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Taking lease of mfg.unit or trading company.

LAKSHMI KANTH (TAX CONSULTANT) (449 Points)

19 July 2021

Sir. If I would like to take the manufacturing unit or trading company on lease and run the same, so which sections of GST Act should be referred. I pay him the lease amount monthly/ yearly and I carry on the business activities I mean.

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13 Replies

prasad Nilugal (3914 Points)
Replied 19 July 2021

Yes , GST applicable on lease as per section 7(1)(a) of the CGST act 2017 .

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LAKSHMI KANTH (TAX CONSULTANT) (449 Points)
Replied 19 July 2021

Sir. I pay the lease amount which is not the issue,but I run the manufacturing unit or any trading company for that matter. so here my doubt is whether do I have to pay the GST on sale of such manufactured goods as rates applicable to them and in the case of trading company, do I have to pay the GST on goods traded as rates applicable to them. I have the GST RC on my name and the mfg.comany and trading company also has their own GST RC's.

Pankaj Rawat (GST Practitioner) (55052 Points)
Replied 19 July 2021

Dear Laxmhmi Kant
Who is pay lease to whom ?????

Pankaj Rawat (GST Practitioner) (55052 Points)
Replied 19 July 2021

**Who is Paying,..........

CA Rashmi Gandhi (Chartered Accountant) (86323 Points)
Replied 20 July 2021

Clarify the query Lakshmi Kanth

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LAKSHMI KANTH (TAX CONSULTANT) (449 Points)
Replied 20 July 2021

Sir, ABC company would like to take PQR company (Mfg.Company) and XYZ company(Trading company) on lease. Here, both PQR and XYX companies are having their own GST RC’s. ABC company would like to pay of Rs.2,00,000 lease amount per month, per company and run the business operations, also has the Its own GST RC. Therefore, ABC company pays the lease amount to PQR company and XYZ company respectively. Now ABC company does business operations of PQR and XYZ on its own name ie. ABC, what are the relevant sections to read in the GST Act. Now this doubt is pertained to ABC Company, but not the PQR and XYZ.

CA Akshay Hiregange (Partner - Audit & Assistance) (4515 Points)
Replied 20 July 2021

As per serial no 2 of notification 12/2017-CTR transfer of a going concern or a part thereof is exempt. But, in your case it is lease for a specific period of time, i.e. ownership of the PQR & XYZ entity does not change.

I would not be commenting on direct tax implications.

Under GST the transaction may be liable as any transaction not specifically covered under goods is a service, and general/residuary clause under classification may be applicable. (HSN 999799 - 18%)

Supply of goods through PQR & XYZ would attract GST at goods rate and GST returns to be filed under those companies. Eligible credit against expenses also to be considered in the respective entities GST returns.

PQR & XYZ entities would be discharging the liability for lease collected from ABC who will be eligible for credit.

Good question, had to go through lot of info to reach conclusion.

1 Like

Pankaj Rawat (GST Practitioner) (55052 Points)
Replied 21 July 2021

Dear CA akshay Ji

"Now ABC co. does business operation of PQR & XYZ on its own name ie ABC"

So as per the querist business is done in the name of ABC co. , thus you still think that the goods being supplied by PQR but in the name of ABC , the supply is accounted in books of PQR . ?????

Now ABC company does business operations of PQR and XYZ on its own name ie. ABC

Read more at: https://www.caclubindia.com/forum/taking-lease-of-mfg-unit-or-trading-company--577850.asp

CA Akshay Hiregange (Partner - Audit & Assistance) (4515 Points)
Replied 22 July 2021

Dear Pankaj ji, thanks for pointing out, missed that query.

If PQR & ABC are related entities then the situation gets complicated.

If related or not, It is better than PQR supplies goods to ABC and then ABC supplies it forward.

If not, PQR will have accumulated credits and ABC will have cash outflow - not an optimum scenario.

Pankaj Rawat (GST Practitioner) (55052 Points)
Replied 22 July 2021

yes correct CA akshay ji

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Pankaj Rawat (GST Practitioner) (55052 Points)
Replied 22 July 2021

But as ABC company controlling & operating the business of PQR & XYX co. (both manufacturing & trading).

so in this case the whole business of PQR & XYZ co. is being handled & control by ABC co. , that means the ABC co. is using his GSTN to carry on the business of PQR & XYZ co.

1. Now will ABC need to add place of business to his registration certificate ???

2. what about if the business of PQR & XYZ is not registered in the same state where ABC co. is registered ???

In my view this can be done only when the business of PQR & Xyz co get transferred to ABC co.

else ABC co. cannot be supply any goods or services in his own name.

Note : PQR & XYZ company has lease out their business to ABC co.

CA Altamush Zafar (GST Consultant) (15971 Points)
Replied 22 July 2021

Since ABC has taken units of PQR and XYZ on lease and is carrying on business from their premises then ABC will have to show its place of business in these premises also.

If states are different then ABC will have to take new registration for that state,.

Since Goods manufactured by ABC belongs to ABC any sale of such goods will attract liability of GST and such liability will be of ABC and not PQR & XYZ

PQR & XYZ will be charging GST on lease charges @ 18%

Pankaj Rawat (GST Practitioner) (55052 Points)
Replied 22 July 2021

What in case the stock of PQR or XYZ co . sold by ABC co.

The ABC company can do his business in the premises of PQR & XYZ co. only if :

1. All the inward supply are made in the name of ABC co. & the payments for the same has been made from a/c of ABC co.

2. The closing stock of PQR or XYZ is Nil on day the ABC take over the business control , or PQR or XYZ having any stock need to be billed to ABC & co.

The Above is perfect example of businesses run under "Minimum Guarantee" concept.