Buyers of houses that are still under construction will be pleased by a recent Appellate Authority for Advance Rulings (AAAR) judgment in the instance of a Thane-based developer since it could result in lower costs.
The appellate bench ruled that the charges towards various services obtained via the developer, Puranik Builders, like water connection, electric meter installation and deposit for meter, development charges, and legal fees are “inextricably linked” to the primary service of construction. The same sort of charges shall be part of a composite or bundled supply and shall be levied to GST at the subjected rate to the construction services which is a lower 12% rate. In its August 2021 judgment, the Authority of Advance Ruling determined that costs for all additional services provided by the builder were separate services and so subject to an 18% GST rate. Puranik Builders then filed an appeal with the AAAR, and the prior ruling was partially reversed.
The increased GST rate for building services has been 5% without input tax credit since April 1, 2019, for housing projects that do not fit under the affordable housing section. Builders can, however, choose the 12% rate with an input tax credit for active projects.
A builder typically offers “additional services” as well, for which fees are charged. These services might include giving a water connection or collecting advance maintenance fees before the purchasers create the housing society. The agreement for sale that a builder goes into with flat purchasers includes a list of these additional services.
While decisions may not establish a legal precedent, experts claim that they have a persuasive influence on comparable instances during the assessment process.
Important: Impact of New Taxation Structure on Works Contract
“The AAAR emphasised that the perception of the consumer or the receiver of the service is an important factor in determining whether the services provided are bundled or not. Logically charges such as preferential location charges, external and internal development charges, water connection, electric meter charges etc are all inextricably linked to construction as the same cannot be provided on a stand-alone basis. Hence, these should enjoy the benefit of the lower tax rate on construction,” tax experts elaborated.
The AAAR panel examined the nature of payments paid for additional services. The appeal panel ruled that only services that are not part of the bundled supply, such as advance maintenance, clubhouse maintenance, and share application money, shall be taxed at 18%.
| Name of the Appellant | M/s Puranik Builders Limited |
| GSTIN | 27AABCP0109R1Z9 |
| Date | 30.03.2023 |
| Order No. | MAH/AAAR/DS-RM/19/2022-23 |
| Present for the Appellant | Shri. Gaurav Sugani, Advocate |
| Mumbai AAAR | Read Order |
