GST Applicable on Damages received by Tenant towards termination of Sublease Agreement

The Karnataka Authority for Advance Ruling (AAR, Karnataka) in the matter of M/s. Enzyme Business Center held that GST was Applicable on Damages received by the Tenant towards the termination of the Sublease Agreement.

M/s. Enzyme Business Center, Plot 1546 and 1547, 19th Main Road, HSR Layout, Bengaluru-560 102 (hereinafter referred to as The applicant’), having GSTIN 29AADFE1798C2ZD have applied Advance Ruling under Section 97 of CGST Act, 2017 read with Rule 104 of CGST Rules, 2017 and Section 97 of KGST Act, 2017 read with Rule 104 of KGST Rules, 2017, in FORM GST ARA-01 discharging the fee of Rs.5,000 each under the CGST Act and the KGST Act.

The Questions and Rulings are given below:

Question:

1. Whether damages received by the applicant amounting to Rs.1,85,00,000 from the tenant towards the termination of sub-lease before the agreed upon lock-in period as per the sub-lease deed agreements dated 3rd November 2021 and 11th January 2022 tantamount to supply as per Section 7 of Central GST Act, 2017 and will the amount received towards damages for Rs. 1,85,00,000 as per the settlement agreement dtd: 18-04-2023 to be construed as Consideration for the above supply?

2. If the answer to the above question is affirmative, what is the Rate of GST applicable and what shall be the appropriate classification / SAC for payment of GST?

Ruling:

1. The damages received by the applicant from the tenant towards the termination of sub-lease before the agreed upon lock-in period as per the sub-lease deed agreements are tantamount to supply as per Section 7 of Central GST Act, 2017 and the amount received towards damages as per the settlement agreement is to be construed as Consideration for the above supply.

2. The services provided by the Applicant are classifiable under Chapter heading 9972 and are liable to GST at 18% (9% CGST and 9% SGST).

For Official Ruling Download the PDF Given Below: