
2. Applicability of exemption notification No. 12/2017-CGST (Rate) dated 28.06.2017 on the upfront lease premium paid by the applicant.

Issue-wise Detailed Analysis:

1. Whether the applicant, as a recipient of services, can seek an advance ruling under the GST Act:

The applicant entered a leasing agreement with Shyama Prasad Mookerjee Port, Kolkata (SMPK) for a 30-year lease of an industrial plot. The applicant paid an upfront lease premium of Rs. 39,00,11,000/- and was charged GST at 18% on this amount. The applicant sought an advance ruling on whether this upfront lease premium is exempt from GST under entry No. 41 of Notification No. 12/2017-CGST (Rate) dated 28.06.2017.

The Authority for Advance Ruling (AAR) observed that the application could not be accepted because, under Section 97 of the GST Act, an application for advance ruling can only be filed by the supplier of goods or services, not by the recipient. The applicant argued that the term "applicant" in Section 95(c) of the GST Act includes any person registered or desirous of obtaining registration under the Act, and does not specifically state that the applicant must be a supplier. They contended that the term "in relation to the supply of goods or services or both" in Section 95(a) should be interpreted to include both inward and outward supplies, allowing recipients to seek advance rulings.

However, the AAR emphasized that the term "exempt supply" as defined in Section 2(47) of the GST Act refers to the supply of goods or services that attract a nil rate of tax or are wholly exempt from tax. The determination of whether a supply is exempt affects the aggregate turnover of the supplier, not the recipient. Therefore, the intention of the legislature is to provide exemptions to the taxable person supplying the services, not the recipient.

The AAR further clarified that while the recipient bears the incidence of tax, they do not pay the tax under the GST Act. The payment of tax is the responsibility of the supplier, who collects the tax from the recipient and remits it to the government. The AAR concluded that the provisions of the GST Act are clear and unambiguous regarding the payment of tax, and the recipient cannot be construed as the payer of tax under the Act.

2. Applicability of exemption notification No. 12/2017-CGST (Rate) dated 28.06.2017 on the upfront lease premium paid by the applicant:

The applicant sought an advance ruling on the applicability of the exemption notification No. 12/2017-CGST (Rate) dated 28.06.2017, specifically entry No. 41, to the upfront lease premium paid for the lease of land from SMPK. The AAR noted that the advance ruling would be binding only on the applicant and the concerned officer or jurisdictional officer in respect of the applicant, as per Section 103 of the GST Act.

The AAR illustrated that if an advance ruling is sought by a recipient regarding the taxability of their inward supply, the ruling would not be binding on the supplier. This could lead to a situation where the supplier does not follow the ruling, rendering it ineffective and irrelevant. Therefore, the AAR concluded that allowing recipients to seek advance rulings on the taxability of their inward supplies would defeat the purpose and objective of the law.

Conclusion:

The AAR rejected the application for advance ruling, stating that the applicant, as a recipient of services, cannot seek an advance ruling on the applicability of the exemption notification. The ruling emphasized that the provisions of the GST Act are intended to apply to suppliers of goods or services, and not to recipients seeking to determine the taxability of their inward supplies.

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