Renting property to government welfare department for girls' housing is GST-exempt under Sl.3, Notif.12/2017; TDS under Sec.51 CGST not leviable

AAAR held that renting immovable property to a State social welfare department for residential accommodation of girls from backward classes/SC/STs falls within functions entrusted to panchayats/municipalities under articles 243G/243W and is therefore exempt from GST under Sl. No. 3 of Notification No. 12/2017-C.T. (Rate). Consequently, TDS under section 51 of the CGST Act does not apply and any TDS deduction cannot be sustained. Appeal allowed.

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ISSUES PRESENTED AND CONSIDERED

1. Whether renting of immovable property to a State Government department for residential accommodation of girls from backward classes/Scheduled Tribes falls within the exemption under Sl. No. 3 of Notification No. 12/2017-C.T. (Rate) (pure services provided to Government by way of any activity in relation to any function entrusted to Panchayats under Art. 243G or Municipalities under Art. 243W)?

2. Whether Tax Deducted at Source under section 51 of the CGST Act is applicable where the supply to the Government is held to be exempt under the said notification?

3. Ancillary: Whether the individual co-owner's aggregate turnover/requirement for registration under section 22(1) is determinative of exemption or TDS once the service is held exempt?

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Applicability of Exemption Entry (Notification No.12/2017 Sl. No.3) to Renting of Immovable Property to State Department

Legal framework: The exemption entry covers "pure services (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Government, State Government ... by way of any activity in relation to any function entrusted to a Panchayat under article 243G ... or ... to a Municipality under article 243W". Articles 243G/243W and the Eleventh/Twelfth Schedules enumerate functions such as women and child development, social welfare and welfare of weaker sections, including scheduled tribes.

Precedent treatment: The appellate authority relied on a prior AAR decision where renting to a Backward Classes Welfare Department used for hostel facilities for post-metric girls was held to fall within the same exemption. Other AARs cited support the proposition that welfare/hostel accommodation for weaker sections can be within functions in the Eleventh/Twelfth Schedules.

Interpretation and reasoning: The Court emphasised the expansive language of the entry - use of "any" and the phrase "in relation to" - which imparts wide scope to the covered activities and functions. The Eleventh and Twelfth Schedule entries expressly include "Women and Child development", "Social welfare" and "Welfare of weaker sections, and of scheduled castes and the scheduled tribes", thereby encompassing residential accommodation schemes for under-privileged girls. The renting activity is a "pure service" (no goods supplied) and the recipient is a State Government department. The contractual agreement produced by the applicant established both the nature of service and the governmental recipient; that evidence sufficed to demonstrate that the rented premises were used for a scheme within functions entrusted under Articles 243G/243W.

Ratio vs. Obiter: Ratio - The renting of immovable property to a State Government department for residential accommodation of girls from backward classes/Scheduled Tribes is within the ambit of the exemption entry where the service is a pure service and relates to functions in the Eleventh/Twelfth Schedules. Obiter - References to comparative AARs and broader observations on the width of "any activity" support but do not add separate legal propositions beyond the holding.

Conclusion: The impugned renting service is covered by Sl. No. 3 of Notification No. 12/2017 and is exempt from GST.

Issue 2 - Applicability of GST TDS under Section 51 Where Supply Is Exempt

Legal framework: Section 51 mandates deduction of tax at source by specified government/authority recipients where payment is made for taxable supplies exceeding specified value; the statutory scheme contemplates deduction where GST is leviable on the supply.

Precedent treatment: Authorities have treated TDS under section 51 as contingent upon the existence of a taxable supply; where supply is not taxable, TDS is inapplicable. No precedent was treated as overruling that basic statutory relationship.

Interpretation and reasoning: Once the subject supply is held to be exempt under the notification, there is no GST leviable on the transaction. Section 51 requires deduction of tax at source from payments for taxable supplies; where levy does not arise, the statutory precondition for TDS (taxable supply / tax payable) is absent. The Court therefore concluded that TDS under section 51 cannot be applied to an exempt transaction.

Ratio vs. Obiter: Ratio - TDS under section 51 is not applicable to payments for supplies which are exempt from GST under a notification; absence of tax liability precludes obligation to deduct TDS. Obiter - Observations on administrative hardship caused by TDS deductions from unregistered suppliers who cannot utilise input tax credit are explanatory context.

Conclusion: Section 51 TDS provisions do not apply to the exempt renting transaction; therefore the recipient/government should not deduct GST TDS in respect of the subject payments.

Issue 3 - Relevance of Individual Co-owner Turnover / Registration under Section 22(1)

Legal framework: Section 22(1) provides registration thresholds tied to aggregate turnover; liability to register arises where an individual's aggregate turnover exceeds the threshold even if property is jointly owned.

Precedent treatment: AAR decisions cited have held that co-owners whose rental income is separately ascertainable and assessed individually for income tax are not to be treated as an association of persons for registration threshold computation; each co-owner's gross turnover is to be considered separately for registration purposes.

Interpretation and reasoning: The Court observed that determination of exemption under the notification is a distinct legal question from whether an individual must register under section 22(1). Given the conclusion that the impugned supply is exempt, the registration/threshold issue becomes immaterial for the purposes of the exemption and the present appeal's core questions. However, the Court acknowledged precedents that co-owners may claim small business exemption individually where their separate share of turnover does not cross threshold, provided income is separately ascertainable.

Ratio vs. Obiter: Obiter - The Court's remarks on co-owner turnover and registration are ancillary to the main holding (exemption and TDS inapplicability) and clarify that registration consequences were not determinative of the exemption question before it.

Conclusion: The aggregate turnover/registration threshold of individual co-owners is not decisive once a supply is held exempt; separate entitlement to small business exemption for co-owners remains determined by separate ascertainment of each co-owner's turnover.

Other Findings and Procedural Notes

1. Evidence sufficiency: The Court found no deficiency in the documentary evidence (co-ownership agreement and the lease/contract with the Government department) relied upon to establish the nature of supply and recipient, distinguishing the prior ruling that had questioned sufficiency of submissions.

2. Remedy: Having set aside the contrary advance ruling, the Court held the service exempt and directed that section 51 TDS not apply; questions as to refund of any earlier deducted amounts were not adjudicated in detail in this order (the original AAR had declined to rule on refund entitlement).

Final Conclusions

1. Renting of immovable property to the State Government department for residential accommodation of girls from backward classes/Scheduled Tribes qualifies as a pure service "by way of any activity in relation to any function entrusted" to Panchayats/Municipalities under Articles 243G/243W and is exempt under Sl. No. 3 of Notification No. 12/2017.

2. Consequent to the exemption, TDS under section 51 of the CGST Act is not applicable to the transaction.

3. The earlier contrary advance ruling is set aside; registration/turnover inquiries of co-owners do not alter the exemption determination for the impugned supply.

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