Reverse charge mechanism

[Kavali Ramanjeneyulu]

Metropolitan development authority is collecting development charges like Lay out permission charges, building permission charges, change of land use charges from the customers. The above athority is created by an act of state government and according to PAN it is a local authority. In this regard PL clarify whether the above authority is liable to pay service tax on development charges mentioned above and on legal services, rent a cab service, security service and works contract service under RCM.

[Rajagopalan Ranganathan]

Sir,

Please check whether Metropolitan development authority is registered under CGST Act, 2017 as taxable person. If it is so then such authority is liable to pay GST under reverse charge. Otherwise the supplier of service is liable to pay gst. There is not special exemption from payment of gst by such authorities.

[YAGAY and SUN]

In our view, Forward charge mechanism of GST will be applicable in this matter.

The definition of ‘local authority’ is very specific and means only those bodies which are mentioned as ‘local authorities’ in clause (69) of section 2 of the CGST Act, 2017. It would not include other bodies which are merely described as a ‘local body’ by virtue of a local law. For example, State Governments have setup local developmental authorities to undertake developmental works like infrastructure, housing, residential & commercial development, construction of houses, etc. The Governments setup these authorities under the Town and Planning Act. Examples of such developmental authorities are Delhi Development Authority, Ahmedabad Development Authority, Bangalore Development Authority, Chennai Metropolitan Development Authority, Bihar Industrial Area Development Authority, etc. Such developmental authorities formed under the Town and Planning Act are not qualified as local authorities for the purposes of the GST Acts.

[Kavali Ramanjeneyulu]

Sir, my regarding service tax . Whether Metropolitan development authority is liable to pay service tax on development user charges like building permission charges, layout permission charges and change of land use charges. And also, whether it is liable to pay service tax on rent a cab service , legal service, security service and works contract service. PL clarify sir.

AI Summary

Reverse charge: registration status of development authorities determines whether GST is payable by the authority or the supplier.
Determination of liability under the reverse charge mechanism turns on whether the metropolitan development authority is registered as a taxable person under the CGST Act; if registered it may be liable to pay GST under reverse charge, otherwise the supplier remains liable. The statutory definition of local authority is specific and developmental authorities formed under Town and Planning Acts may not qualify as local authorities for GST, affecting whether forward or reverse charge applies to development charges and related services.