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

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., 2022 (4) TMI 255 - CESTAT NEW DELHI, 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.

Following are judicial precedents under the erstwhile Service Tax regime, the principles of which continue to hold relevance under GST, particularly in the context of determination of "consideration" and characterization of deposits:

Ballal Developers Private Ltd. Versus C.C.E. & S.T., Mangalore [2019 (9) TMI 889 - CESTAT Bangalore]

The Tribunal held that, where the promoter collects maintenance deposits and merely holds and applies such funds on behalf of flat owners on a cost-to-cost basis, without any markup or independent consideration, and transfers the same to the owners' association, the promoter acts in the capacity of a trustee or pure agent. Accordingly, such amounts do not constitute consideration for any taxable service.

C.C.E. & S.T.-Jaipur-I Versus Sand Dunes Construction Pvt Ltd [2018 (7) TMI 1383 - CESTAT New Delhi]

The Tribunal held that one-time maintenance deposits collected from buyers and utilized for maintenance activities until formation of the Resident Welfare Association, and thereafter transferred to such association, do not constitute consideration for maintenance or management services. The Tribunal observed that the promoter, in such cases, acts as a trustee, making payments on behalf of the flat owners without earning any markup, and therefore cannot be regarded as a provider of taxable services.

Commissioner of Service Tax v. Shri Krishna Chaitanya Enterprises (along with connected matters including Green Valley Developers and Kumar Beheray Rathi) 2018 (2) TMI 1056 - BOMBAY HIGH COURT

The Hon'ble Bombay High Court upheld the Tribunal's view that amounts collected by a promoter towards upkeep, maintenance, and outgoings during the period prior to conveyance or formation of the legal entity do not constitute consideration for taxable maintenance or repair services. The Court recognized that under the statutory framework of MOFA, the promoter holds such amounts in a regulated capacity, with specific obligations including maintenance of separate accounts and application of funds towards defined purposes. In this context, the promoter's role was held to be distinct from that of a service provider, and such collections were not liable to service tax.

The above judicial precedents consistently hold that amounts collected as deposits, held in fiduciary capacity, used on a cost-to-cost basis, and transferred to the society or association do not constitute consideration for any supply of services.

View of the GST Officer is not statutorily correct. "Deposit" and "Consideration" are different concepts. Eve Here maintenance deposit cannot be treated as consideration.

If its a deposit not taxable yet. only when the deposit is applied for any supply will the Gst liability arise