Service Tax Applicability on collection of development and maintenance charges by developer at the time sale deed.

[JIGAR SHAH]

Issue:

The Firm is engaged in the business of development of residential flat. They are collecting a sum of ₹ 100 per square feet from customer at time of sale of plot towards maintenance of plot as scheme is not completed so at present amount collected is shown as liability in the balance sheet under the head development and maintenance charges. Such collected sum will be transfer to the service society, once society formed.

Query:

Whether service tax is payable on such development and maintenance charges collected and further to be transferred to service society?

[KASTURI SETHI]

The firm has collected an amount of ₹ 100/- per square feet from their customers towards maintenance of plot at the time of sale of plot. Thus advance amount was received towards maintenance of plot (immovable property) which was taxable under the category of "Management, Maintenance or Repair Service" defined under Section 65(105)(zzg) of the Finance Act.. As per Rule 3 of Point of Taxation Rules, 2011, the point of taxation was the date of receipt of such advance.

Emphasis is on maintenance and not on development of plot.

[JIGAR SHAH]

Thank You.

AI Summary

Management and maintenance service: advance maintenance charges are taxable when received under point of taxation rules. Advance maintenance amounts collected by the developer at sale are advances for Management, Maintenance or Repair Service and are taxable at the time of receipt under the point-of-taxation rules; characterization focuses on maintenance rather than development and tax liability arises on receipt, not upon transfer to the service society.