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GST Update on 'Society Charges' collected by builder

Pradeep Jain
GST applicability on society maintenance charges affirmed by FAQ, conflicting with agent/collector precedents and increasing litigation risk. GST is being applied to maintenance charges collected by builders and later transferred to societies despite prior service tax rulings that treated builders as mere collectors not liable to tax; the government FAQ asserts taxability without legal reasoning, and although it lacks formal legal backing, it is likely to spur renewed litigation against the backdrop of earlier precedents. (AI Summary)

A builder is supposed to collect an amount for repairs and maintenance of flats. This collection is being kept in a separate account dedicated for the purpose. Until the residential housing society is formed, the expenses for repairs and maintenance of flats are borne out of this account. Once the society is formed, this account is being transferred to the society. This issue has been under litigation in service tax regime.

In our earlier update, we had opined in the same case that since no consideration is involved and builder is merely acting as a collector of amount which is subsequently transferred to society, no tax shall be payable on the same in GST regime. However, on twitter government released FAQs yesterday wherein this  issue had been answered as follows:-

Q: Our society’s developer is charging GST on maintenance bills which is less than ₹ 2000/M. Is it applicable?

A: Yes.

According to this FAQ, GST is applicable even if the builder or developer collects the maintenance charges as benefactor for the society, however, no reason or any legal backing has been provided alongwith this.

Earlier in service tax regime, this issue was under litigation for a number of times wherein it was held there is no need to pay the tax on these society charges collected by builder on behalf of society. Some of such decisions are cited as follows:-

As the FAQ answer as discussed above is against the ratio laid down in these decisions; it is going to ignite the issue again. However, it is worthwhile to mention here that since the FAQs don't have legal backing and also it does not discuss any reason of answer, it cannot be considered as a strong evidence to support the case of department. However, it will definitely give new heights to the litigation already prevailing on this issue.

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You can reach us at www.capradeepjain.com, at our facebook page on https://www.facebook.com/GSTTODAYBYPRADEEPJAIN/ as well as follow us on Twitter at https://www.twitter.com/@capradeepjain21

Goods and Services Tax - GST
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