GST ON AN ACT TO TOLERATE UNDER SECOND SCHEDULE.

[Sadanand Bulbule]

Dear Sirs

State Small Industrial Development Corporation(SSIDC) allots plots/sheds to MSME's on certain conditions. One of the conditions of allotment of plots is that, the allottee shall construct the industrial shed within the stipulated period.In case of violation, SSIDC reserves the right to levy penalty and extend the time for completion of of the project. The query is whether GST is to be levied on such penalty amount for delayed completion of project?

My understanding is as under:

Valuation of Supply. SECTION 15.

Section 15(d) provides inter alia,' interest or late fee or penalty for delayed of payment of any consideration of any supply'.

In terms of Para 5(e) of Second Schedule to the CGST Act,2017, agreeing to the obligation to refrain from an act or to tolerate an act or a situation or to do an act.

Keeping in mind the above governing provisions, the allotment of plot by SSIDC, being immovable property not exigible to tax under the GST Act, whether Para 5(e) of Second Schedule read with Section 15(d) of the CGST Act would come into play?

Kindly throw light on the issue.

[Sadanand Bulbule]

N.B.

In continuation of the above, it is pertinent ot mention that SSIDC allots the plots on an outright sale basis. This being the sale of immovable property, not taxable under entry No. 5 of the Third Schedule to the GST Act.

[Ganeshan Kalyani]

Sir, in my view, levy of penalty, in this query, is a separate service. It will fall under tolerating an act.

[Sadanand Bulbule]

Dear Sri.Kalyani ji.

Thank you so much for your positive response.

In this regard, I take the liberty to add the following AAR, which is similar query under discussion answered by the AAR.

"Tolerate an Act"--Supply of taxable service under Section 7 of the GST Act.

ADVANCE RULING No.GAO/GAAR/01 of 2019-20 dated 17/10/2019. = 2020 (1) TMI 661 - AUTHORITY FOR ADVANCE RULING, GOA Goa Industrial Development Corporation (GST AAR Goa)

Q. Is an obligation to refrain from an Act or to tolerate an Act or a situation treated as supply of Goods/Services (Schedule II U/s 7 Scope of Supply).

A. The compensation paid by GIDC would clearly qualify as ‘Supply’ under clause 5(e) of Schedule II of the GST Act, and therefore the amount would attract tax liability.

Regards.

[YAGAY andSUN]

For further clarification, please check following Article

https://www.taxtmi.com/article/detailed?id=9223

AI Summary

Tolerating an act: penalties for delayed construction can constitute a taxable supply under GST. Whether a penalty for delayed construction by an allottee is a taxable supply under GST depends on separating the non-taxable sale of immovable property from ancillary obligations. Valuation rules include penalties as part of consideration, and Paragraph 5(e) of Schedule II treats agreeing to tolerate an act or situation as a supply of services. An Advance Ruling held compensation by a development corporation to qualify as a supply under the toleration limb, and forum views favour treating the penalty as a separate taxable service despite the underlying immovable-property sale being exempt.