Gst on surrender of tenancy by composition dealer- how ?
This query is : Resolved
24 May 2018
X is a protected tenant of a shop in Mumbai (Pagadi system, protected under Bombay Rent Act). X is carrying on garments retailing business in the name of his proprietary firm i.e. Firm X1. Firm X1 is registered a Composition Dealer paying 1% GST out of its own pocket and it has annual turnover of approx. 30 lakhs per annum.
X wants to surrender the commercial tenancy of his shop to the Landlord Y for consideration (tenancy premium/pagadi).
Landlord wants transfer of tenancy to his own Partnership Firm. Payment of pagadi would be made by the firm of the Landlord i.e. Firm Y1. Firm Y1 is a partnership firm and is a GST dealer earning commission from franchisee business.
As per recent circular Circular No. 44/18/2018-CGST “The activity of transfer of tenancy right against consideration in the form of tenancy premium is a supply of service liable to GST”
Queries :
In the aforesaid case,
1 Who is liable to pay the GST on the supply of service (transfer of tenancy right) ? Who has to collect ? (X or Firm X1 or Y or Firm Y1 ?_
2 What is the GST rate applicable ? Is Reverse charge mechanism applicable here ?
3 Is GST to be collected by the Composition dealer ? If so,
a) How is it to be collected ? Does the composition dealer raise an invoice ?
b) If the landlord is unwilling to pay GST and GST is to be paid out of the Composition dealer’s own pocket then what is the GST rate that is applicable ?
c)If the landlord pays the GST, then how does the composition dealer pay the GST amount collected to the government? how can the composition dealer suddenly convert to normal dealer mid year ? What returns/forms are to be filed, such that Landlord's Firm Y1 can claim Input credit ?
X wants to surrender the commercial tenancy of his shop to the Landlord Y for consideration (tenancy premium/pagadi).
Landlord wants transfer of tenancy to his own Partnership Firm. Payment of pagadi would be made by the firm of the Landlord i.e. Firm Y1. Firm Y1 is a partnership firm and is a GST dealer earning commission from franchisee business.
As per recent circular Circular No. 44/18/2018-CGST “The activity of transfer of tenancy right against consideration in the form of tenancy premium is a supply of service liable to GST”
Queries :
In the aforesaid case,
1 Who is liable to pay the GST on the supply of service (transfer of tenancy right) ? Who has to collect ? (X or Firm X1 or Y or Firm Y1 ?_
2 What is the GST rate applicable ? Is Reverse charge mechanism applicable here ?
3 Is GST to be collected by the Composition dealer ? If so,
a) How is it to be collected ? Does the composition dealer raise an invoice ?
b) If the landlord is unwilling to pay GST and GST is to be paid out of the Composition dealer’s own pocket then what is the GST rate that is applicable ?
c)If the landlord pays the GST, then how does the composition dealer pay the GST amount collected to the government? how can the composition dealer suddenly convert to normal dealer mid year ? What returns/forms are to be filed, such that Landlord's Firm Y1 can claim Input credit ?
25 May 2018
The person receiving the consideration is providing the supply which in this case is a non compete or negative covenant for an act of forbearance. Therefore Tenant has to collect GST and deposit and since he is composition dealer first he will have to become a regular dealer as composition is applicable only for goods.
CA Kartik Pandya
(Expert)
26 May 2018
Very good answer given by Mr. Sunil and this scenario recently addressed by the AAR.
28 May 2018
Dear CA Karthik Pandhya Sir, Please give the link of specific AAR order where "this scenario recently addressed by AAR"
CA Kartik Pandya
(Expert)
28 May 2018
https://www.taxscan.in/services-provided-outgoing-tenant-surrendering-tenancy-rights-tenancy-premium-gst-cbic/22312/
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