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Faces GST on Godown Rent Under : Gujarat AAR
In a significant ruling that tightens the GST compliance obligations for warehousing corporations, the has held that rent paid for hiring godowns from unregistered persons is taxable under the mechanism, even when those godowns are used exclusively for providing exempt storage and warehousing services for agricultural produce. The decision, delivered on by a Bench comprising SGST Member Sushma Vora and CGST Member Vishal Malani, rejects the contention that the exemption for warehousing services should extend to the input cost of rent.
Background of the Application
The applicant, , provides storage and warehousing services for agricultural produce such as groundnut, gram, toor, and moong. It operates from both its own godowns and godowns hired from third parties. The Corporation sought an on whether GST is payable on the rent paid for hired godowns when the subsequent warehousing services are exempt under . That entry exempts services relating to loading, unloading, packing, storage or warehousing of agricultural produce.
The Corporation argued that since the warehousing services provided from the hired godowns were exempt, the rent paid for those premises should also remain outside the GST net or, at the very least, should not attract GST under . It relied on the principle that the input cost should follow the output supply – a common business logic.
The AAR’s Ruling: Two
The AAR firmly rejected this argument, holding that the hiring of godowns and the subsequent provision of warehousing services are two distinct supplies under the . The Authority observed:
“Regardless of whether the godowns, after being hired on payment of rent from registered/unregistered persons, are used for providing exempt warehousing services in relation to agricultural produce for a consideration, the following constitute two separate services and must be examined independently with reference to the notifications applicable to each: (i) hiring of godowns on payment of rent from registered/unregistered persons; and (ii) providing storage and warehousing services for raw agricultural produce in the applicant's own godowns as well as in hired godowns, for a consideration. These two services cannot be read in tandem and must be dealt with separately.”
This distinction is critical. The hiring of godowns falls under (real estate services) and is taxable at 18% under the applicable notification, while the warehousing services remain exempt. The AAR made it clear that the exemption for warehousing does not automatically extend to the cost of inputs like rent.
Applicability and the Change in Law
The Bench also examined the position regarding . Prior to , the provisions did not specifically cover renting of property by an unregistered person to a registered person. However, dated inserted into the notification, effective from . This entry covers “renting of any property other than a residential dwelling by an unregistered person to a registered person”.
The AAR noted that the Corporation hired godowns from both registered and unregistered persons. For unregistered persons, the mechanism now applies. The Authority stated:
“From a plain reading of the above Entry, it is apparently clear that GST at the rate of 18% (9% CGST + 9% SGST) will be payable by the applicant on basis in the cases where they are hiring godowns from unregistered persons w.e.f. 10.10.2024. In view of the discussions in paras supra, we find and hold that the GST at the rate of 18% (9% CGST + 9% SGST) is payable by the applicant under basis on the rent paid for the godowns hired from unregistered persons.”
Thus, for godowns rented from unregistered persons after , the Corporation must pay GST at 18% under . For godowns rented from registered persons, the regular would apply, but that was not the subject of the ruling.
Rejection of Reliance on Tamil Nadu AAR Ruling
The Corporation attempted to draw support from an of the concerning rent received for godowns used for storage of paddy and other agricultural produce. The Gujarat AAR declined to apply that ruling, observing that an is binding only on the applicant who sought it and the concerned jurisdictional officer. It therefore held that the Tamil Nadu ruling had no persuasive or binding effect on the present case.
Legal Implications and Practical Impact
This ruling reinforces the principle that each supply of service must be evaluated independently under GST, regardless of the exempt status of the downstream supply. For businesses that lease property to provide exempt services – such as agricultural warehousing, healthcare, or education – the input cost of rent will now attract GST, often under if the landlord is unregistered. This could significantly increase the tax burden on such entities.
Warehousing corporations and similar entities that rely on hired premises must now carefully review their rental arrangements. They need to ensure that GST is paid on rent to unregistered landlords, either by the landlord charging GST (if they register) or by the tenant discharging the tax under . Failure to do so could result in demands, interest, and penalties.
The ruling also clarifies the effective date for the new entry: from onwards. For periods prior to that, the position may have been different, but the AAR did not delve into that as the question was prospective.
Conclusion
The Gujarat AAR’s decision in the case of sends a clear message: the GST regime treats the renting of godowns as a separate taxable supply, and the exemption for agricultural warehousing does not insulate the input cost of rent. Entities engaged in such activities must now factor in the 18% GST on rent, payable under when the landlord is unregistered. This ruling is likely to be cited in similar disputes across the country and may prompt many warehousing operators to reassess their GST compliance practices.
The application was disposed of by the Bench, with the Corporation represented by Chartered Accountants and . The full text of the ruling is expected to have far-reaching consequences for the agricultural logistics sector and the wider real estate leasing market.
