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Mumbai: Recently Appellate Authority for Advance Rulings ,AAAR) The order in the case of the Thane-based developer will cheer the hearts of buyers of under-construction properties, as it could translate into lower costs.
The appellate bench noted that the fee for multiple services collected by the developer, Puranik BuildersAs for water connection, installation of electricity meter and deposit for meter, development fee and legal fee are “inextricably linked” to the primary service of construction.
These charges will form part of a “composite” or bundled supply and will be subject to GST at the rate applicable to construction services – which is a lower rate of 12%.
The Authority of Advance Rulings, in its August 2021 judgement, had said that the charges for all other services provided by the builder were independent and thus subject to 18% GST. This led the developer to file an appeal AAAR,
builder ordered to return excess tax to buyers
With effect from April 1, 2019, the revised GST rate for construction services has been reduced to 5% without input tax credit for housing projects that do not fall in the affordable housing segment. For ongoing projects, however, builders can opt for a rate of 12% along with input tax credit.
Usually, a builder also provides “other services” for which a fee is collected. These include services such as providing water connection to the collection of advance maintenance charges by the buyers prior to the formation of the housing society.
These other services are listed in the agreement of sale that a builder enters into with the flat buyers. Experts say that although the judgments do not set judicial precedents, they do have a motivating effect on similar cases during evaluation.
“AAAR stresses that consumer or service recipient perception is an important factor in determining whether services provided are bundled or not. Logically the charges like preferential location charges, external and internal development charges, water connection, electricity meter charges etc. are all construction linked as they cannot be provided on stand alone basis.
Hence, these should get the benefit of lower tax rate on construction,” explains Harpreet Singh, indirect tax partner, KPMG India. The AAAR bench of Rajeev Kumar Mittal and DK Srinivas analyzed the nature of payments made for other services.
Only those services which are not part of bundled supply such as advance maintenance, clubhouse maintenance, will be taxable at 18% as held by the Appellate Bench on the share application amount.
in this matter, Puranik Builders 18% GST was collected against the fee for other services. For those components of other services which are now part of the bundled supply and are subject to the lower rate, the builder has been directed to refund the excess tax to the buyers.
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