The Maharashtra Authority of Advance Ruling (AAR) in its recent ruling in the case of M/s Puranik Builders Pvt. Ltd has ruled that GST @ 18% is applicable on ‘Other Charges’ collected by builder for services not naturally bundled with Construction services.
Facts of the Case:
The applicant, M/s Puranik Builders Pvt. Ltd. has been engaged in the business of construction and sale of residential apartments and discharge Goods and Services Tax (GST) in respect of the supply of construction services in respect of residential units for which consideration is received before the receipt of Occupancy/Completion Certificate.
Apart from the consideration of main construction activity, the applicant also collects various charges i.e. electric meter installation and security deposit for meter, water connection charges, share of municipal taxes, advance maintenance, club house maintenance, development charges, share application money and entrance fee of the organisation, infrastructure charges, and legal fee.
The above charges are collected from customers at the time of entering into the agreement and/or giving possession of residential apartments. Such charges are collected under the Agreement itself with their respective amounts separately identified in the agreement.
Issue on which ruling is sought:
The applicant has raised the issue of whether the above Other Charges received by the company will be treated as consideration for construction services of the Company and classified under HSN 9954 along with the main residential construction services of the Company or whether the same will be treated as consideration for independent service(s) of the respective head and consequently, what will be the applicable effective rate of GST on services underlying the Other Charges.
Order of AAR: Deliberation and Ruling
The AAR observed that ‘Construction services’ and the ‘other services’ provided by the applicant are not naturally bundled and are not supplied in conjunction with each other in the ordinary course of business with main supply. These are the facilities/amenities provided by the applicant to its customers for the limited period because for these facilities created the customers have not been given perpetual rights as per the said agreement. The amount of consideration is charged separately for different services. And even the stamp duty is also not paid on the full amount collected from the customer along with the said other charges. Therefore, the other charges for the other services provided are not covered under the scope of ‘Composite supply of services’.
AAR ruled that the ‘other charges’ mentioned as above are held taxable as per their SAC under the GST Act, at 18% in terms of the respective and appropriate entries in Notification No.11/2017 CT (R) dated 28.6.2017 as they are covered under services, other than construction services.
AAR also stated that in regard to services related to electrical meter deposit and water connection (deposit), claim of deduction of pure supply could have been raised, but same has not been raised by the applicant and therefore is not considered.
The AAR further said that the consideration for providing the construction services by way of construction of residential units and the consideration for the other services (i.e. other charges collected) are considerations against separate independent services being provided by the applicant. Considering the nature of supplies in question, the services for each of the service heads/descriptions are covered under Notification 11/2017 mentioned above, and therefore, the Other Charges would attract 18% GST. Thus, the 1/3rd deduction from total value as per Sr. No. 2 of the Notification (as claimed by the applicant) cannot be allowed as a deduction from the Other Charges. A plain reading of the items or the list of other charges itself shows that services supplied against the said charges have no connection with the land and therefore, the question of considering the 1/3rd deduction or rebate towards land cost does not arise, particularly, as the entries applicable to both of the above services are different.
In view of the above deliberations, the Coram of members Rajiv Magoo and T.R. Ramnani held that ‘other charges’ received will not be treated as consideration for construction services of the Company and is not classified under SAC 9954 along with the main residential construction services. Such other charges will be treated as consideration received against the supply of independent service(s) of respective heads.
It was further held by AAR that the applicable rate of GST on services underlying the other charges would be as per the SAC prescribed under Notification No.11/2017 CT (R) dated 28.6.2017 and are liable to GST @ 18%. Further, the applicant has to pay GST on the entire consideration received as ‘other charges’ without any abatement.
READ / DOWNLOAD ORDER:
***
Follow us for free tax updates : facebook Twitter
Subscribe to our portal and get FREE Tax e-books, quality articles and updates on your e-mail.
Resolve your GST queries from national level experts on GST free of cost.
CA. Mohammad Salim is an ICAI award winning Chartered Accountant having rich experience of more than 20 years in the field of indirect taxes. He is the Member, Indirect Taxes Committee of PHD Chamber of Commerce and Industry. He is author of four successful books on GST published by Taxmann Publication and is also GST expert on taxmann portal.
