GST on Renting of Commercial Property

[Natarajan Ramakrishnan]

Dear readers,

Like to know the Legal recourse available to the Landlord from GST standpoint on the unrealised Rent and Time of supply of services.

It is well known to the readers, the rent realisation will badly hit during covid-19 period;

Landlord supposed to honour the Tax Liability basis the Time of Supply of services [ 30 days]

Is there any legal recourse available for the service provider?

with regards

natarajanramakrishnan

[YAGAY andSUN]

In our view, as per the terms and conditions of the contract you can exercise your legal rights even though force majeure was declared due to COVID 19. You may send Notice in plain language, reminders and after that legal notice to the tenant.

[Natarajan Ramakrishnan]

Dear sir/ madam,

Thanks for your reply.

Like to highlight a point, the landlord liable to remit the GST Liability even before collection from the tenant. This is create undue hardship to the Landlord.

Especially like to know is there any way out to defer the liability till collection

with regards

natarajan

[Ganeshan Kalyani]

Sir, you can postponed the deposit of GST into Govt. account up to 30.06.2020. The interest has been waived or rate has been lowered because of current situation. Click here

[Rachit Agarwal]

Section 56 of Indian Contract Act, 1872- Contract to do an act afterwards becoming impossible or unlawful.-A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.

Landlord has made the property available but as per Law in Force one cannot enter the property and further tenant cannot use the property as per the Law in Force. Such a contract may become a void contract for the period.

[KASTURI SETHI]

Q. Like to highlight a point, the landlord liable to remit the GST Liability even before collection from the tenant. This is create undue hardship to the Landlord.Especially like to know is there any way out to defer the liability till collection.

Ans. Every activity is not a supply without consideration. Only those activities mentioned Schedule-I (Section-7) are to be treated as supply without consideration and your activity is not included in Schedule-I. Your activity is included in Schedule-II at serial no.2 (a) & (b).

Now in the light of above re-consider and you must work upon the following :

1. Definition (scope) of supply under Section 7.

2. Definition of a consideration in CGST Act. {Section 2(31)}

3. Time of supply of services (Section 13)

SECTION 13. Time of supply of services. - (1) The liability to pay tax on services shall arise at the time of supply, as determined in accordance with the provisions of this section.

How Section 13 effect your activity ? It is a crucial question here.That is to be pondered over.

This is not my final reply as I am not aware of full facts of the issue. This is only an attempt to find way-out.

[YAGAY andSUN]

Section 56 read with Section 54 of the Contract Act is applicable on even of if If contract does not have a Force Majeure clause. Further, a landmark judgement titled Energy watchdog Vs. Central Electricity Regulatory Commission reported at 2017 (4) SCALE 580 = 2017 (4) TMI 1385 - SUPREME COURT, Justice R.F. Nariman of the Supreme Court opined that the event leading to frustration which is relatable to an express or implied clause in a contract, is governed by Section 32 of the Act and if it occurs de hors the contract, it is dealt with by a rule of positive law under Section 56 of the Act. Under the prevailing circumstances, reliance on Section 54 of the Act depends upon the following conditions:

a valid and subsisting contract between the parties;

there must be some part of the contract yet to be performed; and the contract after it is entered into becomes impossible of performance i.e. subsequent impossibility.

[KASTURI SETHI]

The Supreme Court has rejected the plea (of tenants) for a waiver on rent.

Meaning the payment of rent Can not be refused and is mandatory for the tenant for any property that they occupy.

The order was passed on the plea of lawyers requesting to waive off the rent of their chambers during lockdown which was rejected by the court and is applicable to all properties whether residential, industrial or commercial.

https://www.deccanherald.com/national/covid-19-sc-declines-plea-for-rent-waiver-relief-for-lawyers-831845.html

AI Summary

Landlord Faces GST Challenges on Unrealized Rent During COVID-19; Legal Strategies Explored Under Indian Contract Act Section 56. A landlord inquired about legal options regarding GST obligations on unrealized rent for commercial properties during COVID-19. The landlord must pay GST based on the time of supply, creating financial strain. Responses suggested legal notices to tenants and highlighted potential contract voiding under Section 56 of the Indian Contract Act if property use was impossible. Discussions included deferring GST payments, understanding supply definitions under GST law, and the Supreme Court's stance against rent waivers. The importance of contract terms and legal provisions like force majeure and frustration of contract were emphasized in navigating these challenges.