RCM ON FEES TO PAID TO LOCAL AUTHORITIES

[Sadanand Bulbule]

Dear Experts

Entry No.5 of Notification No.13/2017- Central Tax [Rate] dated 28/06/2017 reads as mentioned in the table below.

But nowhere the nature of services supplied by the Central Government, State Government, Union territory or local authority are explained in the said Notification. Factual position being so, it can be inferred that the services other than specifically “excluded” services therein are taxable under RCM.

Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding, - (1) renting of immovable property, and (2) services specified below- (i) services by the Department of Posts (ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) transport of goods or passengers.

Central Government, State Government, Union territory or local authority

Any business entity located in the taxable territory.

My take:

The Local Authorities are defined under the State Town & Country Planning Act. They are Municipal Corporation, Municipal Council, Town Panchayat or Grama Panchayat. Such local authorities grant statutory permission/approval for the construction of real estate projects like residential towers, commercial complexes like shopping malls, star hotels etc., and charge fees according to the prevailing laws under the respective State Municipal Corporations.

Query:

Whether such fee paid to the local authorities for supply of service of statutory permission and approval of real estate projects is liable to RCM in the hands of business entity located in the taxable territory? If so, the relevant details please?

Experts to throw light on this issue.

AI Summary

Reverse charge on municipal permission fees may apply unless the activity qualifies as an exempt public authority function.
Fees charged by local authorities for granting statutory permissions and approvals are consideration for a supply of service and thus prima facie taxable under RCM when provided to business entities under Notification No.13/2017. RCM does not apply where the activity is treated as a non-supply or is exempt under Notification No.12/2017 or Notification No.14/2017 (functions entrusted to Panchayats/Municipalities under Articles 243G/243W), or where other specific exemptions apply. Applicability depends on service classification, the nature of the authority, and the factual matrix; claimants must establish exemption eligibility while revenue must prove taxability.