The Authority for Advance Rulings, West Bengal in the case of M/S. KOLAY PROPERTIES LTD. vide Case No. WBAAR 27 of 2024, Order No. 24/WBAAR/2024-25 dated 27.02.2025, reinforces the interpretation of Section 15(2) of the CGST Act, ensuring that any statutory levy reimbursed by the recipient is included in the taxable value. The AAR ruled that the municipal property tax, when reimbursed by the lessee to the lessor, forms part of the taxable value of the lease service under GST.

Facts of the Case:

The applicant contended that lease rent agreed upon is the sole consideration for the supply of lease services. Further, municipal property tax is a statutory levy and and not a service provided by the lessor, hence should not be included in the value of taxable supply under GST. The “transaction value” should be limited to the lease rent, and the property tax reimbursement should be treated separately.

The Revenue authorities whereas submitted that GST is applicable on the entire value of supply, including municipal taxes reimbursed by the lessee. As per Section 15(2)(a), any tax levied under another law (such as the Kolkata Municipal Corporation Act, 1980) must be included in the value of taxable supply. Since the reimbursement is a contractual obligation arising from the lease deed, it forms part of the consideration for the lease service.

Issue: The core issue is whether the reimbursement of municipal property tax by the lessee to the lessor (the applicant) is subject to GST. 

AAR’s observation and Rulings: 

The AAR, West Bengal ruled as under

• GST is applicable on the reimbursement of municipal property tax paid by the lessee.
• The value of supply in this case is not just the lease rent, but also includes the reimbursement of property tax.
• The lessor is required to charge GST at 18% on the total value, including property tax reimbursement.

Relevant legal provisions 

Section 15 of the CGST Act, 2017: Defines the value of taxable supply and states that it includes any taxes, duties, cesses, fees, and charges levied under any other law if charged separately by the supplier. Sub-section (2)(a) explicitly includes such statutory levies in the value of supply.

Schedule III of the CGST Act: Lists activities that are not considered as a supply under GST. The revenue authorities clarified that reimbursement of municipal property tax is not covered under this schedule and thus does not qualify for exemption from GST.