GST UPDATE ON APPLICABILITY OF GST WHERE BOTH SUPPLIER AND RECIPIENT OF RENTING OF IMMOVABLE PROPERTY SERVICE ARE LOCATED OUTSIDE INDIA AND PROPERTY IS SITUATED IN INDIA

[Pradeep Jain]

 The provisions for determining place of supply are given in chapter V of IGST Act, 2017 which covers section 10 to 14 of IGST Act,. Section 12 determines the place of supply of services where the location of supplier of services and the location of the recipient of services is in India. Thus, section 12 will apply only where the location of supplier as well as the recipient is in India. Similarly, section 13 determines the place of supply of services where the location of the supplier of services or the location of the recipient of services is outside India. Thus, this section prescribes the provisions for determining the place of supply in case where either the location of supplier or the location of recipient of service is outside India. This section uses the word "or", therefore, there arises a question as to which section will apply in case location of both recipient of service as well as supplier of service is outside India. This update is about the issue whether the provisions of section 13 can be applied where both location of supplier and recipient are outside India. In case of renting of immovable property service, the place of supply is the place where the immovable property is situated. This provision is given in both Section 12 (applicable where location of supplier of service and location of recipient of service is in India) and in section 13 (applicable where location of supplier of service OR location of recipient of service is in India). In the given case where both supplier and recipient of renting service are located outside India, Section 12  is outrightly not applicable. Further, the section 13 uses the word "OR" which if literally interpreted will mean that it will apply only if one out of supplier and recipient are located outside India. It does not specifically mentions that it will also apply if location of supplier as well as the recipient is outside India. On the given case, there are divergent views of experts, one being that the given case is outside the purview of GST as both the supplier and recipient are outside . In this regard, there is another view which states that in this case, the section 13 will not apply at all as this transaction is out of purview of GST law. In this regard, it is worthwhile to mention here that CGST will be levied if transaction falls in charging section 9 of CGST Act, 2017 and IGST will be levied if the transaction falls in purview of charging section 5 of IGST Act, 2017.

Section 9 of CGST Act, 2017; there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both..." Likewise, charging section 5 of IGST Act, 2017 states that "there shall be levied a tax called the integrated goods and services tax on all inter-State supplies of goods or services or both.." Therefore, to fall in the provisions of CGST Act and IGST Act; there has to be either intra-state or inter-state supply. To determine whether a transaction is intra-state or interstate, provisions of section 7 to 9 of IGST Act, 2017 are applicable. The provisions of section 7 are applicable to determine the "inter-state supply". The relevant provisions from this section as applicable in case of renting of immovable property service are produced as follows:- Section 7(3):- (3) Subject to the provisions of section 12, supply of services, where the location of the supplier and the place of supply are in–– (a) two different States; (b) two different Union territories; or (c) a State and a Union territory, shall be treated as a supply of services in the course of inter-State trade or commerce. This section is not applicable in the given case as the two different states here means "states located in India". Since both the service provider and recipient are located outside India, this clause does not apply here. Section 7(4):- (4) Supply of services imported into the territory of India shall be treated to be a supply of services in the course of inter-State trade or commerce. This section is also not applicable as under section 2(11) of IGST Act, 2017, import of service is there if the service provider is located outside India, service recipient is located in India and place of supply is in India. In the given case, both service provider and recipient are located outside India, therefore, this clause is not applicable. Section 7(5):-(5) Supply of goods or services or both,–– (a) when the supplier is located in India and the place of supply is outside India; (b) to or by a Special Economic Zone developer or a Special Economic Zone unit; or (c) in the taxable territory, not being an intra-State supply and not covered elsewhere in this section, shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce. The given case will fall under the residual clause (c) of section 7(5). Accordingly, the supply of service will be treated as inter-state supply and provisions of IGST Act, 2017 will apply. So, it is ample clear that the IGST Act will apply in the given case even if the supplier of service and recipient of service are located outside India. In view of above discussion, it is clear that the intention of government is clear to levy the tax in cases where the place of supply is in India. Accordingly, we can say that the section 13 of IGST Act can be liberally interpreted to include the given case also. Therefore, holding this view, the provider of renting service will be required to get himself registered in India. Now, interestingly, since the supplier will get registered in India, the location of supplier and place of supply will be in the same state; accordingly, the case will come out of purview of section 13 and will fall in section 12 of IGST Act, 2017. Accordingly, the CGST and SGST will be payable. Again, there is another view that in case of immovable property, it cannot be said that merely because immovable property is situated, it cannot be said that there is some fixed establishment as there are no human and other resources and as such it cannot be termed as place of business. If this view is accepted, there will be problem as to where the registration is to be taken. Thus, by accepting this view, though the transaction falls in purview of charging section but the subsequent sections fail. Therefore, again there is confusion on the issue of registration in the given case. The above discussion clearly indicates that there is lot of anomaly in the given situation and it is surely to attract the litigation. Though it is a rare phenomenon, yet, if there are any such cases, the litigation is inbuilt.