Maintenance Charges on Leased Premises: Who Is the Real Recipient under GST?

A Commercially Practical Arrangement Raises an Important GST Question

Consider a common commercial arrangement. Aayra Developers, a registered developer, has allotted two commercial shops to Mr. R, an individual who is not registered under GST. Mr. R subsequently lets out these shops to Harpreet Ltd., a GST-registered company, which uses the premises for its business. Under the arrangement for the commercial complex, maintenance charges are also payable to Aayra Developers for services such as upkeep of common areas, security, cleaning, and other common facilities.

A practical difficulty arises because Mr. R is not registered under GST. If Aayra Developers raises the maintenance invoice in the name of Mr. R, the GST charged on such maintenance services may become a cost to him because he cannot claim Input Tax Credit (ITC). Harpreet Ltd., however, is registered under GST, occupies the shops and uses the maintenance facilities in the course of its business. The parties may therefore consider a more convenient arrangement: Harpreet Ltd. would directly pay the maintenance charges to Aayra Developers, and Aayra Developers would issue the tax invoice in the name and GSTIN of Harpreet Ltd. This would enable Harpreet Ltd., subject to the other conditions of the GST law, to claim ITC of the GST charged on the maintenance services.

Commercially, the arrangement may appear reasonable. Harpreet Ltd. is actually occupying the premises, using the common facilities and bearing the maintenance cost. However, these facts alone do not determine the person who is legally entitled to ITC. Under GST, payment for a service and receipt of that service are not necessarily the same thing. The crucial question is therefore not merely who pays the maintenance charges or who enjoys the facilities in practical terms, but who is legally the recipient of the maintenance service under the relevant agreements and the statutory definition of “recipient” under Section 2(93) of the CGST Act, 2017. The answer to that question would determine whether Aayra Developers can validly issue the tax invoice to Harpreet Ltd. and, consequently, whether Harpreet Ltd. can claim ITC on that invoice.

Who Is the Recipient of the Maintenance Service? Legal Liability to Pay Is the Starting Point

The starting point for determining the recipient of a supply is Section 2(93) of the CGST Act, 2017. Where consideration is payable for a supply of goods or services, or both, the law treats the person liable to pay that consideration as the “recipient”. Therefore, in the case of maintenance services provided by Aayra Developers, the first question is not who actually makes the payment. The more important question is: who is legally liable to pay the maintenance charges to Aayra Developers? The answer lies in the allotment letter, maintenance agreement, lease arrangement, and other relevant contractual documents governing the premises.

This principle becomes clearer when Section 2(93) is read together with Section 2(31), which defines “consideration.” The definition recognises that the recipient or any other person may pay for a supply. Thus, GST law itself contemplates a situation where one person may be the recipient of a service while another person makes the payment on their behalf. Mere payment of the consideration, therefore, does not necessarily establish that the person making such payment is the recipient. For example, if the allotment or maintenance agreement provides that Mr. R, as the owner/allottee, is liable to pay the maintenance charges to Aayra Developers, he would ordinarily remain the recipient for this purpose. If Harpreet Ltd., as tenant, directly pays those charges to Aayra Developers on behalf of Mr. R, such direct payment by itself would not necessarily make Harpreet Ltd. the recipient of the maintenance service.

The distinction between legal liability to pay and actual payment is therefore important. The parties cannot necessarily change the identity of the recipient merely by adopting a convenient payment mechanism or by mentioning Harpreet Ltd.'s name and GSTIN on the tax invoice. If Harpreet Ltd. is to be treated as the recipient, the underlying contractual arrangement should itself support a genuine obligation on Harpreet Ltd. to pay the maintenance charges to Aayra Developers. In other words, the tax invoice should reflect the real legal and commercial arrangement; it should not be used to create a recipient relationship that the underlying agreements do not support.

This directly affects the availability of Input Tax Credit under Section 16 of the CGST Act, 2017 . Merely possessing an invoice in its name and bearing its GSTIN does not, by itself, establish Harpreet Ltd.'s entitlement to ITC. The statutory conditions for ITC must be satisfied independently, including the requirement that Harpreet Ltd. received the relevant maintenance services . Therefore, if the contractual documents continue to establish Mr. R as the person liable to pay Aayra Developers and Harpreet Ltd. merely discharges that liability on his behalf, an invoice issued directly to Harpreet Ltd. may invite a dispute regarding its status as the recipient and, consequently, its entitlement to ITC. On the other hand, where the contractual arrangement genuinely makes Harpreet Ltd. liable to Aayra Developers for the maintenance services supplied to it, the position for claiming ITC becomes materially stronger, subject, of course, to fulfilment of the other conditions prescribed under Section 16 of the CGST Act, 2017.

Payment by the Tenant Does Not by Itself Transfer the Right to ITC

Suppose the original allotment agreement provides that every shop owner or allottee must pay maintenance charges to the developer or maintenance agency. Mr. R then leases the shops to Harpreet Ltd. and provides in the lease agreement that the tenant will directly discharge those maintenance charges. If Aayra Developers retains its contractual right to recover maintenance from Mr. R, Harpreet Ltd.'s direct payment may merely represent payment of Mr. R's liability.

This is particularly significant because Section 2(31) of the CGST Act, 2017 expressly permits consideration to flow from a person other than the recipient. Thus, payment by Harpreet Ltd. cannot, by itself, establish that the maintenance service has been supplied to Harpreet Ltd. Similarly, the fact that the tenant physically occupies the premises and enjoys security, common-area maintenance, lifts, lighting, or other facilities is commercially relevant but does not alone determine the statutory identity of the recipient.

Accordingly, merely requesting Aayra Developers to replace Mr. R's name with Harpreet Ltd.'s name and GSTIN on the maintenance invoice would carry considerable risk. The invoice should reflect the underlying supply; the underlying supply should not be artificially reconstructed merely to produce an ITC-bearing invoice.

ITC Requires More Than Possession of an Invoice

The issue is more significant because Harpreet Ltd. ultimately intends to avail ITC on the GST charged by Aayra Developers. Entitlement to ITC cannot rest merely on possession of an invoice bearing the company's name and GSTIN. The statutory scheme requires the credit to relate to an inward supply actually made to the registered person, subject to fulfilment of the conditions prescribed under Section 16 of the CGST Act, 2017.

The tax invoice therefore has evidentiary significance, but it cannot operate independently of the transaction it records. Rule 46 of the CGST Rules, 2017 requires a tax invoice issued to a registered recipient to contain prescribed particulars relating to the recipient, including its name, address and GSTIN.  Those particulars should identify the actual recipient of the underlying supply, rather than merely the person commercially interested in obtaining the credit.

If the Department subsequently examines the ITC claimed by Harpreet Ltd., it may go beyond the invoice and examine the allotment agreement, lease deed, maintenance agreement, correspondence between the parties, accounting treatment and payment arrangements. A mismatch between the invoice and the substantive contractual arrangement can therefore expose the ITC to dispute.

A Genuine Tripartite Arrangement Can Strengthen Direct Invoicing

The position can differ significantly when the commercial arrangement is prospectively restructured. A tripartite agreement or addendum may be signed among Aayra Developers, Mr. R, and Harpreet Ltd., stipulating that throughout the lease term, Aayra Developers will provide specific maintenance services directly to Harpreet Ltd., who will then be responsible for paying the agreed consideration to the developer.

Such an agreement should do more than just authorise the developer to include Harpreet Ltd.'s GSTIN on the invoice; it should clearly establish that Aayra Developers considers Harpreet Ltd. as the direct entity liable for the maintenance consideration during the lease, with Harpreet Ltd. accepting this liability in its own right. Mr. R must also authorise and agree to this direct arrangement. The developer's records, invoices, and accounting practices should consistently reflect this commercial structure.

This approach aligns more closely with statutory requirements since Section 2(93) defines the recipient as the person liable for paying consideration. If the tripartite arrangement genuinely makes Harpreet Ltd. directly responsible to Aayra Developers for the maintenance services, then the case for treating Harpreet Ltd. as the recipient is considerably stronger.

A Mere Direction by the Owner Is Not Equivalent to a Tripartite Restructuring

A distinction should therefore be maintained between two situations. In the first, Mr. R remains liable to Aayra Developers but merely instructs the developer: “My tenant will make the payment; kindly issue the invoice in the tenant's name.” In substance, nothing may have changed except the payer's identity and the name appearing on the invoice. Such an arrangement poses a significant ITC risk.

In the second situation, Aayra Developers itself becomes a party to a genuine contractual modification under which Harpreet Ltd. assumes direct liability for the maintenance charges and Aayra Developers agrees to provide and bill for the maintenance services accordingly. This is not merely a payment instruction. It alters the legal relationship regarding the supply of maintenance during the tenancy.

This distinction matters because consideration can be paid by a third person without that person becoming the recipient. Therefore, the documents must establish not merely that Harpreet Ltd. will pay the maintenance charges, but that it is itself liable to pay Aayra Developers for the maintenance services supplied to it.

The Lease Agreement and Allotment Documents Must Tell the Same Story

The tripartite agreement cannot be considered in isolation. The original allotment agreement between Aayra Developers and Mr. R should first be examined to determine whether the maintenance obligation is permanently attached to the allottee or whether the contractual framework permits the occupier or tenant to become directly liable for maintenance. Similarly, the lease deed between Mr R and Harpreet Ltd. should align with the proposed direct arrangement.

If the allotment agreement continues to make Mr. R unconditionally liable to the developer, while the tripartite document simultaneously describes Harpreet Ltd. as solely liable for precisely the same charges, the inconsistency may itself invite scrutiny. Ideally, the documents should be amended or supplemented so that the rights and obligations of all three parties are internally consistent. The developer's customer master, maintenance ledger, invoices and receipt records should reflect the same arrangement.

This is particularly important in a real transaction because GST consequences follow the substance of the contractual and commercial relationship, not an isolated clause drafted solely for tax purposes. A well-drafted document is useful evidence, but its strength depends on whether the parties actually conduct themselves in accordance with it.

Direct Payment May Also Affect the Value of the Renting Service

Another issue should not be overlooked. Section 15(2)(b) of the CGST Act, 2017 provides for including in the value of a supply an amount the supplier is liable to pay in relation to that supply, which has been incurred by the recipient and is not already included in the price. Thus, where a landlord is contractually liable for an expenditure connected with the renting supply but the tenant incurs that expenditure on the landlord's behalf, a separate valuation question can arise.

Therefore, the lease agreement should clearly state whether maintenance is the landlord's obligation forming part of the renting arrangement, or whether the tenant independently contracts for and bears maintenance in its own right. Merely directing the tenant to discharge an expense that legally remains the landlord's responsibility can have consequences beyond the ITC issue .

This reinforces the need to examine the transaction as a whole. The question is not simply “Who should receive the maintenance invoice?” The corresponding questions are who contracts for the service, who is liable for its consideration, whether the payment discharges somebody else's obligation, and how the arrangement interacts with the value of the renting service.

Prospective Restructuring Is Safer Than Retrospective Rewriting

Where the existing documents identify Mr. R as the recipient and liable for maintenance charges, it would be inadvisable to revise old invoices retrospectively in favour of Harpreet Ltd. solely to enable the latter to avail ITC. Such retrospective alteration may be difficult to reconcile with the contractual position prevailing when the services were actually supplied.

A more defensible approach is prospective. The parties may examine the existing allotment, lease and maintenance arrangements and, where contractually permissible, execute an appropriate tripartite addendum from a clearly identified prospective date. Thereafter, the parties can invoice maintenance services consistently with the revised arrangement, provided they act in accordance with it.

This distinction also protects the developer. A registered supplier should not issue a B2B invoice containing a person's GSTIN merely because that person wishes to claim ITC. The developer should have documentary support demonstrating why that person is being treated as the recipient of the maintenance service.

Precautionary Note - Even a Tripartite Agreement Does Not Eliminate Litigation

A properly structured tripartite agreement undoubtedly makes direct invoicing to the registered tenant more defensible, but it should not be regarded as a litigation-proof solution. The Department may still examine the original allotment terms, lease deed, nature of the maintenance facilities, liability for payment, accounting entries, the actual flow of consideration, and the parties' conduct to determine whether the tenant is genuinely the recipient of the maintenance service.

If, despite the tripartite agreement, the substantive arrangement still shows that the maintenance liability belongs to the owner and that the tenant merely pays on the owner's behalf, the Department may dispute the tenant's ITC. Conversely, where the entire contractual framework genuinely transfers direct liability for the maintenance consideration to the tenant and the developer accepts the tenant as the recipient, the defence is considerably stronger. The distinction must rest on commercial substance, supported by consistent documentation, not merely on tax-efficient drafting.

Accordingly, describe the tripartite structure as a more defensible arrangement rather than an assured ITC mechanism. In a substantial-value case, examine the precise wording of the allotment agreement, lease deed, and proposed tripartite addendum together before changing the invoicing pattern.

The Contractual Relationship Must Support the Invoice and ITC

The correct approach is to first examine the existing agreements and determine who is legally liable to pay the maintenance charges to Aayra Developers. If that liability continues to rest with Mr. R, Harpreet Ltd.’s direct payment of the maintenance charges would ordinarily amount to payment on behalf of Mr. R or discharge of his contractual liability. The fact that Harpreet Ltd., as tenant, actually uses the maintenance facilities and bears the economic cost does not, by itself, make it the recipient of the maintenance service or establish its entitlement to ITC.

If the parties intend for Harpreet Ltd. to be directly invoiced and claim ITC, the preferable course is to restructure the contractual arrangement prospectively through an appropriate tripartite agreement or other legally effective documentation, so that Harpreet Ltd. becomes directly liable to Aayra Developers for the maintenance charges. The supply, payment and invoicing should thereafter consistently follow that arrangement. The contractual relationship must support the invoice and the ITC claim; direct payment and actual use of the facilities alone cannot substitute for it.