Gst on tenants upon redevelopment of pagadi property

Sudhir Parmar (Querist) 31 December 2020 This query is : Resolved
Hello Sir, our Landlord(developer) has made PAA with us in 2008 to provide ownership flats after redevelopment of our Pagdi property. No money is involved at all in this deal. Till date building has not became ready, when we demanded delay penalty, he said he will give, but suddenly started asking us to pay GST on rehab component which was never ever discussed in lifetime. Can he charge us GST ? Kindly help us with a your reply in light with relevant provisions of GST Act. Thanks.

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This discussion explores whether landlords (developers) can charge Goods and Services Tax (GST) on the 'rehab component' provided to tenants during the redevelopment of Pagadi properties, especially when no money changes hands. Experts suggest that GST is typically levied on services provided for monetary consideration. Since the agreement involves no cash transaction for the rehab flats, and the developer likely absorbs this cost into their saleable flats (on which GST is already charged), levying GST on tenants could be considered double taxation and may not be applicable under GST provisions like Section 7(i)(a) of the CGST Act. Professional consultation with a local tax expert is recommended to review the specific agreement and relevant GST laws.

Rajendra K Goyal (Expert) 01 January 2021
GST is on services etc. provided by the developer. In this case no money is involved, full agreement need to be referred on the issue. Show all document to local tax consultant and discuss in detail.

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Dr J C Vashista (Expert) 01 January 2021
Show the documents to a local tax consultant, as rightly observed, opined and advised by expert Mr. Rajendra K Goyal, which I endorse and appreciate.

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P. Venu (Expert) 01 January 2021
Yes, the matter requires professional consultation.

Rajendra K Goyal (Expert) 02 January 2021
Expert Dr. J.C. Vashishta ji thanks for agreeing.

Sudhir Parmar (Querist) 02 January 2021
Dear Rajendra ji,
Thanks for ur prompt revert, my point was only to highlight a grey area, whether GST is applicable on Rehab component allotted to Pagadi property Tenants wherein no monetary consideration was involved, as GST law itself is not much clear on such arrangements & consultants interpret the facts in their own manner hence the opinions differ. Primarily Sec. 15 of CGST Act provides for Valuation of Supply involved, here Tenants being unrelated party and with no monetary consideration involved, the levy of GST becomes remote. Agreement does mention that applicable ST & MVAT to be borne by tenants, but in the specified case, even this clause shall fail to apply. Incase u need any inputs, I may share it for the sake of understanding of the matter to all those who must be sailing in same boat being part of this public forum. Thankyou.

Isaac Gabriel (Expert) 03 January 2021
GST will not arise as no investment seem to have been done.If anysuch commitment been made, it is the sole risk of the builder who is responsoble.

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Rajendra K Goyal (Expert) 03 January 2021
Agreement mention that applicable ST & MVAT to be borne by tenants. MVAT / ST is replaced by GST, under the circumstances the tax has to be borne by tenants.
Tenants are ultimate beneficiary / consumer of the services in this case.

Sudhir Parmar (Querist) 03 January 2021
Agree with Mr. Isaac ji's view, As there is no monetary amount involved, no liability would arise. The free component flats that he is giving to tenants is part of his cost, which is already absorbed in his saleable flats on which he is already charging GST from the end Buyers. Hence if again he decides to collect gst from tenants, it would amount to double taxation and would ultimately be a fit case of Anti Profiteering. Conversely, Section 7(i)(a) mentions that Supply should be for consideration AND FOR FURTHERANCE OF BUSINESS. For tenants, redevelopment is once in a life time time thing and for its personal use, not for business, hence it would not constitute a supply from tenants perspective as well. Hence, in a nutshell even if the agreement mentions, it cannot supercede the intent behind which law was made. GST is nothing but a Value Added Tax i.e. Rehab flat cost+Sale flat cost+Profit = Saleable flat price on which GST can rightly be levied. Yes, there is GST on input costs as well, but on Reverse Charge, for which ITC is already available to Builder who have opted in the Old Regime as on 01.04.2019. Incase our experts differ from above, please do share your view to ensure a fruitful discussion. As I said in earlier post, in absence of appropriate clarification from CBIC on such arrangement, help has to be taken from the Act itself and the rules framed thereunder, which again is subject to difference of opinion, unless the issue is seen in its totality. Thankyou all for participating in a healthy discussion on the matter.

T. Kalaiselvan, Advocate (Expert) 07 June 2021
Rehab component means grant 35% compensatory floor space index (FSI) of of the redevelopment project, buty it is not known if the builder or flat owner will have to pay for the additional space.
If the flat owner has been asked to pay for the additional FSI, then the GST to that rehab component may be borne by the tenant/flat owner.
Tenants are currently entitled to 300-700 square feet houses free when their buildings are redeveloped. But if the flat is larger than 700 sq ft, builders provide an equivalent area to the tenant in the redeveloped property.

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