Gujarat AAR rules that GST is payable under RCM on rent of godowns hired from unregistered persons, even when used for exempt agricultural warehousing services.
The Gujarat Authority for Advance Ruling (Gujarat AAR) has delivered an important ruling concerning the GST liability on rent paid for hired godowns used for storing agricultural produce. The Authority has held that the exemption available to agricultural storage and warehousing services does not automatically extend to the rent paid for hiring the godown.
In In re: Gujarat State Warehousing Corporation, AAR No. GUJ/GAAR/R/2026/35, the Authority ruled that rent paid by a registered person for hiring godowns from unregistered persons is liable to GST under the Reverse Charge Mechanism (RCM). The ruling further clarifies that, with effect from 10 October 2024, such rent is taxable at 18% GST, comprising 9% CGST and 9% SGST, subject to the applicable conditions.
Background of the Case
The applicant, Gujarat State Warehousing Corporation, is engaged in providing storage and warehousing facilities for agricultural produce. Its activities include storage of commodities such as groundnut, gram, toor and moong.
For carrying out its warehousing operations, the Corporation uses both its own godowns as well as godowns hired from other persons. The dispute before the AAR concerned the GST treatment of the rent paid for such hired premises.
The Corporation contended that the warehousing services provided from these godowns were covered by the GST exemption available to services relating to the storage and warehousing of agricultural produce. Therefore, according to the applicant, the rent paid for hiring the premises used exclusively for such exempt activities should also not attract GST.
The principal question was whether the exemption applicable to agricultural warehousing services could be extended to the separate transaction of hiring the godown.
Agricultural Warehousing Services Are Exempt
The applicant relied upon Entry 54(e) of Notification No. 12/2017-Central Tax (Rate), which provides exemption for specified services relating to loading, unloading, packing, storage or warehousing of agricultural produce.
The Gujarat AAR accepted that the Corporation’s actual storage and warehousing services relating to agricultural produce fall within the scope of the exemption.
However, the Authority made an important distinction between the warehousing service provided to customers and the rent paid by the Corporation for obtaining the premises in which those services are performed.
According to the AAR, these are two independent supplies and their GST treatment has to be determined separately.
Hiring of Godown Is a Separate Supply
The Gujarat AAR held that hiring a godown against payment of rent constitutes a separate supply of service under the GST law.
The fact that the premises are subsequently used for providing an exempt service does not change the nature or taxability of the original transaction.
In other words, there are two distinct transactions:
- Hiring of the godown by the Corporation from the owner, against payment of rent; and
- Providing storage or warehousing services for agricultural produce by the Corporation to its customers.
The second transaction may qualify for exemption, but that exemption cannot automatically be transferred to the first transaction.
The Authority specifically observed that the two services cannot be considered together and must be examined independently with reference to the respective GST notifications.
GST on Godown Rent Under Reverse Charge
The issue assumes greater significance because the godowns were hired from unregistered persons.
The AAR referred to Notification No. 09/2024-Central Tax (Rate) dated 8 October 2024, which introduced Entry 5AB in the reverse-charge notification with effect from 10 October 2024.
The entry covers renting of property, other than a residential dwelling, by an unregistered person to a registered person, subject to the prescribed conditions.
Accordingly, where a registered entity hires a godown from an unregistered person, the recipient may become liable to discharge GST under RCM.
The Gujarat AAR therefore concluded that the Corporation is required to pay GST at 18% under reverse charge, consisting of 9% CGST and 9% SGST, on rent paid for godowns hired from unregistered persons with effect from 10 October 2024.
Exempt Output Service Does Not Make Input Rent Exempt
One of the most important aspects of the ruling is the distinction between the taxability of an input service and the taxability of the output service.
A business may provide an exempt service while still receiving taxable services in the course of carrying on that business.
Therefore, the fact that agricultural warehousing services are exempt does not by itself mean that every service used for providing those warehousing services is also exempt.
Here, the rent for the godown is considered independently as a service of renting of immovable property. The subsequent use of the premises for exempt agricultural warehousing does not alter the GST character of the rental transaction.
This principle is particularly relevant for warehousing companies, agricultural marketing organisations, logistics businesses and other registered entities operating rented storage facilities.
Earlier Tamil Nadu Ruling Not Followed
The applicant also relied upon an earlier advance ruling of the Tamil Nadu Authority for Advance Ruling concerning rent received in relation to godowns used for storing paddy and other agricultural produce.
The Gujarat AAR, however, declined to apply that ruling.
The reason was that an advance ruling under the GST law has a limited binding effect. It is binding on the applicant who sought the ruling and on the concerned jurisdictional officer, and does not automatically become binding precedent for other taxpayers or authorities in different jurisdictions.
Thus, the Gujarat Authority considered the issue independently in the context of the facts before it and the applicable provisions.
Key Takeaway for Businesses
The ruling provides an important compliance lesson for registered businesses using rented warehouses.
Businesses should not assume that the exempt nature of agricultural warehousing services automatically makes the rent paid for the premises exempt from GST.
Where a registered person hires a non-residential property from an unregistered person, the applicability of RCM needs to be examined separately, particularly for transactions falling on or after 10 October 2024.
Proper documentation, identification of the supplier’s registration status, classification of the rental service and timely payment of RCM are therefore important from a GST compliance perspective.
Conclusion
The Gujarat AAR ruling in Gujarat State Warehousing Corporation draws a clear line between exempt agricultural warehousing services and taxable godown rental services.
Although storage and warehousing of eligible agricultural produce may enjoy GST exemption, the rent paid for hiring a godown is a separate supply and must be examined independently.
The Authority has specifically held that, where godowns are hired from unregistered persons by a registered recipient, GST at 18% is payable under Reverse Charge Mechanism from 10 October 2024, subject to the applicable provisions.
The ruling is therefore significant for warehousing corporations, agricultural storage operators, logistics companies and other registered businesses that operate from rented godowns. It highlights the need to distinguish carefully between the taxability of an output service and the GST treatment of the services procured for providing that output service.