2021 (12) TMI 610 - AAR - GST

Reverse Charge Mechanism - procurement of renting of immovable property services from Seepz Special Economic Zone Authority (Local Authority) - zero rated supply or not - Notification No. 13/2017 dated 28th June, 2017 read with Notification No. 03/2018 - Central Tax (Rate) dated 25th January 2018? - levy of IGST or CGST and SGST - HELD THAT - In the instant case, as submitted by the applicant, they are receiving renting of immovable property services from a local authority i.e. SEEPZ SEZ and the applicant is registered under the CGST Act, 2017. Hence the applicant must discharge service tax liability under reverse charge mechanism as per the provisions of the amended Notification No. 10/2017- I.T. (Rate) dated 28.06.2017. The RCM provisions provide that all provisions of the IGST Act shall apply as if the recipient person is liable to pay tax. The subject case satisfies all the conditions of Notification No. 10/2017-I.T. (Rate) dated 28.06.2017 as amended, and therefore as per section 5(3) of IGST Act, 2017, we are of the opinion that, the applicant is liable to pay tax under Reverse Charge Mechanism. Applicant has cited Notification No. 18/2017- I.T.(Rate) to state that the renting of immovable property services are imported by them and are therefore exempted from IGST. Applicant has cited Section 2 (o) of SEZ Act 2005, which defines the term Import and have come to a conclusion that, receiving goods or services by a SEZ Unit from a SEZ Developer of same SEZ or different SEZ tantamounts to import of goods under the SEZ Act, 2005 and since, based on the Lohani Committee report, GST laws were aligned with the SEZ laws in 2018 the benefit of tax free procurement in terms of Notification No 18/ 2017- I.T. (Rate) dated 05.07.2017 is available to them. The applicant, a SEZ Unit, is situated in an Exclusive Economic Zone and as per the aforesaid definition mentioned above; the term India includes an exclusive economic zone. Therefore in the subject case both, the recipient and supplier of services are situated in India. Hence, Notification No. 18/2017 is not applicable in this case. We agree with the submissions of the jurisdictional officer on this issue. Zero Rated supplies - HELD THAT - The sub-section 16(2) of IGST Act, 2017 itself says that credit of input tax may be availed for making zero-rated supplies, notwithstanding that such supply may be an exempt supply. Further sub-section 16 (3) is only applicable to registered person making zero rated supply i.e. suppliers of Zero Rated Supplies, but here, the applicant is recipient and thus it is not covered under section 16(3). Overall, a harmonious construction of section 5 (3) of IGST Act, 2017 read with relevant notifications and section 16 of IGST Act, 2017 clearly stipulates that applicant is liable to pay tax under Reverse Charge mechanism. Whether they are required to discharge liability under Reverse Charge Mechanism for procurement of other services? - HELD THAT - Notification No. 10/2017-I.T. (Rate) dated 28.06.2017- amended by Notification No. 3/2018- IT. (Rate)-dated 25.01.2018, notifies only specific category of services on which tax is payable under reverse charge mechanism. Hence, applicability of the said notification cannot be decided in a general/blanket manner for other services mentioned by the applicant because the other services are not enumerated by the applicant - this issue cannot be answered in absence of proper information provided by the applicant. Under which head tax Applicant will be required to discharge tax, if any, under reverse charge mechanism? - HELD THAT - The tax will have to be discharged under IGST.

Summary

Issues Involved:
1. Tax liability under reverse charge mechanism for renting of immovable property services.
2. Tax liability under reverse charge mechanism for other services.
3. Tax head for payment under reverse charge mechanism.

Detailed Analysis:

Issue 1: Tax Liability under Reverse Charge Mechanism for Renting of Immovable Property Services

The applicant, a SEZ unit, sought clarity on whether it must pay tax under the reverse charge mechanism (RCM) for renting immovable property services from SEEPZ SEZ Authority (a local authority). The relevant notifications are Notification No. 13/2017-C.T. (Rate) and Notification No. 03/2018-C.T. (Rate).

The ruling examined Section 7(5)(b) of the IGST Act, 2017, which treats the supply to or by a SEZ unit as an inter-State supply. Under Section 5(3) of the IGST Act, the government can specify categories of supply where tax is payable by the recipient under RCM. Notification No. 10/2017-I.T. (Rate), as amended by Notification No. 03/2018-I.T. (Rate), includes renting of immovable property services supplied by a local authority to a registered person under RCM.

The ruling concluded that since the applicant is receiving renting services from SEEPZ SEZ Authority, a local authority, and is registered under the CGST Act, it must discharge the tax liability under RCM as per the provisions of the amended Notification No. 10/2017-I.T. (Rate).

Issue 2: Tax Liability under Reverse Charge Mechanism for Other Services

The applicant also inquired about the tax liability under RCM for other services procured from the SEEPZ SEZ Authority under the same notifications. The ruling noted that Notification No. 10/2017-I.T. (Rate) specifies categories of services subject to RCM. However, the applicant did not enumerate the "other services" in question. Therefore, the ruling could not provide a definitive answer due to the lack of specific information.

Issue 3: Tax Head for Payment under Reverse Charge Mechanism

If the applicant is required to pay tax under RCM, the ruling clarified that the tax must be discharged under the IGST head. This is in line with Section 7(5)(b) of the IGST Act, which treats the supply to or by a SEZ unit as an inter-State supply.

Additional Considerations and Rebuttals:

The applicant argued that services procured from SEEPZ SEZ Authority should be considered as imports under the SEZ Act, 2005, and thus exempt from IGST under Notification No. 18/2017-I.T. (Rate). However, the ruling clarified that under the IGST Act, "import of services" requires the supplier to be located outside India, which is not the case here as both parties are within India. Therefore, Notification No. 18/2017-I.T. (Rate) does not apply.

The applicant also cited Section 16 of the IGST Act, arguing that zero-rated supplies should exempt them from RCM. However, the ruling noted that Section 16(3) applies to suppliers of zero-rated supplies, not recipients. Hence, the applicant, as a recipient, is not covered under this provision for exemption from RCM.

The applicant referenced various judicial pronouncements and a letter from the Ministry of Finance regarding RCM applicability. The ruling found these references inapplicable as they pertained to different contexts or were not binding clarifications.

Conclusion:

1. Affirmative: The applicant must pay tax under RCM for renting of immovable property services from SEEPZ SEZ Authority.
2. Not Answered: The ruling did not address other services due to insufficient details.
3. IGST: The tax under RCM must be discharged under the IGST head.