Other Charges like Water Supply Connection Charges, Electricity Meter and Security Deposit Amounts are Inextricably Linked with Construction of Residential Apartment, attracts 12% GST: AAAR directs to Refund Excess Tax Collected

The Maharashtra Appellate Authority for Advance Ruling (AAAR) ruled that the other charges like water supply connection charges, electricity meter and security deposit amounts are inextricably linked with construction of residential apartment and attracts 12% GST and directed the applicant to refund excess tax collected.

M/s. Puranik Builders Limited, the applicant, is engaged in the business of construction and sale of residential apartments, wherein the appellant discharges Goods and Services Tax (GST) in respect of supply of construction of residential apartments sold prior to receipt of the Occupancy / Completion Certificate.

As a part of terms of Agreement for Sale between appellant and customers, the Appellant is to provide certain other services (hereinafter referred as “other services”). The consideration towards the other services is provided for in the sale agreement which is collected under the respective heads.

The Authority for Advance Ruling (AAR) passed an order rejecting the contention of the appellant that other services are part of a composite supply with construction services being the principle supply and held that “other charges” will not be treated as a consideration for construction services and will be treated as consideration received against supply of independent services of the respective heads. It is further held that other charges would be taxable at 18% without any abetment.

The primary contention of the appellant is that the supply of construction services and consideration in respect of other charges (for electricity meter connection and water charges, property tax payment. Infrastructure development, legal fees etc.) is a composite supply.

The Two-Member Bench of the Authority comprising Rajeev Kumar Mital and Dr DK Srinivas observed that “Insofar as the challenge to the levy of service tax on taxable services as defined under Section 65(105) (zzzzu) is concerned, we do not find any merit in the contention that there is no element of service involved in the preferential location charges levied by a builder.”

The Bench concluded by noting that other charges which are inextricably linked to services by way of construction of residential apartment /dwelling are part of a bundled service with principal service of construction of residential apartment /dwelling. The rate of tax applicable on such services would be 12% as applicable to the construction service.

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