2025 (10) TMI 1255 - HC - GST

Impugned order quashed; refund of Rs 2,58,700 ordered after finding residential renting exempt from GST under notification

Mr. Gurdev Raj Kumar Versus Collector of Stamps (Goverment of NCT of Delhi).

HC quashed the impugned order directing payment of deficient stamp duty and penalty, holding the collector's view misconceived because renting/leasing of ... Seeking quashing of order whereby, the petitioner was directed to pay the allegedly deficient stamp duty along with penalty - direction for refund of the additional stamp duty - grievance of the petitioner is that the respondent/ Collector of Stamps rejected the petitioner’s representations and by way of the impugned order, directed payment of deficit stamp duty and penalty - HELD THAT:- Upon perusal of the relevant notifications and circulars, this Court finds merit in the petitioner’s submissions. Entry No. 12 of the Central Tax Notification No. 12/2017 leaves no manner of doubt that renting/leasing of a residential dwelling for use as residence, is exempt from GST. As such, the view adopted by the respondent as regards deficit payment of stamp duty, is misconceived. The impugned order dated 19.10.2020 is hereby quashed - The respondent is directed to refund the amount of Rs. 2,58,700/- (including deficit stamp duty and penalty), deposited by the petitioner, within a period of six weeks. Petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether renting/leasing of a residential dwelling for use as residence is taxable under the GST regime or is exempt under Entry No. 12 of Notification No.12/2017-Central Tax (Rate). 2. Whether the GST component (if any) payable by a lessee is to be included in the lease rent for the purpose of computing stamp duty under the Indian Stamp Act, 1899 (in particular having regard to Article 35 of Schedule I and its Explanation). 3. Whether ancillary charges not constituting rights in immovable property (e.g., water charges) are includible in the lease amount for levy of stamp duty, and the relevance of administrative circulars and Advocate General opinion in determining inclusion/exclusion of such charges. ISSUE-WISE DETAILED ANALYSIS Issue 1 - GST applicability to renting of residential dwelling Legal framework: Entry No. 12 of Notification No.12/2017-Central Tax (Rate) exempts 'Services by way of renting of residential dwelling for use as residence' (rate: Nil). Circular No.44/18/2018-CGST (Tax Research Unit) clarifies that renting of residential dwelling for use as residence is exempt and that transfer of tenancy rights may be taxable but renting for residence is covered by the exemption. Precedent treatment: The Court relied on the statutory notification and the clarificatory circular of the Department of Revenue. No contrary judicial precedent was cited in the judgment disputing the exemption for residential renting. Interpretation and reasoning: The Court accepted the plain language of Entry No.12 and the explanatory circular which distinguishes between taxable transfer of tenancy rights and exempt renting for residential use. Given Clause 6 of the lease stipulated exclusive residential use, the transaction squarely falls within the exempted description. Ratio vs. Obiter: The determination that the lease is exempt from GST under Entry No.12 is ratio decidendi for disposal of the petition because it directly negates the primary basis for the stamp duty demand. Conclusion: Renting/leasing of a residential dwelling for use as residence, where the lease so provides, is exempt from GST under Entry No.12; accordingly no GST chargeable in the facts before the Court. Issue 2 - Inclusion of GST component in lease rent for stamp duty computation Legal framework: Article 35 of Schedule I to the Indian Stamp Act, 1899 (and its Explanation) treats certain recurring charges borne by the lessee as part of the rent for stamp duty computation. The question is whether GST constitutes such a recurring charge on the property and thus forms part of the 'rent' for stamp duty purposes. Precedent treatment: The Court relied on administrative guidance - notably Circular No.3759/01/2015-2 (Inspector General of Registration, Chennai) and the Advocate General of Tamil Nadu's opinion referenced therein - which concluded that GST on rent is not a recurring charge on the property and therefore cannot be treated as part of the rent for stamp duty purposes. Interpretation and reasoning: The Court accepted the Advocate General's analysis that the Explanation to Article 35 contemplates charges in the nature of municipal rates, taxes or levies on the property itself (government revenue, cess, municipal taxes) and not statutory indirect taxes imposed on the transaction (i.e., GST). Since GST is not a recurring charge on the property, it is not absorbed into the rent for stamp duty calculation. Additionally, because the lease here falls under the GST exemption for residential renting, the premise of a GST component to be included does not arise. Ratio vs. Obiter: The Court's holding that GST (where not legitimately chargeable) cannot be included as part of rent for stamp duty purposes is a ratio applicable to the resolution of the stamp duty demand in the case. The combined conclusion - that (a) GST is not chargeable on the lease, and (b) even if GST were payable it would not be includible in rent for stamp duty - forms the operative ratio. Conclusion: The GST component does not form part of lease rent for purposes of stamp duty computation under Article 35; accordingly, any demand premised on inclusion of GST in rent is misconceived. Issue 3 - Inclusion of ancillary charges (e.g., water charges) and the legal character of such charges Legal framework: Definitions of 'lease' under the Indian Stamp Act (s.2(16)) and Section 105 of the Transfer of Property Act, 1882 limit lease to rights in immovable property. The question is whether ancillary supplies (water) amount to rights in immovable property such that their cost is includible in the lease amount for stamp duty. Precedent treatment: Circular No.3759/01/2015-2 relies on the decision in Chief Controlling Revenue Authority v. Antibiotic Project Virbhadhar (reported in AIR 1979 All 355), which held that water is neither land nor a tenement and thus constitutes movable property; accordingly costs for water supply do not create rights in immovable property and are not part of lease for stamp duty. Interpretation and reasoning: The Court noted the circular's reasoning that the lease pertains to immovable property and that water does not qualify as immovable; thus costs for water (both capital and running) are not to be treated as part of the lease amount for stamp duty. The circular's instruction to registering officers not to treat water as immovable property and not to include GST in rent is treated as persuasive administrative guidance supporting non-inclusion. Ratio vs. Obiter: The Court's explicit disposal did not rest primarily on the water-charge point (the dispute before the Court arose on GST inclusion), but the circular's treatment of water charges was relied upon in support of the broader principle that only charges constituting rights in immovable property are aggregable for stamp duty. The statements on water charges operate as supportive ratio to the extent the issue is raised; where not directly litigated they bear persuasive value (obiter for unrelated factual permutations). Conclusion: Ancillary charges that do not pertain to immovable property (for example, water supply charges held to be movable in character) are not includible in the lease amount for levy of stamp duty; administrative circulars and the cited precedent support this exclusion. Relief and Final Conclusions Because the lease in issue was for residential use and therefore exempt from GST under Entry No.12, and because GST (even if hypothetically payable) is not includible in lease rent for computation of stamp duty under Article 35, the Collector's adjudication directing payment of deficit stamp duty and penalty was found to be misconceived. The impugned order was quashed and the deposited amounts were directed to be refunded within the stipulated period.