RCM ON EXTERNAL DEVELOPMENT CHARGES (EDC) paid by BUILDER TO LOCAL AUTHORITY

[ROHIT GOEL]

Dear Experts,

A real estate developer is developing a residential housing project in Punjab. The approval for the same has been granted by the Govt authority and as per the Punjab Govt guidelines and notifications, Builder is liable to pay EDC or External Development Charges to Local Municipal Corporation. This EDC is a compulsory levy collected by Local Authority and in effect not a service being received.

However, GST Department is of the view that same is in nature of service received from Local Authority and therefore assessee is liable to deposit RCM on this.

What is the view of experts as per applicable law as well as any previous precedents under GST/Service tax regime?

AI Summary

Supply characterization of external development charges may determine reverse-charge GST liability under exemptions for local authority activities.
Whether EDC paid to a municipal authority is subject to GST under reverse charge depends on its characterisation: if the charge is an activity of a local authority in relation to its entrusted municipal functions, notifications treat it as neither a supply of goods nor service and GST under reverse charge will not apply; if characterised as a consideration for a service rather than a compulsory levy, the tax authority may seek RCM, making the classification outcome determinative.