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GST would be attracted on compensation for alternate accommodation/ damages for delayed handover
Facts of the case:
- “M/s Future Communications Limited are the owners of a plot of land bearing C.T.S. No. 837 (S.No. 5, H. No. 1, 2, 3, 5, 7, 8. 9 of Village Mohili) admeasuring 4898.61 sq.mtrs. and C.T.S. No. 837 (S.NO. 5. H. No. 6 of Village Mohili) admeasuring 497.89 sq.mtrs. and the commercial building thereon.
- Zaver Bhanushali, is a tenant of the second floor of commercial building mentioned above. The total Area of the said tenanted premises is 2600 sq. ft. carpet area with terrace.
- M/s Future Communications Limited (the owner), have entered into an agreement with M/s Spenta Residency Private Limited, the Developers, to develop a new building in place of the old building and thereby they have entered into an agreement with me (tenant) for new premises to be allotted to me in lieu of giving up the possession of the old abovemenlioned premises. The Owners are to provide me with a permanent alternate accommodation, shops admeasuring 4200 sq. ft. carpet area in the new building to be constructed by the developers.
- It has been agreed with the developers and the owners that, during the construction period. The applicant should made the arrangements for accommodation elsewhere on his own and the Owner/Developer shall pay an amount of Rs.2,05,000/- per month as compensation for alternate accommodation. If the construction period extends beyond 2 years the compensation for alternate accommodation is to increase to Rs. 2,25.000/- per month for the first 6 months (granted as grace over and above two years) and Rs. 2,47,000/- for further 6 months (additional Grace Period).
- In case, the construction period goes beyond the Original period of 2 years plus total grace period of 1 year (i.e. 3 years in total). The Developers Owner Are Liable to pay an amount of Rs. 5,00.000 – per month as compensation for alternate accommodation damages for delayed handover of possession.
Following observations were made:
- According to Section 7. (1) For the purposes of this Act, the expression “supply ” includes- (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business: (b) import of services for a consideration whether or not in the course or furtherance of business: (c) the activities specified in Schedule I. made or agreed to be made without a consideration. and (d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.
- Under Schedule-ll at sr. No. 5(e) it has been specified as under :
“agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act: and” will be treated as supply of services. In view of the above legal provisions, for levy of tax in GST regime: following requirements are to be fulfilled.
- There should be ‘goods’ or ‘services’ or ‘goods & services’
- There should be supply of goods, or services or goods & Services.
- The supply should be in the course of furtherance of business’.
- In the instant case, it is seen that the applicant viz. Shri Zaver Bhanushali is supplying services to M/s Spenta Residency Private Ltd (Developer) in as much as doing the act of vacating the premises which was rented by M/s Future Communications Ltd. In addition to that he will get permanent alternate accommodation, shop admeasuring 4200 Sq ft. carpet area in the new building to be constructed by the developer. Thus this transaction of vacating the premises for re-development and also getting compensation for alternative accommodation is in furtherance of business and therefore it is taxable.
- In the instant case, it is also seen that the applicant viz. Shri Zaver Bhanushali is receiver of construction services from Spenta Residency Private Ltd (Developer) Other than the compensation/consideration, the applicant will also get free flat/constructed premises from the developer i.e. M/s Spenta Residency Private Ltd. M/s Spenta Residency Private Ltd would be liable to pay tax on the construction services for permanent alternate accommodation, shop admeasuring 4200 sq. ft. provided to the applicant and the GST paid by the applicant on compensation would be available as input tax credit to the developer.
- In view of the above this office is of the view that the applicant should take GST registration for compensation received and pay appropriate GST on the same, in respect of consideration received for alternate accommodation. “