In re Vardhaman Homes (GST AAR Maharashtra)
GST AAR Maharashtra: The Maharashtra Authority for Advance Ruling held that maintenance services supplied by a real estate developer to flat purchasers constitute a taxable supply under Section 7 of the Central Goods and Services Tax Act, 2017, notwithstanding the developer’s statutory obligation to maintain the building under the Maharashtra Ownership of Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963 (MOFA). The ruling concerned M/s Vardhaman Homes, a developer of Lotus Building at Gawand Baug, Thane (West), comprising 152 flats, of which 95 had been sold and 57 remained unsold. The developer maintained common areas and provided services including electricity, security, sweeping, gardening, firefighting, intercom facilities, water supply, water tank cleaning and other miscellaneous services. A Co-operative Housing Society (CHS) or Residents Welfare Association (RWA) had not yet been formed. The developer collected maintenance charges from purchasers under registered agreements for sale, including 18 months’ advance maintenance at 18% GST and recurring monthly maintenance charges at 18% GST. Certain purchasers disputed the levy on the ground that maintenance before formation of a CHS or RWA was a statutory obligation of the promoter rather than a taxable service.
The applicant relied principally on the Bombay High Court judgment in Commissioner of Service Tax v. Shri Krishna Chaitanya Enterprises and Others, decided on 25 January 2018, which concerned the taxability of maintenance and upkeep undertaken by a promoter under MOFA in the pre-GST service tax regime. According to the applicant, the High Court had recognised that the promoter was performing a statutory obligation, rather than rendering a contractual taxable service, until the formation of a housing society or other body of flat purchasers. The applicant also referred to Sections 5 and 6 of MOFA, contending that its obligation to maintain the property, collect outgoings and manage common facilities continued until transfer of the building to the purchasers’ organisation. It argued that the introduction of GST did not alter the statutory character of these duties and that, in the absence of an independently negotiated maintenance contract, no taxable supply arose.
The jurisdictional officer opposed this interpretation. The officer submitted that Section 7 of the CGST Act defines supply broadly to include services provided for consideration in the course or furtherance of business. The promoter’s maintenance activities were undertaken for consideration received from purchasers and therefore satisfied the statutory definition of supply. The officer further distinguished the Bombay High Court judgment as having been delivered under the Finance Act, 1994, rather than under the GST legislation. Reference was also made to CBIC Circular No. 109/28/2019-GST dated 22 July 2019, concerning GST on maintenance charges collected by RWAs, and to Entry 77 of Notification No. 12/2017-Central Tax (Rate). The officer maintained that the exemption relating to eligible RWA collections could not be claimed by the applicant because it was a promoter and not a CHS or RWA.
On examining the submissions, the Authority held that the maintenance activities constituted a supply of services under Section 7 of the CGST Act. The services were provided in connection with the developer’s business and involved consideration collected from flat purchasers. The statutory requirement under MOFA did not exclude those activities from GST because the civil obligations imposed by MOFA and the taxability provisions of the CGST Act operated in different fields. The Authority distinguished the Bombay High Court decision on the basis that it interpreted the former service tax law, including the definition of taxable service under Section 65(64) of the Finance Act, 1994. Under GST, the relevant provisions governing supply and consideration were materially different. The Authority further observed that no applicable exemption had been established for maintenance services supplied by a promoter and that the exemption under Entry 77 of Notification No. 12/2017-Central Tax (Rate) applied to eligible RWA arrangements, not to the promoter’s collections in the present case.
Regarding advance maintenance, the Authority found that the 18-month amount collected under the agreements for sale was consideration for identifiable future maintenance services and not a refundable security deposit. Accordingly, it was liable to GST under Section 13 of the CGST Act, with the liability arising upon receipt of the advance in the circumstances considered. The recurring monthly maintenance charges likewise represented consideration for services actually provided and attracted GST. The Authority answered all three questions in favour of taxability, holding that neither the absence of a CHS/RWA nor the promoter’s statutory duty under MOFA prevented GST from applying. The ruling establishes, on the facts presented, that a promoter collecting advance and monthly maintenance charges from purchasers before formation of a housing society must treat those receipts as consideration for taxable maintenance services, subject to the applicable GST provisions.
Cases Discussed
Commissioner of Service Tax v. Shri Krishna Chaitanya Enterprises and Others (Bombay High Court, 25 January 2018) — The applicant relied on this decision to argue that maintenance performed by a promoter pursuant to MOFA was a statutory obligation rather than a taxable service. The Authority distinguished the judgment because it concerned the pre-GST service tax framework under the Finance Act, 1994. It held that the decision did not override the broader definition of supply under Section 7 of the CGST Act, 2017.
