Cooperative society must pay GST under Reverse Charge on lease renewal payments to municipal corporation

AAR Gujarat ruled that the applicant cooperative society is liable to pay GST under Reverse Charge Mechanism u/s 9(3) of CGST Act on lease renewal amounts and premium paid to Surat Municipal Corporation, as these constitute supply of services. The exemption under notification 12/2017-CT(Rate) was denied since the leased area was not declared as industrial/financial business area by state government notification. Collections from shareholders/shop owners for lease payments constitute taxable supply under forward charge. However, AAR declined to rule on shareholders' ITC eligibility, holding the applicant lacked locus standi to seek ruling on behalf of distinct persons.

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Issues Involved:
1. Liability to pay tax under Reverse Charge Mechanism (RCM) for lease renewal amount payable to SMC.
2. Liability to pay tax under RCM for premium on lease renewal amount payable to SMC.
3. Applicability of GST under forward charge on collections made from shareholders/shop owners.
4. Effect of circular no. 101/20/2019-GST on the transaction.
5. Eligibility of shareholders/shop owners for Input Tax Credit (ITC) if GST is charged by the applicant.

Summary:

Issue 1: Liability to pay tax under RCM for lease renewal amount payable to SMC
The applicant is liable to pay GST under Reverse Charge Mechanism (RCM) u/s 9(3) of the CGST Act, 2017, for lease renewal amount payable to Surat Municipal Corporation (SMC). This is in accordance with notification No. 13/2017-CT(Rate) which mandates that GST on services supplied by local authorities to business entities be paid on a reverse charge basis.

Issue 2: Liability to pay tax under RCM for premium on lease renewal amount payable to SMC
The applicant is also liable to pay GST under RCM u/s 9(3) of the CGST Act, 2017, for the premium on lease renewal amount payable to SMC. The lease of land is treated as a supply of services chargeable to GST, and the applicant falls within the ambit of a 'business entity' as per the definition under the Act.

Issue 3: Applicability of GST under forward charge on collections made from shareholders/shop owners
The collection made from shareholders/shop owners for making payment of lease and lease premium amounts is considered as a supply under section 7 of the CGST Act, 2017. Therefore, GST under forward charge is applicable on such collections.

Issue 4: Effect of circular no. 101/20/2019-GST on the transaction
The applicant is not entitled to exemption under Sr. No. 41 of notification No. 12/2017-CT (Rate) dated 28.6.2017, as amended, and the clarification issued vide circular no. 101/20/2019-GST dated 30.4.2019. The exemption is only available for long-term leases of industrial plots provided by State Government Industrial Development Corporations or similar entities, which does not apply to the applicant's situation.

Issue 5: Eligibility of shareholders/shop owners for ITC if GST is charged by the applicant
No ruling is passed on whether the applicant's shareholders/shop owners who are reimbursing the lease and lease premium amount can get ITC of the GST charged by the applicant. The applicant is not the person intending to avail ITC, and the ruling sought is on behalf of distinct persons (members/shareholders), which is beyond the scope of the applicant's locus standi.

Ruling:
1. The applicant is liable to pay GST under RCM for lease renewal amount payable to SMC.
2. The applicant is liable to pay GST under RCM for premium on lease renewal amount payable to SMC.
3. The applicant is liable to pay GST under forward charge for collections made from shareholders/shop owners.
4. The applicant is not entitled to exemption under Sr. No. 41 of notification No. 12/2017-CT (Rate) dated 28.6.2017, as amended.
5. No ruling is passed regarding the eligibility of shareholders/shop owners for ITC.

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