Maintenance Deposits Collected by Builders for Sinking and Development Funds Are Not Taxable as Services: CESTAT [Read Order]

The Kolkata Bench of the Customs, Excise, andService Tax Appellate Tribunal (CESTAT) ruled that maintenance deposits collected by builders for sinking and development funds are not taxable as services.

Parvati Resource Pvt. Ltd., the appellant, was engaged in real estate and renting activities. The department demanded service tax on deposits collected from flat purchasers, treating them as consideration for management, maintenance, and repair services.

The adjudicating authority confirmed the demand, and the Commissioner (Appeals) upheld it. Aggrieved by this decision, the appellant approached the CESTAT.

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The appellant’s counsel argued that the deposits collected were earmarked as sinking or development funds, meant for unforeseen future expenses to be borne by the housing society. They submitted that these amounts were either refunded to flat owners or transferred to the welfare society once the project was handed over, and were never utilized by the appellant.

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Relying on agreements, ledgers, vouchers, and judicial precedents such as Marwadi Shares & Finance Ltd. v. CCE & ST, they argued that such deposits cannot be treated as consideration for taxable service.

The revenue’s counsel argued that the deposits formed part of the consideration collected by the builder and were liable to service tax under the category of management, maintenance, and repair services.

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The two-member bench comprising Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member) observed that the deposits were not used by the appellant but were either refunded or transferred to the society. The tribunal observed that the deposits were meant to safeguard future contingencies of the society and did not amount to consideration for any service provided by the appellant.

The tribunal pointed out that the nature of these deposits showed they were trust funds held for the benefit of the society, not payments for services rendered.

The tribunal explained that since there was no quid pro quo between the appellant and the flat owners in relation to these deposits, they could not be taxed. The service tax demand on maintenance deposits was set aside.

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