GST on maintenance deposit collected from prospective flat buyers during construction period by the Builder

[GANESH KANCHAN]

GST department has issued notice to the Builder to discharge duty on "Maintenance Deposit" appearing on the liabilities side of the Balance Sheet,. In fact maintenance deposit is collected from prospective flat buyers during construction period. Pending formation of Society/Association, builder keep this fund/deposit in a separate account. Once the Association is formed/registered, such deposit amount shall be transferred to Association account. is the GST officer is correct ? Your views with citation if any.

[Sanjeev Agarwal]

On the facts stated, the GST officer's demand appears unsustainable, provided the "Maintenance Deposit" is genuinely a deposit/corpus fund held by the builder on behalf of flat purchasers and subsequently transferred to the Society/Association, rather than consideration for maintenance services supplied by the builder.

Under Section 2(31) of the CGST Act, a deposit is not treated as consideration for a supply unless the supplier applies it as consideration for that supply. Accordingly, mere receipt of money and its disclosure as a liability in the Balance Sheet does not make it taxable.

The facts supporting the builder are:

• Amount collected as maintenance deposit, not maintenance charges/advance maintenance charges.

• Amount shown on the liabilities side of the Balance Sheet.

• Fund kept separately pending formation of the Society/Association.

• Builder does not appropriate the amount as its income.

• Amount is ultimately transferred to the Society/Association.

• Documentary evidence establishes the above.

A particularly relevant precedent is Commissioner, CGST & Central Excise v. Manglam Build Developers Ltd., CESTAT Delhi, Final Order No. 50312/2022 dated 30.03.2022, where a similar maintenance deposit was held not to be consideration for maintenance services because it was maintained as a liability and transferred to the Society. This provides strong factual support.

However, the position changes if the so-called deposit is actually advance maintenance charges, or if the builder is entitled to/utilises the amount for providing its own maintenance services. In that case, GST exposure may arise.

Therefore, the defence should focus on the substance and documentary trail, particularly:

1. Flat Buyer Agreement clause;

2. Maintenance Deposit ledger;

3. Separate bank account, if any;

4. Balance Sheet disclosure;

5. Society/Association formation documents;

6. Bank proof of transfer to the Association; and

7. Purchaser-wise reconciliation of amounts collected and transferred.

Conclusion: If the deposit was merely held in trust/custodial capacity and transferred to the Association without appropriation by the builder, the builder has a strong and reasonably defensible position that GST is not payable merely on the receipt of the maintenance deposit. The exact SCN and contractual clause should nevertheless be examined before finalising the reply.

AI Summary

Maintenance deposits held for flat purchasers remain outside GST unless appropriated as consideration for the builder's maintenance services.
GST treatment of a maintenance deposit depends on whether it is a genuine deposit or corpus fund rather than consideration for maintenance services. Mere collection, liability-side accounting, and retention pending formation of a Society or Association do not create GST liability where the builder does not appropriate the amount as income and transfers it to the Society or Association. GST exposure may arise if the amount is advance maintenance charges or is used towards maintenance services supplied by the builder.