The Hon’ble Appellate Authority for Advance Ruling, Maharashtra vide its order dated 1st April 2022 in the matter of M/S. TUKARAM PUNDALIK BORADE in MAH/AAAR/AM-RM/03/2022-23, set aside the order passed by Maharashtra Authority for Advance Ruling (“MAAR”) and held that the renting of immovable property provided to Social Welfare Department for residential accommodation of girls from the backward classes is exempt under Notification No. 12/2017 – C.T. (Rate) dated 28.06.2017. Further, it was also held that deduction of TDS under Section 51 would not be applicable to the impugned transaction.
The appellant preferred the appeal assailing the order passed in Advance Ruling No. GST-ARA-94/2019- 20/B-84 dated 02.11.2021 passed by “MAAR”, whereby the benefit of exemption under Notification No. 12/2017 – C.T. (Rate) dated 28.06.2017 was denied to the appellant for the services of renting of immovable property provided to Government social welfare department for residential accommodation of girls from the backward classes. Further, it was held that TDS would be applicable to the transaction as it is not exempt.
- The Appellant is unregistered and engaged in providing the service of renting of immovable property, situated at Nashik, and receiving rental income from the same.
- The Appellant is one of the Co-owners of the immovable property, which are jointly owned by five individuals and holds a proportionate share in the property as per the terms of three separate agreements entered.
- The property was let out to Social Welfare Department, Nashik Division of Maharashtra Government and the service being provided for 36 months from 03.06.2019. The Appellant is receiving a fix rent of Rs. 1,62,073/- for the three separate agreements entered for the immovable properties with different co-owners for each agreement (from remaining four individuals).
- That all five co-owners in total received the rent of Rs. 81,63,852.00, however the share of each of the co-owner does not cross the threshold limit.
- The Maharashtra Government department is deducting TDS under Section 51 and the Appellant being unregistered under GST is not able to utilize the ITC, resulting in blockage of funds.
- The Appellant with above background filed an application of Advance ruling before “MAAR” seeking advance ruling on following questions: –
- Whether the services provided to Special Assistance Department, Government of Maharashtra (Social Welfare Department) for residential accommodation of underprivileged girls is exempt from GST?
- Whether TDS provisions will be applicable in case where the supply of services is exempt?
- Whether Section 51 ‘Deduction of TDS’ would be applicable as the Appellant is unregistered under GST and the service has been provided to Government Department.
- If the TDS is deducted, whether they would be entitled for refund of the same.
Appellant Submissions: –
- That referring to the provisions of Section 51 of the Act, it was submitted that TDS deduction is not applicable when the payment is made to the unregistered person.
- The Appellant in the instant matter is unregistered and cannot be registered as its turnover is less than 20 lakhs and receiving rent from Government of Maharashtra.
- That placing reliance on FAQ, by the Law Committee, GST Council – SOP dated 28.09.2018 issued in this respect, submitted that GST TDS under Section 51 is not applicable where the payment is made to an unregistered person. Thus, TDS on the present transaction may not be deducted.
- The Appellant further relying on entry at Serial No. 3 of Notification 12/2017 dated 28.06.2017, submitted that the service of renting of immovable property is provided to Social Justice and Special Assistance Department, Government of Maharashtra and has been used for accommodation of under-privileged girls belonging to Scheduled Tribes. Thus, the service provided by the appellant is exempt under Notification 12/2017 dated 28.06.2017 as it fulfils all the requirements as stated in the said Notification.
- Further, referring to the finding of the MAAR i.e., “There are no submissions made to show that the impugned services are supplied by the applicant by way of any activity in relation to any functions entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243 W of the Constitution.’, submitted that the agreement with Social Justice and Assistance department was submitted with “MAAR”.
- Further, referring to the Article 243G and 243W which covers Welfare of weaker sections, -and of scheduled castes and the scheduled tribes and safeguarding the interest of weaker sections of society, including handicapped and mentally retarded, it was submitted that the property has been taken on rent by ‘Social justice and Special Assistance Department’ for welfare of, and accommodation of girls belonging to under-privileged section of the society. Thus, the services in the instant case will be covered under the functions entrusted under Article 243W and 243G.
- The Appellant relied on the case of Sri Puttahalagaiah G.H. (AAR -Karnataka), wherein similar issue was involved i.e., ‘the applicant has rented his property to Backward Classes Welfare Department, Government of Karnataka, who in turn using the same for providing hostel facilities to the post matric girls of backward classes.’ and it was held that the activity is exempt being in relation to function entrusted to panchayat under Article 243G.
- That in the instant case all the three conditions as required for exemption under CGST and MGST Acts, 2017, are fulfilled ‘(i). the service provided is a pure service, (ii) Service has been provided to Government Authority, (iii) Service is in relation to any function entrusted a Municipality under Article 243 of the Constitution.’
- That the Appellant is one of the co-owners of the immovable property, jointly owned by five individuals and hold a proportionate share in the property. The Gross Turnover of each Co-owner, ‘from the income received from immovable property rented to the Social Welfare Department, Nashik Division,’ does not exceed the threshold limit.
- It was submitted that the Appellant submitted the copy of the agreements of co-ownership of the immovable property showing actual percentage of ownership/co-ownership, however the Ld. MAAR wrongly came to the conclusion that the Appellant has not made any detailed submission showing actual percentage of the owner/co-owner in the said property.
- The Appellant relying on the case of M/s. SRI RABI SANKAR TAH – Case No. 34 of 2019, submitted that merely because several persons jointly own an immovable property, they cannot be considered as ‘an association of persons’ or ‘a body of individuals.’
- Further, relying on the decision of M/s. ELAMBRANCHERI KHALDOON – ADVANCE RULING No. KER/12/2018, wherein it was held that ‘Small business exemption provided u/s 22 of the GST Act is eligible to the co-owners separately in the case of jointly owned property, where the rent is collected together, but divided equally and transferred to the respective co-owners’, submitted that there is no requirement to take registration under Section 22 as the turnover of the Appellant does not exceed the threshold limit.
Jurisdictional Officer’s Submissions: –
- On the other hand, it was submitted by the jurisdictional officer that it is not clear whether the activities of Social Welfare Department, Maharashtra would fall under Article 243G of the Constitution and eligible for exemption as contended by the Appellant. The turnover of the Appellant exceeds Two Lakh fifty thousand, thus the Social Welfare Department is eligible to deduct TDS under Section 51.
- The Hon’ble MAAAR after considering the submissions from the both sides, facts of the case, law applicable and the advance ruling passed by MAAR wherein it has been held that ‘the services provided by the Appellant to Social Welfare Department is not exempt from GST and TDS provisions under Section 51 of the CGST Act, 2017, will be applicable in this case.’, observed that the moot issue to be decided is that the subject activity of renting of immovable properties to the Social Welfare Department, Government of Maharashtra, for the residential accommodation of girls from the backward classes is in relation to any function entrusted upon ‘Panchayat’ under Article 243G or upon the municipality under Article 243W of the Constitution, or not.
- The Hon’ble Appellate Authority after perusal of functions entrusted in Article 243G and Article 243W (along with eleventh and twelfth schedule) observed that panchayats and municipalities are entrusted with the responsibilities for ensuring social justice and development of weaker section of the society, which clearly includes the girls and women from the backward class/Schedule Tribes. Thus, arranging for residential accommodation of girls from backward class/Schedule Tribe would come under the functions entrusted in Article 243G and 243W.
- Further, the Hon’ble Appellate Authority on perusal of the entry on Serial No. 3 of the Notification 12/2017 dated 28.06.2017 observed that the use of word ‘any’ before ‘activity’ and ‘function’, and other terms like ‘in relation to’ make the scope of entry very wide. Thus, as already held hereinabove that the activity related to accommodation of girls from backward class/schedule tribe would come under the functions entrusted to panchayats and municipalities, In the instant case the ‘pure service’ of the renting of immovable property provided by the Appellant to the State Government for residential accommodation of girls from the backward class/Schedule Tribe, will definitely be construed as an activity in relation to the functions entrusted to the ‘Panchayats’ and ‘Municipalities’ and is exempt vide Serial No. 3 of Notification 12/2017- C.T. (Rate) dated 28.06.2017.
- It was further noticed that similar view has been taken in, by AAR Karnataka in the case of Sri Puttahalagaiah G.H. [Advance Ruling No. KAR/ADRG/19/2021 dated 06.04.2021]
- It was also held that there is no deficiency in the submissions made by the Appellant, as held by MAAR, as the Appellant provided the copy of agreement entered with Social Welfare Department, Maharashtra.
- That once the subject transaction is exempt under GST, the question applicability of TDS under Section 51 does not arise.
The Hon’ble Appellate Authority of Advance Ruling with the above findings set aside the Advance Ruling No. GST-ARA-94/2019-20/B-84 dated 02.11.2021, passed by the MAAR, and allowed the appeal of the Appellant. It was held that ‘the impugned services of renting of immovable property provided to the Social Justice Department, Government of Maharashtra, is exempt in terms of entry at Serial No. 3 of Notification No. 12/2017 – C.T. (Rate) dated 28.06.2017. The TDS provision under Section 51 would not be applicable to the impugned transaction’.