Place of Supply and registration in case of Residential dwelling

[THDC India]

Dear Experts,

Please share your expert view in following case:-

Company (registered in GST in Uttarakhand) is paying lease rent for the family of employees posted in non-family station i.e. hilly area. Employees posted to such location belongs to different state. As per latest notification 05/2022 dated 18/07/2022, GST is payable under RCM in case of service by way of renting of residential dwelling to registered person. As per section 13 of IGST Act, Place of supply shall be place where immovable property is located.

In this scenario, if immovableproperty located in UP then CGST and SGST is required to pay being an intra state supply. So how liability of CGST and SGST can be pay off while company is registered in uttarkhand....?

[Amit Agrawal]

I believe that question raised has multiple inter-connected GST issues at its core. And answer/s of your query are inter-linked with answer/s to those multiple issues. Let me address some of these issues:

First question is why Co. has not taken registration in state of UP?

If it needs to keep its employees in UP by taking residential dwelling on rent (which is generally done if stay is expected to be for sufficiently longer period etc.), it is quite likely (though not definitely, as nature of business operations & its structuring are unknown) that said Co. has either a 'fixed establishment' in UP or it is 'casual taxable person' for UP.

And if so, Co. is bound under law to take separate GST registration under UP and consequently, liability under RCM on subject transaction needs to be discharged by this new registration at UP.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

If said Co. has taken separate registration in state of UP (due to legal requirements and consequently & presumably that such new registered entity at UP is actual recipient of subject services, as explained in my earlier post), next question is whether it needs to compulsorily pay CGST / SGST under RCM as place of supply is 'State of UP' (as inferred from the query raised) or there is possibility to pay such RCM liability as IGST?

While place of supply is 'State of UP' is indeed UP as rightly explained in the query itself, but nature of taxes to be paid by Co's new GST registration at UP under RCM will be dependent upon location of the supplier.

If location of the supplier is also state of UP, then, Co's 'new GST registration at UP' needs to pay CGST & SGST under RCM on subject transaction under discussion.

But If location of the supplier is 'Other that state of UP', then, Co's 'new GST registration at UP' needs to pay IGST under RCM on subject transaction under discussion.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

Lastly, let me address the query on its face value. Here, I am presuming that 'said Co. is under no legal obligation to take separate registration in state of UP and its registration at Uttarakhand is indeed the actual recipient of services under discussion'.

Now, the question is whether it needs to compulsorily pay CGST / SGST under RCM as place of supply is 'State of UP' (as inferred from the query raised) or there is possibility to pay such RCM liability as IGST?

While place of supply is indeed 'State of UP' as rightly explained in the query itself, but nature of taxes to be paid by Co's 'GST registration at Uttarakhand' under RCM will be dependent upon location of the supplier.

If location of the supplier is also state of UP, then, Co's 'GST registration at Uttarakhand' needs to pay CGST & SGST under RCM on subject transaction under discussion.

But If location of the supplier is 'Other that state of UP', then, Co's 'GST registration at Uttarakhand' needs to pay IGST under RCM on subject transaction under discussion.

Needless to say that in all possible scenarios (as covered in earlier posts and herein-above), place of supply is always 'State of UP' where subject immovable property is located.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

For paying tax-liabilities under RCM on any scenario/s discussed above, at-least as yet, I do not see any issues / problems as far as current working of current GST portal and return is concerned.

If there is any issue/s faced / anticipated, please share more elaborate details about these issue/s

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[THDC India]

Dear Sir,

As mentioned in the case that lease is taken for the benefit of family of an employee who is posted at a place which is a non-family station. There is no other business activities undertaken by the company.

Further, if UP consider it as a fixed establishment and get registration in UP then it may have to obtain GST registration across the nation as immovable property can be taken on rent wherever employee family resides as there are number of employees belonging to many different state. It is also pertinent to mention that location of supplier (unregistered in GST) is also in UP.

It is not prudent to obtain registration in each state for pay off RCM liability on this transaction. What other alternative mechanism are available to taxable person to pay SGST of state where it is not registered. This problem will be encountered by many organisation who is having such sort of taxable supply.

Moreover, being an intra state supply, it is required to pay CGST and SGST. It cannot be payoff by paying IGST as concern state may also issue a notice to taxable person.

[Amit Agrawal]

Dear Querist,

It is difficult to understand why would Co. will take residential dwelling on rent for its employees - who are not even based in state where property is located - IF Co. indeed has no business operations in such state.

Requirement of getting registration is state of UP is dependent upon either it has 'fixed establishment' in that state or it is a 'casual taxable person' for UP. IF NOT, Co. need NOT need to take registration under UP only for paying liability under RCM on subject transaction, because service-recipient will be its existing registration at Uttarakhand.

However, if Co. has 'fixed establishment' in state of UP or it is indeed a 'casual taxable person' for UP, it has to compulsorily register in that state as per current GST laws. And in such case, it will not be prudent to avoid getting registered at other states when same is required under law.

For other all aspects, I feel that I have already explained the legal position. If something is left out, please feel free to revert.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

Also, I explained in above posts that subject supply need NOT always be 'Intra-State Supply'.

And in any of the circumstances (including if existing registration at Uttarakhand is actual recipient of subject services under discussion), as explained, I do not see any issue/s to pay liability under RCM even when such supply is 'intra-state' supply.

One of the aspect - which I have not elaborated enough earlier - is the definition of 'fixed establishment' u/s 2 (50), which reads as follows:

“fixed establishment” means a place (other than the registered place of business) which is characterised by a sufficient degree of permanence and suitable structure in terms of human and technical resources to supply services, or to receive and use services for its own needs"

If Co. intents to avail ITC against taxes so paid under RCM, it itself is implying that subject services are used in course or or furtherance of business of the Co. And, presumably that employee also stays there with his family, it can be argued that 'Co. also got a sufficient degree of permanence and suitable structure in terms of human and technical resources' at that location. In other words, it is very possible to argue that Co. indeed has 'fixed establishment' in state of UP.

An addition to above risks due to the interpretation (possibly, an extreme interpretation) of the definition, elementary questions - raised earlier - needs to be looked into before taking final call.

Still, If something is left out, please feel free to revert.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

Dear Querist,

I re-visited the issue, specially after noting that supplier is also located in state of UP from your post at Sr. No. 5.

In my view, under plain reading of current position of law as well as the way GST portal operates, there is no option for the said Co. but get itself registered in state of UP and pay CGST & SGST under RCM therefrom.

In other words, even if said Co. has neither a 'fixed establishment' in UP nor it is 'casual taxable person' for UP (though I doubt this very much, due to reasons explained in earlier posts & hence, I didn't give deeper thought for other complexities), still, it needs to get itself registered in state of UP on account of subject transaction due to requirements of Section 24 (3) read with Section 25.

Only way to avoid this is to argue that Co. is not registered in UPGST (state gst law of UP) and thereby, subject services are not received by a registered person so far as UPGST act is concerned. But, fact remains that said Co. is actually registered for CGST and IGST and hence, such argument seems quite risky.

Now, considering this compulsion of separate registration anyway, it would be necessary to re-check if said Co. has a 'fixed establishment' in UP or not. If former position is accepted, many other potential risks can be potentially avoided.

P.S. Taking any arguments to claim non-liability itself may invite deeper scrutiny about Co's operation (due to reasons explained in my earlier posts).

Thanks for raising such an interesting & challenging query! And I am sure my ex-views here are not end of it for me too.

I would urge to other professional colleagues on this forum to put their views.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

Dear Querist,

For this post, I am presuming that said Co. has neither a 'fixed establishment' in UP nor it is 'casual taxable person' for UP.

And if so, let me explain how said Co. can avoid liability to pay taxes under RCM itself (& thereby avoid taking separate registration in state of UP). This can happen if:

A. The employee takes such premises on rent in his name instead of employer Co. & pays to landlord from his end; and

B. Employer Co. reimburses such rent to the employee, merely as part of perquisites in terms of contractual agreement entered into between the employer and the employee are in lieu of the services provided by employee to the employer in relation to his employment.

For more details, please refer to my posts under Issue ID - 118044 bearing subject line 'GST on rent of employee paid by employer'.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[THDC India]

Thank you sir for sharing your expert view on the subject matter. Your suggestion at sr.no. 9 are worth to noted.

AI Summary

Place of supply determines reverse-charge tax type; supplier location governs whether CGST and SGST or IGST apply. Place of supply for renting of a residential dwelling is the state where the immovable property is located; that determination fixes reverse-charge obligations. The tax type under RCM depends on the supplier's location: a supplier in the same state attracts CGST and SGST under RCM, while a supplier in another state attracts IGST under RCM. Separate state registration is required if the recipient has a fixed establishment or is a casual taxable person in the property state. An operational avoidance is possible if the employee rents in their own name and the employer reimburses as a perquisite.