Development Charges and GST

[Kaustubh Karandikar]

XYZ is the manufacturer of Product ‘A’ which attracts 12% GST. To manufacture this product, they require Blocks, Punches etc. which they get it done from outside. XYZ recovers this amount of developing the blocks and punches from the customer through tax invoice issued for Product ‘A’ but shows it separately as ‘Development charges’ for making blocks and punches. 1) Can XYZ charge the same GST which is applicable for product ‘A’ in respect of development charges recovered or 2) Need to issue a separate service invoice for development charges and charge the applicable GST?

[Ganeshan Kalyani]

As per Section 15 of CGST Act, Development charges added on the face of the invoice shall attract the tax rate applicable to the principal supply. Thanks.

[Ganeshan Kalyani]

If the said charges is collected thru separate invoices then the tax rate applicable to the supply of said service would apply. The standard gst rate is 18%. Thanks

[DR.MARIAPPAN GOVINDARAJAN]

GST is applicable.

[KASTURI SETHI]

Dear Sir,

Cost of products, namely, blocks, punches etc. is consumed in the cost of product 'A'. XYZ cannot charge the same GST which is applicable for product 'A' . In the same invoice, the rate applicable for development charges can be charged. In a nutshell, correct tax should be paid on both.

[Ganeshan Kalyani]

Thanks Sri Kasturi Sir for enriching my knowledge.

AI Summary

Principal supply rules determine GST on development charges; separate invoicing triggers service-rate taxation applicable.
Development charges added on the face of the invoice for a finished product form part of the principal supply and attract the GST rate applicable to that principal supply; if invoiced separately, those charges are taxable as a service and the tax rate applicable to that service applies.