Order date – 30 March 2023

Facts –

• The Appellate, M/s. PURANIK BUILDERS LIMITED, is a construction company engaged in the sale of under-construction residential apartments.
• The company is discharging its GST liability at the rate of 12% as the residential project doesn’t fall under affordable housing category.
• The company is collecting and discharging GST at the rate of 18% on the other charges collected from its customers, which include electric meter installation, deposit for meter, water connection charges, etc.
• The Advance Ruling Authority (AAR) was approached by the Appellant with two questions regarding the treatment of "Other Charges" recovered from customers. It rejected the contention of the appellant that these charges were part of a composite supply with construction services being the principal supply.

Issue –

• Whether the supply of construction services and consideration in respect of other charges is a composite supply?

Order –

• The Appellate authority observed that in the construction of residential apartment sector, services in relation to water supply connection charges, electricity meter installation and security deposit for meter, development charges paid to Government authority/local authority, legal fees for transaction of sale of residential apartments can reasonably be expected to be supplied by the builder/ developer/ promoter of a residential project. They are inextricably linked to a residential apartment or dwelling. Without these aspects, the property may not be used. However certain other charges like advance maintenance, club house maintenance, infrastructure charges, share money application and entrance fee of the organization are not expected by every customer. These are not inextricably linked to the construction services in respect of residential projects. 
• Hence, the other charges associated with the construction of residential apartments or dwellings, which are inextricably linked to the principal service of construction, form part of a bundled service.
• The applicable rate of tax for such services is 12%, which is the same as that for construction services.
• However, those other charges that fail to meet the criteria for a bundled service will be regarded as independent services and taxed accordingly under the relevant SAC codes and tax rates.
• The appellant had collected 18% GST on the supply of such services, which is deemed an excess collection of tax for the services allowed as bundled services.
• Therefore, the appellant is directed to refund the excess tax collected to their customers. In conclusion, the appeal is partly allowed.

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