Karnataka AAR: Refundable Deposit for Maintenance is Not Liable to GST

The Karnataka Authority of Advance Ruling (AAR) ruled that the layout maintenance services for members of a society will be liable to GST. However, GST does not apply to the unutilised amount refunded to the members.

For instance, a housing society (the applicant), registered under the Karnataka Co-operative Societies Act, is engaged in the development and sale of plots (sites) for its members. The society submitted the process of formation of plots as follows:

  1. It identifies the land, which may be agricultural land.
  2. It will convert this agricultural land into non-agricultural land.
  3. The society will secure a plan approval from the appropriate authority.
  4. It will execute the works like marking off the sites, the formation of the roads and construction of drainage.
  5. It will secure water and electric connection to the layout as a whole and supply the same to the individual residential sites.

The society has to develop parks and other civic amenities and should ensure completion of all the works as mentioned in the approved plan.

The applicant will seek advance ruling on whether it has to pay GST for collecting lump-sum amount as an endowment fund or not. The proceeds from the endowment fund would be utilised for the maintenance of the layout.

Also Read: Delinking of Debit/Credit Notes From Invoice is Active on GST Portal

While collecting the lump-sum amount, the applicant will express the condition that the amount should be returned to the site owners upon taking over of the layout by the local body. The society uses only additions to the endowment fund from year to year.

Further, the society also stated that the exemption is available under Notification No 12/2017 in respect of the maintenance amount collected from the members of the society to the extent of Rs.7,500 per month.

The two-member bench AAR ruled that layout maintenance services for members would be liable to pay GST. Where money is collected upfront, and the remaining unutilised balance is refundable to members, only the amount utilised for the supply of service would be liable and not the entire deposit made upfront. The liability would be at the time of utilisation of proceeds towards maintenance services.

The authority has granted the benefit of Rs.7,500 per month per member exemption by dividing the amount utilised with the total number of members. This exemption is available only where the services are sourced from a third person for the everyday use/benefit of members.

The AAR further ruled that water charges collected separately for supplying borewell water are exempted under Notification 2/2017 CT (Rate). When the water charges are not collected separately but part of the maintenance service or where the collection is not linked to the usage of water, these charges are added to the maintenance service charges for computing the exemption limit of Rs.7,500 per month per member.

The AAR said that charges collected by the society from members for providing No Objection Certificates (NOC) for sale of sites is taxable at 18% without the benefit of exemption of Rs.7,500 per month per member as this service can be distinguished from the maintenance services.

For any clarifications/feedback on the topic, please contact the writer at dvsr.anjaneyulu@cleartax.in

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