Place of Supply - In case of Immovable Property

The place of supply of services,-

a. directly in relation to an immovable property, including services provided by architects, interior decorators, surveyors, engineers and other related experts or estate agents, any service provided by way of grant of rights to use immovable property or for carrying out or co-ordination of construction work; or

b. by way of lodging accommodation by a hotel, inn, guest house, home stay, club or campsite (campsite), by whatever name called, and including a house boat or any other vessel; or

c. by way of accommodation in any immovable property for organising any marriage or reception or matters related thereto, official, social, cultural, religious or business function including services provided in relation to such function at such property; or

d. any services ancillary to the services referred to in clauses (a), (b) and (c), shall be the location at which the immovable property or boat or vessel, as the case may be, is located or intended to be located:

Provided that if the location of the immovable property or boat or vessel is located or intended to be located outside India, the place of supply shall be the location of the recipient.

Explanation. Where the immovable property or boat or vessel is located in more than one State or Union territory, the supply of services shall be treated as made in each of the respective States or Union territories, in proportion to the value for services separately collected or determined in terms of the contract or agreement entered into in this regard or, in the absence of such contract or agreement, on such other basis as may be prescribed.

Analysis: Grants of rights - Cover renting of immovable property

Co-ordination of construction - Cover construction service.

Home stay also include dharmshala

For clause (c) - Mandap keeper or convention centre for organizing any official social or business function including marriage. A careful perusal of this clause reveals that this clause shall also cover services in relation to such official, business or social function. To illustrate this clause will cover the services provided by DJ in marriage function and also covers the services of decoration etc provided by its supplier in relation to such function and place of supply shall be the location of such mandap or convention centre. 

Other Example-1

Kirti Limited (formed and located in New Delhi) has an office premises in New Delhi which is the only asset in its Balance Sheet. Similarly Kirti Limited has only rental income in its Statement of Profit & Loss. Brown Limited (formed and located in Mumbai) wants to buy above-mentioned office premises of Kirti limited and has accordingly appointed a Real Estate Broker Mr. Vivek Sehgal (located in New Delhi). The shareholders of the Kirti Limited wants to sell its office premises by way of sale of shares which is purchased by Brown Limited. Mr. Vivek Sehgal has assisted in this deal to Brown Limited and hence charged his stipulated brokerage to Brown Limited.

Now, Service provided by a real estate broker shall fall within the purview of Sub-section 3 of Section 12 of IGST, Act, 2017 , because these services are directly in relation to immovable property. Further, irrespective of whether the transaction is a simple money transaction or facilitated by way of sale of shares, the applicable Sub-section for determining the taxability is Sub-section 3 which is the place where the immovable property is located or intended to be located. In present case, immovable property is located in New Delhi. As a consequence, place of supply of Real Estate Broker's service shall be New Delhi(Taxable Territory). Accordingly, aforesaid services shall be subject to tax.

Also location of supplier is also in New Delhi, hence CGST+SGST will be applicable.

Example-2         

Sonica Private Limited  (incorporated in Bombay) is developing a township project in the Nepal. Sonica Limited has appointed Engineer Rahul Khanna (located in Bombay) for the purpose of providing Architech's Services in respect of aforesaid township project. Engineer Rahul Khanna raises invoice on Sonica Private Limited for stipulated consideration after completion of his Engineering Services.

'Engineering Services' are directly in relation to an immovable property. Thus, foregoing Engineering Services shall fall within the purview of Sub-section 3 of Section 12 of IGST Act, 2017; Resultantly, the place of supply of aforesaid Engineering Services shall be location where the immovable property is located or intended to be located. Since in the given case, the immovable property is intended to be located in Nepal [Non-taxable territory], the place of supply of foregoing 'Engineering Services', shall be Nepal [Non-taxable territory]. Resultantly, Engineer Rahul Khanna is not required to charge tax from Sonica Limited in respect of his Engineering Services.

** There must be more than a mere indirect or incidental connection between a service provided in relation to an immovable property, and the underlying immovable property. For example, a legal firm's general opinion with respect to the capital gain tax liability arising from the sale of a commercial property in India is basically advice on taxation legislation in general even though it relates to the subject of an immovable property. This will no treated as a service in respect of the immovable property.

Example of Proviso to Section 12(3) - If Mr 'A' Delhi provide service of architecture to Mr.'B' of Mumbai in relation to immovable property in New York, then place of supply will be location of recipient i.e. Mr 'B' (Mumbai)

Explanation of Section 12 -Where the immovable property is located in more than one State, the supply of service shall be treated as made in each of the States in proportion to the value for services separately collected or determined, in terms of the contract or agreement entered into in this regard or, in the absence of such contract or agreement, on such other reasonable basis as may be prescribed in this behalf. (The Explanation clause to section 12(3) of the IGST Act, for domestic supplies)