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PLACE OF SUPPLY IN RELATION TO IMMOVABLE PROPERTY

THE  LAW

Sec 12(3) states :

The place of supply of services, ––

  1. directly in relation to an immovable property, including services provided by architects, interior decorators, surveyors, engineers and other related experts or estate agents, any service provided by way of grant of rights to use immovable property or for carrying out or co-ordination of construction work; or
  2. by way of lodging accommodation by a hotel, inn, guest house, home stay, club or campsite, by whatever name called, and including a house boat or any other vessel; or
  3. by way of accommodation in any immovable property for organizing any marriage or reception or matters related thereto, official, social, cultural, religious or business function including services provided in relation to such function at such property; or
  4. any services ancillary to the services referred to in clauses (a), (b) and (c),

shall be the location at which the immovable property or boat or vessel, as the case may be, is located or intended to be located:

Provided that if the location of the immovable property or boat or vessel is located or intended to be located outside India, the place of supply shall be the location of the recipient.

Where the immovable property or boat or vessel is located in more than one State or Union territory, the supply of services shall be treated as made in each of the respective States or Union territories, in proportion to the value for services separately collected or determined in terms of the contract or agreement entered into in this regard or, in the absence of such contract or agreement, on such other basis as may be prescribed.

 

ANALYSIS OF THE LAW:

Meaning of few important terms:

a.Immovable property – “Immovable property” shall include land, benefits to arise out of land and things attached to the earth, or permanently fastened to anything attached to the earth. It may be noted that the definition is inclusive and thus includes properties such as buildings and fixed structures on land. The property must be attached to some part of the earth, even if it is underwater.

b.Expert – “Expert” means skilled, skilful, practiced, professional, knowledgeable, adept.

c.Estate agent- “Estate agent” is a person whose job is to arrange sale, renting or management of homes, land and buildings for the owners.

Law simplified:

The place of supply of the following services shall be the location at which the immovable property or boat or vessel is located or intended to be located.

  1. Services directly in relation to immovable property – place of supply will be the location of such property.
  2. The term “services”
  1. includes services provided by architects, interior decorators, surveyors, engineers and other related experts or estate agents.
  2. includes grant of rights to use immovable property
  3. carrying out / coordination of construction work
  1. This clause also includes renting of immovable property /boat/vessel with or without passing the effective control or possession. As per Schedule II of CGST Act, license to use or right to use of immovable property /boat/vessel shall be service in GST and the place of supply shall be the location of the immovable property /boat/vessel.
  2. Services by way of lodging accommodation provided by a hotel, inn, guest house, homestay, club or campsite including a houseboat or any other vessel.
  3. Services provided by a mandap keeper or convention centre for organizing any official, social or business function including marriage.  This also covers services in relation to such any official, social or business function. For eg – In case of services provided by a florist and DJ in a marriage function, the place of supply for both the florist and DJ will be the location of the mandap or convention centre where the function is organized.
  4. Any services ancillary to the specific supplies mentioned in the points (a) to (e), shall also fall under this clause and place of supply shall be the location where such immovable property/boat/vessel is located or intended to be located.

 

Criteria for determining whether a service is “directly in relation to” immovable property:

The following services shall be deemed to be directly in relation to immovable property:

  1. The service is physically performed or agreed to be performed on a specific immovable property (eg- maintenance) or property to come to existence (eg-construction)
  2. The direct object of the service is the immovable property in the sense that the service enhances the value of the property, affects the nature of the property, relates to preparing the property for development or redevelopment or the environment within the limits of the property (eg – engineering, architectural services, surveying and sub-dividing, management services, security services, etc).
  3. The purpose of the service is :
  1. the transfer or conveyance of the property or the proposed transfer or conveyance of the property (eg -  real estate services in relation to the actual or proposed acquisition, lease or rental of property, legal services rendered to the owner or beneficiary or potential owner or beneficiary of property as a result of a will or testament.)
  2. the determination of the title to the property.

Sec 12 of IGST Act 2017, applies only to services which relate directly to specific sites of land or property. This provision does not apply if a provision of service has only an indirect connection with the immovable property.

Taxability of services of immovable property and Input Tax Credit

GST will be charged depending on whether the supply is intra-state or inter-state. This will be ascertained by determining the place of supply of the service.

Place of supply of services provided in relation to an immovable property is the location of the immovable property which means GST will be CGST and SGST.

Input tax credit of CGST and SGST of one state cannot be used to set-off the liability of another state. However, input CGST can be adjusted against output CGST of one particular state.

Examples to explain place of supply and taxability of services wrt immovable property

Example

Nature of supply

Place of supply

GST

ITC

ABC Ltd situated in New Delhi wants to sell his Delhi office. XYZ Ltd is keen to buy the same office and has engaged a real estate broker Mr. P (located at Delhi) to facilitate the sale

Real estate brokerage services of Mr.P to XYZ Ltd

Delhi

 

Office of ABC Ltd to be sold is located in Delhi – hence place of immovable property is in Delhi

CGST + SGST

No ITC , if Mr P is not registered in Delhi.

 

If P is registered in Delhi, ITC will be available.

Prestige Builders of Bangalore has hired M/s PQC Contractors of Kolkata to build a commercial building in Mumbai

Works contract by M/s PQC Contractors

Mumbai

CGST + SGST

 

Note - M/s PQC Contractors has to register as a supplier in Maharashtra

ITC will be available as M/s PQC Contractors will have to register.

Disclaimer - The information provided in this document is for general information only. It is based on the information available publicly and the advice received from various professional experts regarding the GST law. The user of this document should be aware that the interpretation or implications of relevant GST rules may change/vary depending upon circumstances applicable to the user.

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