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 totaling Rs. 1,60,42,203 for period 01.09.2005 to 31.08.2022 under price escalation clause was held liable to GST under CGST/TNGST Acts, 2017. The authority determined that supplementary invoices for rent revision must be issued within 30 days of revision and entire differential amount attracts GST liability as it constitutes supply of immovable property services.

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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.

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