Charges other than construction services will attract 18% GST: Maharashtra AAR

Charges collected by real estate developers, other than for construction services, such as those for utilities and maintenance will attract 18 per cent GST, ruled Maharashtra’s Authority for Advance Ruling.

Charges for services such as installation of electricity meter, water connection, club house maintenance and development charges will not be treated as construction services, MAAR has said. Accordingly, GST at the rate of 18 per cent would be applicable on such charges and these would not be considered as composite supply

The applicant Thane-based Puranik Builders is engaged in construction and sale of residential apartments. Apart from consideration for the main construction activities, the developers collect various other charges from their customers at the time of entering into the agreement and/or before giving possession of residential apartments.

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The applicant felt that the services underlying the ‘other charges’ may be treated as naturally bundled with supply of main construction services which are supplied in conjunction with each other, in the ordinary course of business.

It was also submitted that such supply will qualify as composite supply of work contracts where the principal supply would be construction services. Accordingly, the GST rate on principal supply will also be applicable to common amenities. It may be noted that effective rate of GST, on other than affordable housing, is 5 per cent.

Also, the developer paid stamp duty only on the sale consideration excluding other charges. “When the question of payment of stamp duty arises, the applicant treats these other charges not as a part of construction services, but when question of payment of GST arises, the applicant tries to contend that the value of the other charges collected is part and parcel of value of that main construction services. It is legal principle that a party cannot be permitted to approbate or reprobate on the same facts and take inconsistent shifting stands,” AAR said.

Based on facts presented and going through legal provisions, AAR said: “the consideration for providing the construction services and the consideration for the other services are considerations against separate independent services being provided by the applicant.” Accordingly other charges would attract GST at the rate of 18 per cent on entire amount. Also, one-third deduction, in lieu of land value will not be permitted.

Ruling adverse for real estate

Smita Singh, Partner with Singh & Associates said that the Ruling has failed to examine one of the most fundamental characteristics of composite supply ie, other services and construction of flats being naturally bundled and the extent of interdependence of both. “A buyer is willing to pay other charges because the residential flats and other charges so paid for miscellaneous services cannot be enjoyed separately without buying the residential flat. Thus, the present ruling has added another complexity to the real estate sector which has been reeling with effects of the pandemic. This ruling has also added additional cost for the customers,” she said.