Amount utilized for maintenance service alone is liable for GST and not refundable deposit portion: AAR [Read Order]

GST - AAR - maintenance services - Taxscan

The Karnataka Authority of Advance Ruling (AAR) ruled that layout maintenance services for members would be liable to GST, however, GST is not applicable to the money which is remaining unutilized, refundable to members.

The applicant is a Housing Society registered under the Karnataka Co-operative Societies Act, engaged in the development and sale of Sites for its members. The applicant submitted that the process of formation of Sites involves identification of land, which may be an Agricultural land and this agricultural land has to be converted into non-agricultural land from the prescribed authority.

Further society has to secure plan approval from the appropriate Planning authority and execute the works like marking off the sites, the formation of the roads, preparing and leveling of the roads, asphalting the roads, the formation of drainage, securing water and electric connection to the layout as a whole and connecting the same to the individual residential sites.

Society has to develop Parks and other Civic Amenities in terms of the approved plan to make the sites developed, habitable zones, and to ensure completion of the execution of all the other works in terms of the approved Plan.

The applicant sought advance ruling on the issue that does the society have to pay GST for collecting lump-sum amount as an endowment fund, the proceeds of which would be utilized for maintenance charges in terms of the maintenance of the layout with an express condition that the amount would be returned to the Site owners upon the taking over of the layout by the local body as the Society would be utilizing only accretions to the endowment fund from year to year.

Further, in the event that any or all of the items are rendered taxable whether the same is exempt under Notification No 12/2017 entry no 77 respect of the value of the maintenance amount collected from the members of the society to the extent of Rs 7,500/- per month.

The two-member bench of M.P. Ravi Prasad and Mashood ur Rehman Farooqui ruled that layout maintenance services for members would be liable to GST. Where money is collected upfront and the balance remaining unutilized refundable to members, only the amount utilized for supply of service would be liable and not the entire deposit made upfront. Liability would be at the time of utilization of proceeds towards maintenance services.

The Authority has granted the benefit of Rs. 7500 per month per member exemption where the Society utilizes the amount received from members upfront towards services by dividing the amount utilized by the total number of members. This exemption is available only where the services are sourced from a third person for the common benefit/use of members.

The AAR further ruled that water charges collected separately for supplying borewell water has been held to be exempted under Notification 2/2017 CT (Rate) (Entry 99). Where this is not collected separately but part of maintenance service or where collection is not linked to the usage of water, the charges would be required to be added to maintenance service charges for computing the limit of Rs. 7500 per month per member.

The AAR said that charges collected by the Society from members for providing No Objection Certificates for sale of sites have been held to be taxable at 18% without the benefit of exemption of Rs. 7500 per month per member as the service involved can be distinguished from maintenance services.

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