Court Buzz, GST

No GST exemption on amount transferred as security deposit for lease agreement :Rajasthan AAR

Case: Hazari Bagh Builders Pvt. Ltd.

Forum: Rajasthan AAR


In this case the Applicant Company entered into a 99 years lease agreement with the Rail Land Development Authority (“RLDA”). The Applicant filed an application before the Authority to seek clarification whether the lease agreement by the Applicant company for a period of 99 years and the amount transferred by the Applicant Company as Security Deposit in pursuance to the tender and lease agreement is exempt from GST in view of the Notification No. 04/2019-Central Tax(rate) dated 29.03.2019 or Notification No. 12/2017-Central tax(rate) dated 28.06.2017?

Key points

The Authority held that the Applicant’s contention that they didn’t pay any lease premium but only a security deposit amount is not tenable on the ground that security of contract was ensured when Letter of Acceptance (LoA) was issued on 26.09.2018 by RLDA to the highest bidder i.e. the Applicant. The Authority further observed that the LoA clearly stipulated that the GST on lease premium will be deposited by the recipient of Services directly in Government account and in case, recipient of services is not registered in GST then the GST amount needs to be transferred to the RLDA. In the instant case, the applicant is a registered entity and therefore it is liable to pay the GST directly in government account under Reverse Charge Mechanism.

The RLDA being the statutory authority of Government of India is providing services by way of renting of immovable property to a registered person (i.e. the Applicant), and renting of immovable property includes leasing also, therefore the said services are falling under the purview of Reverse Charge Mechanism. Thus, the lease agreement between the Applicant company and RLDA for a period of 99 years is not exempted from levy of GST and the amount transferred by the Applicant in pursuance to the tender and lease agreement is also not exempted under GST

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