Order Date – 03 November 2023

Facts –

• The Applicant, M/s The Surat Textile Market Cooperative Shops & Warehouses Society Ltd, is cooperative society, formed for the purpose of maintenance & service of the Sural Textile Market. 
• Surat Textile Markel is leased by the Sural Municipal Corporation (SMC). The said lease expired in the year 2018. SMC has now come up with a lease proposal to renew it for a further period of 99 years. Due to lacks of huge fund, the applicant decided to recover the amount from the owners of the shops in the Surat Textile Market, who are also shareholders of the applicant.

Issue –

• Whether the applicant is required to pay tax under Reverse Charge Mechanism u/s 9(3) or 9(4) for lease renewal amount payable to SMC and whether the amount collected from the shareholders/shop owners are liable to GST? 

Order –

• The AAR observed that in terms of Sr. No. 5 of notification No. 13/2017-CT(Rate) dated 28.6.2017, as amended, the applicant, [who as a recipient falls within the ambit of a ‘business entity’, in terms of the definition of business as per 2(17), ibid], becomes liable to discharge GST under RCM in terms of section 9(3) of the CGST Act, 2017 in respect of the services supplied by SMC, [a local authority in terms of Section 2(69), ibid].
• Further in terms of Schedule II of GST Act, 2017, reproduced supra, the activity i.e. lease of plot and payment of one time lease premium/salami/premium on lease renewal and annual premium paid by the applicant is a ‘supply’ and is covered under Section 7(1) of CGST Act, 2017.
• For considering any area as industrial or financial business area, it is necessary that the area must be declared as industrial or financial business area by the state government by notification. In the instant matter, we find that no such Notification declaring the area consisting of Sural Municipal Corporation proposed to be leased out to the applicant, as industrial/financial business area, is on record. 
• Therefore, the area cannot be treated as industrial or financial business area in absence of any evidence in support. Thus, the benefits of Sr. no. 41 of not. No. 12/2017-CT(Rate), as amended is not available to the applicant and clarification issued vide circular no. 101/20/2019-GST dated 30.4.2019.
• Further it was held that the collection made from shareholders/shop owners, who are members of the cooperative society, by the applicant, for making payment of lease and lease premium, is a supply under section 7 of the CGST Act, 2017 and would be leviable to GST under forward charge.