TaxTMI 
TaxTMI 
GST characterization in concessions - Revenue Share vs. Renting of Immovable Property (RCM)
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....ST characterization in concessions - Revenue Share vs. Renting of Immovable Property (RCM) <br> Query (Issue) Started By: - Abhijeet Mane Dated:- 11-3-2026 Goods and Services Tax - GST <br> Got 3 Replies <br> GST<br> <br> 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 unde....
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....r 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....
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.... 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....
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.... 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? --Reply By: Shilpi Jain The Reply: Here the terms of the conce....
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....ssion agreement would be relevant to conclude. --Reply By: Sadanand Bulbule The Reply: The primary protection lies in arguing that the Government is not acting as a "Landlord" in a commercial sense, but as a Sovereign State fulfilling its Constitutional obligation under Article 21 (Right to Health). Principle: Activities performed as a mandatory public duty are not "business" under Section 2(1....
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....7) of the GST Act. If the activity is not "business," the revenue share cannot be "taxable consideration". Therefore you develop your defense on such grounds in the larger interest of providing healthcare services which are exempt from GST. Consult experts for effective representation. This is my personal opinion. --Reply By: Ryan Vaz The Reply: The issue turns on whether the revenue-share paym....
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....ent under a PPP concession constitutes "consideration" for renting of immovable property under GST, or a profit-sharing arrangement outside the scope of supply. Key tests to apply: 1. Direct Nexus Test: Rent accrues irrespective of revenue. A variable, revenue-linked payment lacks the direct quid pro quo of rent - it is contingent on business performance, not possession of land. 2. Substance ove....
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....r Form: The dominant character of a PPP concession is the grant of a right to develop/operate a public utility. The operator bears full risk, cost, and liability - inconsistent with a lessor-lessee relationship. 3. Dominant Supply Test (Section 8, CGST Act): The principal supply is the concession/franchise right to operate the hospital, not mere land access. Tax treatment follows the principal su....
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....pply. 4. Exemption: Examine applicability of Sl. No. 41A, Notification No. 12/2017-CT(Rate) for government services related to public utilities. Assessment: The stronger legal position supports the operator - the revenue share is not consideration for renting of immovable property under RCM. The variable, performance-linked nature of the payment, combined with the operator bearing all operational....
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.... risk, clearly distinguishes this from a standard lease. That said, given Revenues aggressive stance, the operator should: (a) obtain a legal opinion or Advance Ruling under Section 97, CGST Act; (b) document the PPP risk-allocation matrix thoroughly; and (c) not discharge RCM liability unilaterally, as this may constitute an implicit admission. CBIC clarification on PPP-specific GST treatment ....
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....remains awaited. <br>***<br> Discussion Forum - Knowledge Sharing....