Page 158 - GSTL_23rd April 2020_Vol 35_Part 4

484 GST LAW TIMES [ Vol. 35
8.3 Further, it is an admitted fact that in case of non-payment of
amount towards LAD fund, under clause (8) of the agreement, the applicant has
right of termination of lease agreement. The amounts towards the LAD fund are
paid by the SPDs to the applicant, though the usage of the same is decided by the
Committee formed by the Government of Karnataka for local area development.
The service of lease/rent, being provided by the applicant, is a single service and
the consideration is payable under two different heads and if any one of these
payments is not made, the applicant has the right of termination of the said lease
agreement. Hence the amount collected by the applicant, from the SPDs, towards
LAD fund forms the value of supply under Section 15 of the CGST Act, 2017 and
the usage of the said amount would only amount to application of the said
amount and still would form the value of taxable services. Therefore, the said
amount, so collected, is taxable along with rental income, under forward charge
mechanism.
9. The second question is related to the classification of the service un-
der which the collection of amounts towards LAD funds would fall, if said activi-
ty is treated as supply. The amounts collected by the applicant towards LAD
fund form part of value of the rent/lease service, as discussed in the foregoing
paras. The classification of the said activity is nothing but the classification of
rent/lease service having SAC 9972 12.
10. The third question is related to eligibility of the activity of collection
of amounts towards LAD funds, if treated as supply of service, for exemption
under Sl. No. 3 or 3A of Notification 12/2017-Central Tax (Rate) on contention of
the applicant that the said activity is covered under Article 243G or 243W of the
Constitution of India. It is pertinent to mention here that the collection of amount
towards LAD fund by the applicant is not a separate transaction but linked to the
supply of rental/lease service, as discussed in the foregoing paras. Further the
exemption under Sl. No. 3 or 3A of the notification supra are applicable to only
pure services provided to the Central Government, State Government or Union
territory or Local Authority or a Government Entity by way of any activity in
relation to any function under Article 243G or 243W of the Constitution of India.
In the instant case the impugned amounts are part of the value of rental/leasing
service and are not provided to any Central Government, State Government or
Union territory or Local Authority or a Government Entity, but by the applicant
to the SPDs. Therefore the exemption supra is not applicable to the instant case.
11. The fourth and last question is whether the payments made at the
direction of the Committee, formed for Local Area Development, be considered
as service rendered by Government to Applicant and subject to payment of GST,
under Reverse Charge Mechanism (RCM), under Entry No. 5 of Notification No.
13/2017-Central Tax (Rate), dated 28-6-2017, if the activity of collection of
amounts towards LAD fund, by the applicant, is treated as supply or otherwise.
11.1 We proceed to examine whether the instant activity of payments
made by the applicant, at the direction of the Committee formed for Local Area
Development, amounts to supply of service by Government to Applicant in
terms of Section 7(1)(a) of the CGST Act, 2017 or not.
Section 7(1)(a) of the CGST Act, 2017 stipulates that any transaction must
consist the following three components to get qualify as ‘Supply’.
(i) The transaction must involve a supply, of goods or services or

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