RCM ON EXTERNAL DEVELOPMENT CHARGES (EDC) paid by BUILDER TO LOCAL AUTHORITY, Goods and Services Tax - GST

[ROHIT GOEL]

Dear Experts,

A real estate developer is developing a residential housing project in Punjab. The approval for the same has been granted by the Govt authority and as per the Punjab Govt guidelines and notifications, Builder is liable to pay EDC or External Development Charges to Local Municipal Corporation. This EDC is a compulsory levy collected by Local Authority and in effect not a service being received.

However, GST Department is of the view that same is in nature of service received from Local Authority and therefore assessee is liable to deposit RCM on this.

What is the view of experts as per applicable law as well as any previous precedents under GST/Service tax regime?

Posts / Replies

[Shilpi Jain]

Whether the amounts are paid to Govt. authority or local authority?

There is an exemption available for services provided by the Govt. authority in respect of activities listed in 243W. Urban planning is included thereunder.

Another aspect is in case it is in the nature of a registration or a license fee paid to Govt. or Local authority also there is an exemption under the Act.

If the amount paid is in the nature of a compulsory extract (may not be in the present case as it looks like being in the nature of permission granted) it would be in the nature of tax and thereby no service and no GST liability.

[ROHIT GOEL]

Dear Mam,

Fees are being paid to Municipal Corporation which is a Local Authority.

As per notification 12/2017, exemption is provided for services provided to Local authority which are used by such authority for providing services relating to functions entrusted to it by Article 243W. In our case, we are not providing any services nor receiving anything from the authority. We are paying fees to the Authority as fixed by Punjab Govt notification.

Further, the exemption in NN 12/2017 is available for services of registration required under any law or services relating to testing, calibration, safety check or certification relating to protection or safety of workers, consumers or public at large, including fire license, required under any law for the time being in force. Again, I don't think we are covered under this.

Still, the charges being paid are in nature of compulsory government levy without which builder cannot execute the project. So it is not a consideration but a Levy or Tax.

[Amit Agrawal]

Just because 'the charges being paid are in nature of compulsory government levy without which builder cannot execute the project', same is not necessarily out of purview of levy of GST as per ratio of Bombay High court ruling in case of BUILDERS ASSOCIATION OF NAVI MUMBAI Versus UNION OF INDIA as reported in 2018 (4) TMI 461 - BOMBAY HIGH COURT.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

But, against for activities carried by local authority against 'EDC or External Development Charges', GST is not payable.

This is due to the fact that same is treated neither as a supply of goods nor a supply of service u/s 7 (2) (b) of the CGST Act, 2017.

Hence, the real estate developer need not pay any GST under RCM on the subject transaction. Consequently, Dept's views are legally not tenable.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Shilpi Jain]

Refer notification 14/2017-CT R

1) In exercise of the powers conferred by sub-section (2) of section 7 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on the recommendations of the Council hereby notifies that the following activities or transactions undertaken by the Central Government or State Government or any local authority in which they are engaged as public authority, shall be treated neither as a supply of goods nor a supply of service, namely:-

“Services by way of any activity in relation to a function entrusted to a Panchayat under article 243G of the Constitution.”

2) This notification shall come into force with effect from the 1st day of July, 2017.

[KASTURI SETHI]

Madam Shilpi Jain,

It is with reference to Issue ID No. 117834 dated 28.2.22 which stands closed being more than one year old. You asked how to arrive at valuation aspect for computation of GST on the execution of Corporate Guarantee /Bank Guarantee. Govt.of India, Ministry of Finance, Department of Economic Affairs (Budget Division) New Delhi vide its letter dated 22.9.10 has fixed @2.5% of borrowed amount for other than Public Sector Undertaking. for this purpose for the purpose of raising demand under GST Acts.

[Padmanathan Kollengode]

I agree with view of Amit Ji and Shilpi ma'am. It is highly risky proposition to say that the EDC is in nature of levy/tax. But, GST is not payable in terms of Section 7(2)(b) r.w. Notification 14/2017 Central Tax (Rate)