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

Consideration for renting of immovable property: revenue linked PPP payments often require nexus and substance tests to determine GST liability.
Whether a revenue linked periodic payment by a private operator under a PPP concession is GST taxable as consideration for renting of immovable property depends on its legal character: a variable, performance contingent payment that lacks a direct quid pro quo for land use and where the operator bears all operational risk indicates a concession/franchise principal supply rather than a lease. Key tests are the Direct Nexus Test, Substance over Form, and the Dominant Supply Test; taxpayers should document risk allocation, consider public utility exemptions, seek an Advance Ruling, and avoid unilaterally discharging any reverse charge demand.