TMI Blog2019 (4) TMI 805X X X X Extracts X X X X X X X X Extracts X X X X ..... posit taken by the applicant is to secure or to act as a guarantee as per the terms of agreement against damages to the properties. Further, admittedly applicant has taken security deposit against the damages caused to the furniture, equipment s, fittings supplied along with the premises or damage done to the properties. The undisputed fact is that the amount of deposit taken by the applicant is Rupees Fifty Seven Crore for the period of 18 years - in the subject case, the deposit received by the applicant cannot be treated as consideration for the supply made by the applicant and therefore they will not be liable to pay GST on such deposit amount received by them. The applicant, for leasing of commercial property has, in addition to rent, also collected interest free deposit from their lessee which is returnable on the completion of the tenure of the lease. Since the entire amount is to be returned back to their lessee, such deposits cannot be considered as consideration for such supply of services as mentioned by them and hence will not be liable to tax. - GST-ARA-76/2018-19/B-172 - - - Dated:- 29-12-2018 - SHRI B. TIMOTHY, AND SHRI B.V. BORHADE, MEMBER PROCEEDINGS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GST would be applicable on interest free security deposit and notional interest if any? - In case GST is applicable what would be value of notional interest for levy of GST? 2.1 STATEMENT CONTAINING THE APPLICANT S INTERPRETATION OF LAW AND/OR FACTS, AS THE CASE MAY BE, IN RESPECT OF THE QUESTION(S) ON WHICH THE ADVANC RULING IS REQUIRED 1. ISSUE FOR DETERMINATION-- The question/ issue before your determination is - Whether GST would be applicable on interest free security deposit and notional interest if any? In case GST is applicable what would be value of notional interest for levy of GST? The question / issue placed for determination before Your Honor has to be appreciated in light of the following position of law and its applicability to the current activity by the Applicant, discussed hereunder 2. OUR SUBMISSIONS - Deposit not affects the rent payable and not liable for GST GST is levied on supply as defined under section 7 of the CGST Act. Section 7 (a) of the CGST Act, the expression supply includes (a) all forms of supply of goods or services or both such as sale, transfer, barter, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered for the purpose of discharging GST. Further, security deposit needs to be refunded to the tenant on completion of lease term / period and therefore, it cannot form part of the consideration received towards rendition of renting services. This fact can be clear from para 10(c) of the agreement under consideration, At the end of the Tenure of 18 years, the Lessor shall refund the Security Deposit. The Lessor shall pay interest on the Security Deposit, at the rate of 16% (sixteen percent) per annum from the date from which the Security Deposit is refundable until the actual date of receipt of the Security Deposit along with the interest by the Lessee and the Lessee shall remain in exclusive possession... Given the aforesaid, we submit that, security deposit does not form the part of consideration as defined under section 2(31 ) of the CGST Act, hence GST on the same cannot be levied. Notional interest provision not existing in the GST law - With regard to the concept of notional interest, the Applicant refers to the GST Rules; wherein the concept for inclusion of notional interest has not been prescribed. The concept of notional int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are; prima facie, of the view that the appellant has made out a case in their favour for grant of stay. Accordingly, we grant unconditional waiver from pre-deposit of dues adjudged against the appellant and stay recovery thereof during the pendency of the appeal. The Applicant herewith submits that interest free security deposit received from the lessees does not amount to consideration since the same is not payable for service provided but is merely a security measure and hence not liable to GST. Alternate school of thought - Deposit affects the rent payable and liable for GST There is another view possible, where rent received /receivable from the lessees is influenced by the security deposit amount, whereas rent amount has been reduced to adjust the benefits accruing out of the security deposits. In such cases, GST to be computed on notional interest (which may be average of benchmark Prime Lending Rate of SBI or LIBOR Interest Rate) on net deposit amount (Gross Deposit minus fixed period of rent). Thus, the Applicant is seeking clarity on value of GST on interest free security deposit. In any case if it is chargeable to GST, then ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his regard. Few facts relevant for the present purpose those are as follows: Applicant is engaged in supply of various services including renting of immovable property to business entities for commercial purpose. The Applicant is discharging liability under the provisions of GST Act on the amount rent received from the lessee. Applicant has taken security deposit from the lessee as security against damages to property such as furniture, fittings attached with the property or any damage to the property leased. The security deposit is free from any interest payable to lessee that is Interest Free Security Deposit. This interest free security deposit is the central point of this application and applicant seek clarification on the levy of GST on such deposits. Applicant has raised following questions: 1. Whether GST would be applicable on interest free security deposit and notional interest if any? 2. In case GST is applicable what would be value of notional interest for levy of GST? Thus, the issue for our consideration in this application is the leviability of GST on interest free deposit and notional interest if any . The taxable event in GST is supply of good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h difficulty that a deposit given in respect of the supply shall not be considered as payment made for such supply unless the supplier appropriates such deposit as consideration for the said supply. In view of the above we take up the subject matter for discussion. The term deposit is not defined in the GST Act. From the perusal of Dictionary meaning deposit has several dimension that include part or full price of the purchase, sum money paid into a bank account, a sum you pay when you start a renting something etc. Thus for a payment to be considered as security deposit should have following attributes i) For performance of an obligation. ii) Security against return of the hired goods. iii) Security against damage to properties rented. iv) Must be reasonable. Applying the above test to the facts of the case we find that, the security deposit taken by the applicant is to secure or to act as a guarantee as per the terms of agreement against damages to the properties. Further, admittedly applicant has taken security deposit against the damages caused to the furniture, equipment s, fittings supplied along with the premises or damage done to the properties ..... X X X X Extracts X X X X X X X X Extracts X X X X
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