Shanmuga Durai {AUTHORITY FOR ADVANCE RULINGS TAMILNADU}
Shanmuga Durai {AUTHORITY FOR ADVANCE RULINGS TAMILNADU} :
Date of Order : 31-01-2022
In the case of Shanmuga Durai before the Authority for Advance Rulings (AAR) in Tamil Nadu, the issue revolved around the GST liability arising from the rent-free accommodation provided by a partner to a partnership firm, where the partner holds a major share in the firm. Here’s a simplified explanation of the rulings and their implications:
- Supply of Rent-Free Accommodation:
- Issue: Whether GST liability arises on the rent-free use of property by a partner to a partnership firm for business purposes.
- Ruling: The AAR determined that even though the accommodation is provided rent-free, it constitutes a taxable supply under GST. This is because the partner and the partnership firm are considered separate persons under GST law. The rent-free accommodation indirectly benefits the partnership firm by reducing its rental expenses, which would otherwise be borne by the firm. This benefit is treated as a taxable supply in the course or furtherance of business.
- Valuation of Supply:
- Issue: How should the value of the rent-free accommodation be determined for GST purposes, given that the partner and the firm are related persons?
- Ruling: Since the partner and the partnership firm are related persons, Rule 28 of the Central Goods and Services Tax (CGST) Rules applies for valuation. According to Rule 28, where the supply is between related persons and the open market value is not available, the value of the supply shall be based on the value of similar goods or services of like kind and quality. This ensures that the taxable value of the rent-free accommodation is determined appropriately under GST regulations.
Implications:
- Taxable Supply: The ruling clarifies that even when accommodation is provided without charging rent, it still constitutes a taxable supply under GST if it benefits the recipient entity in its business operations.
- Valuation under Rule 28: For related persons, including partners and partnership firms, determining the correct taxable value is crucial. Rule 28 ensures that the valuation reflects the fair market value or a comparable value of similar supplies, ensuring compliance with GST valuation principles.
- Compliance and Documentation: Businesses, including partnerships, need to document such arrangements properly and ensure compliance with GST regulations, including valuation and reporting requirements.
This ruling underscores the broad application of GST on transactions between related persons and highlights the importance of understanding GST implications in various business arrangements, including those involving partnerships and their partners.
