2024 (7) TMI 357 - AAR - GST

Upward price revision in rental agreements constitutes supply under GST Act, differential amount attracts GST liability

Tamil Nadu AAR ruled that upward price revision in rental agreements constitutes supply under GST Act. The applicant's collection of increased rents ... Treatment of upward price revision as supply under transitional provisions - issue of supplementary invoice / debit note for retrospective upward revision - applicability of GST on retrospective upward revision of rent - transitional provision under Section 142(2)(a) of CGST ActTreatment of upward price revision as supply under transitional provisions - Section 142(2)(a) of CGST Act - Collection of increased rents for the past period is to be treated as 'supply' under the CGST/TNGST Acts, 2017. - HELD THAT: - The Authority examined the lease and the parties' retrospective upward revision of rent and applied the transitional provision contained in Section 142(2)(a) of the CGST Act, 2017. That provision deems a supplementary invoice or debit note issued on or after the appointed day in pursuance of a contract entered into prior to the appointed day, where the price is revised upwards, to be an outward supply under the Act. In the present case the applicant proposes to issue supplementary invoices for upward revision of rent; therefore such upward revision falls within the scope of 'supply' for GST purposes and must be treated accordingly. [Paras 6]Upward revision of rent collected for the retrospective period constitutes a supply under GST.Applicability of GST on retrospective upward revision of rent - issue of supplementary invoice / debit note for retrospective upward revision - Whether the entire increased rent amount asserted by the applicant is subject to GST (as opposed to only the portion post-appointment date). - HELD THAT: - Having held that the supplementary invoices issued for upward revision are to be treated as outward supplies under the GST law by virtue of Section 142(2)(a), the Authority concluded that the entire differential amount sought to be collected pursuant to that revision is exigible to GST. The Authority noted there is no ambiguity in applicability of GST on the differential rent for the period 01.07.2017 to 31.08.2022 and, applying the transitional deeming provision to the supplementary invoices for the full retrospective span claimed (01.09.2005 to 31.08.2022), ruled that the full increased rent amount submitted by the applicant shall be liable to GST. [Paras 6]The entire increased rent amount claimed by the applicant for the period 01.09.2005 to 31.08.2022 is liable to GST.Final Conclusion: The Advance Ruling holds that (i) collection of retrospectively increased rent pursuant to the lease revision is a 'supply' under the CGST/TNGST Acts by virtue of the transitional deeming provision, and (ii) the entire differential rent amount claimed for the period 01.09.2005 to 31.08.2022 is exigible to GST; the applicant may issue supplementary invoices/debit notes and discharge tax accordingly. Issues Involved:1. Whether the collection of increased rents for the past period is considered as 'supply' under Goods and Services Tax (GST).2. If considered as 'supply,' whether the entire increased amount is subject to GST or only the portion after July 1, 2017.Issue-wise Detailed Analysis:Issue 1: Collection of Increased Rents as 'Supply' under GST- The applicant, a Government of Tamil Nadu undertaking, provides passenger transportation services, which are exempt from GST. However, the issue pertains to a lease agreement with the Regional Transport Officer (RTO) Chennai for renting out premises.- The lease agreement dated back to 2005, with an agreed rent revision every three years. Due to unresolved negotiations, the rent revision was delayed and only settled in the fiscal year 2023-24, with a 15% increase retrospectively calculated from September 1, 2005.- The applicant sought clarity on whether the collection of increased rents for the past period (01.09.2005 to 30.06.2017) constitutes a 'supply' under GST.- The ruling referenced Section 142(2)(a) of the CGST Act, 2017, which states that if the price of services is revised upwards after the GST implementation date, the registered person must issue a supplementary invoice, and such revision shall be deemed as an outward supply under the Act.- Consequently, the collection of increased rents for the past period was deemed a 'supply' under GST.Issue 2: GST Applicability on Increased Rent Amount- The applicant questioned whether the entire increased rent amount of Rs. 1,60,42,203/- is subject to GST or if only the portion after July 1, 2017, is liable for GST.- The ruling clarified that, as per the transitional provisions of the CGST Act, 2017, the entire increased rent amount, including the period before the implementation of GST, is liable for GST.- The ruling emphasized that the entire differential rent amount, as submitted by the applicant for the period from 01.09.2005 to 31.08.2022, shall be subject to GST.Ruling:1. The collection of increased rents for the past period shall be treated as 'supply' under the CGST / TNGST Acts, 2017.2. The entire increased rent amount of Rs. 1,60,42,203/-, as submitted by the applicant for the period from 01.09.2005 to 31.08.2022, shall be liable to GST under CGST/TNGST Acts, 2017.