GST characterization in concessions - Revenue Share vs. Renting of Immovable Property (RCM)

[Abhijeet Mane]

A concession agreement provides that a private operator is granted exclusive rights to develop and operate a hospital on government land. The land is given for long term use under a lease deed, with symbolic nominal rent, and the operator is required to pay a fixed percentage of its gross revenue to the Government as 'concession fee.' The Government also performs certain supervisory and regulatory functions under the PPP structure (clearances, monitoring, compliance oversight, etc.), but all operational risk, cost, manpower and liabilities remain entirely with the private operator, and the agreement expressly states that no partnership or joint venture is created.

The tax authorities have treated this Per year percentage based payment as consideration for renting of immovable property, taxable under GST on reverse charge. The operator's position is that the payment represents revenue sharing under a PPP arrangement, not consideration for a taxable supply, and thus should remain outside GST.

In such PPP concession arrangements, should the revenue linked payment to the Government be characterised as (a) revenue share outside GST, or (b) consideration for leasing/renting of immovable property liable to GST under RCM? What tests or indicators should be applied to determine the correct treatment?

AI Summary

GST characterization of revenue linked concession payments: assess whether they are revenue share or taxable rent under RCM. Characterisation hinges on whether the percentage payment is a revenue share or consideration for renting of immovable property. Key indicators are the payment's economic character (revenue linked vs. periodic for use), exclusivity of possession and control, the presence of a lease deed with nominal rent, the Government's retained role (supervisory/regulatory versus operational control), and allocation of operational risk, costs and liabilities to the operator; the substantive commercial reality and risk allocation determine GST liability under RCM.