2024 (7) TMI 357 - AAR - GST

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

In Re: M/s. Metropolitan Transport Corporation

Tamil Nadu AAR ruled that upward price revision in rental agreements constitutes supply under GST Act. The applicant's collection of increased rents ... Supply or not - Price escalation clause - collection of increased rents for the period - liability to pay differential amount plus GST to the applicant upon submission of supplementary invoices - HELD THAT:- In case of upward price revision, a registered person will issue a supplementary invoice or debit notes within 30 days from the date of revision and such revision shall be treated as supply under GST Act and tax is payable under this Act. In the instant case, it is found that the applicant had entered into contract for provision of renting of immovable property services as seen from the lease agreement submitted by the applicant and now intends to revise the price upwards and issue supplementary invoices for the said supply for the upward revision of rent. Hence, in the instant case collection of increased rents for the past period i.e. 01.09.2005 to 30.06.2017 shall also be treated as 'supply' under Goods and Services Tax and 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 Goods and Services Tax. The collection of increased rents for the past period shall be treated as 'supply' under the CGST / TNGST Acts, 2017 - 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. 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.