Taxability of letting out commercial premises to registered person by an URP

[Rajat Gupta]

In light of the recent amendment vide notification no. 9/2024 CT(R) dated 08.10.2024, whether a registered person will be required to pay tax under RCM if the commercial property has been taken on consent i.e. without consideration? will there be different implications of this arrangement in cases where the property is owned by a related person?

Thanks

[Sadanand Bulbule]

Dear Sir

It can be understood from your query that, there is no supply of services to the recipient in terms of Section 7[1] in the absence of "consideration". GST Act does not speak about "consent". Thee cannot be usage of commercial property by somebody without the consent of owner. Otherwise it amounts to trespassing and illegal.

Secondly you have to take care of entry No. 2 of II Schedule as far as such issue between related persons is concerned.

[KASTURI SETHI]

I concur with the views of Sh.Sadanand Bulbule Sir Ji. In this scenario, the related person clause mentioned in Para No.2 of the Schedule-I comes into play. Also read Para nos.2 & 5 of Schedule-II.

[Shilpi Jain]

If property taken on consent without any consideration 

From unrelated person - no GST liability

From related person - liable to GST under RCM.

[Rajat Gupta]

I agree that we have to refer schedule 1 in cases where consideration is not involved. But can we argue that letting of property by URP on consent is not in the 'course of furtherance of business' by such URP and this does not constitute supply?

[KASTURI SETHI]

Qualifies the term,  'furtherance of business'.

[KASTURI SETHI]

Emphasis is laid on the words, 'Any trade' mentioned in the definion of 'business' in CGST Act. Also focus on interpretation of the word, ''furtherance'.

[Rajat Gupta]

But sir, shouldn't the phrase "furtherance of business" be assessed from the point of view of the URP who is giving property on consent?

[Shilpi Jain]

Forget about letting out. If thats not the servicein this case, still there is something or some permission/license or at least favour done by giving consent. this would fall under ambit of services.

Further, business def is pretty wide in GST and can cover this scenario as the related person sees some business sense or requirement in giving this consent.

AI Summary

Reverse charge on letting without consideration may apply where a related person provides commercial premises, per GST rules.
The discussion concluded that absence of consideration ordinarily precludes supply and GST liability, but Schedule I paragraph 2 can deem transfers between related persons without consideration to be supplies; consequently, permission to use commercial premises granted by a related person may be treated as a service or licence and attract reverse charge depending on relatedness and whether the act furthers business.