Service tax applicability on sinking funds inv raised by rwa
This query is : Resolved
04 December 2016
Please advice on the applicability of Service Tax on Sinking Funds Invoices raised by RWA on it's Members once in a Year to collect amount for future replacement of Housing Complex's Assets, e.g. Chillers, Lifts, Diesel Generating Sets etc. ?
There are various views.
1. One view is amount of Sinking Fund is taxable at the time of raising Invoices as amount per Member Exceeds Rs.5000/-. Invoices are raised Once in a Year.
2. Another view is, it is NOT Taxable as it is in the Assets Replacement Fund, i.e. for Purchase of Capital Assets and not for providing maintenance Services.
There is also argument that when the Assets will be purchased, there will be significant portion of VAT and very little portion of Service Tax for Installation of the Asset/s. So, practically no significant portion of cenvat credit benefit will be available to RWA.
There is also argument that when Assets will be purchased in future, RWA do not claim Cenvat Credit. So Department has received the Service Tax in that way included in the Invoice of the Vendor to RWA !!
3. The 3rd argument is that Assets will be purchased by RWA as Pure Agent for it's Members and NO QUESTION of Service Tax applicability !!
Please advice if Service Tax is to be CHARGED by RWA on Sinking Fund Invoices raised by it on it's Memebrs or NOT.
N J S
There are various views.
1. One view is amount of Sinking Fund is taxable at the time of raising Invoices as amount per Member Exceeds Rs.5000/-. Invoices are raised Once in a Year.
2. Another view is, it is NOT Taxable as it is in the Assets Replacement Fund, i.e. for Purchase of Capital Assets and not for providing maintenance Services.
There is also argument that when the Assets will be purchased, there will be significant portion of VAT and very little portion of Service Tax for Installation of the Asset/s. So, practically no significant portion of cenvat credit benefit will be available to RWA.
There is also argument that when Assets will be purchased in future, RWA do not claim Cenvat Credit. So Department has received the Service Tax in that way included in the Invoice of the Vendor to RWA !!
3. The 3rd argument is that Assets will be purchased by RWA as Pure Agent for it's Members and NO QUESTION of Service Tax applicability !!
Please advice if Service Tax is to be CHARGED by RWA on Sinking Fund Invoices raised by it on it's Memebrs or NOT.
N J S
05 December 2016
The amount collected is not for the maintenance so no service tax applicable.
Third argument holds good.
Third argument holds good.
05 December 2016
To be a Pure Agent, are the Invoices not supposed to be in RWA Members Name ??
24 July 2025
Great question! Here’s a detailed take on the service tax applicability on sinking fund invoices raised by Resident Welfare Associations (RWA):
Key Points:
Nature of Sinking Fund:
The sinking fund is an amount collected in advance from members for future replacement or purchase of capital assets like chillers, lifts, diesel generators, etc.
It is not collected for regular maintenance or service provision but as a reserve for capital expenditure.
Is Service Tax Applicable on Sinking Fund Collection?
Generally, service tax applies to “services provided”. Merely collecting money for capital asset replacement (a future capital expense) does not amount to a taxable service.
Since the RWA is not providing any service at the time of collecting the sinking fund — just collecting money to spend later — this is typically not considered a service.
Hence, no service tax is applicable on sinking fund invoices raised on members.
When Capital Assets Are Purchased and Installed:
At the time of purchase and installation of these assets, the vendor might charge VAT on the goods and service tax on the installation service.
RWA usually cannot claim CENVAT credit on these taxes.
But this does not translate to RWA needing to pay service tax on the sinking fund collected.
The tax charged by vendors is separate and not related to the amount collected as sinking fund.
Pure Agent Concept:
If RWA acts as a pure agent of its members (i.e., it collects money to spend on their behalf and invoices are in members’ names), then no service tax liability arises on RWA for collection.
The third argument that RWA acts as a pure agent holds well from a tax perspective.
Invoice in Members’ Name:
For pure agent treatment, invoices or receipts should ideally be in the members’ names, reflecting that RWA is collecting and spending on behalf of members.
However, in many practical RWA setups, invoices might be in the RWA’s name but still the activity can be considered as pure agent if proper documentation is maintained.
Summary:
Sinking Fund collection by RWA on members is NOT liable to service tax, because it is not a provision of taxable service but collection for future capital expenditure.
Service tax may be applicable only on actual services rendered (e.g., maintenance, security, housekeeping) and not on sinking fund collections.
Proper documentation supporting the pure agent status is recommended to avoid disputes.
When assets are purchased/installed, the vendors charge VAT/service tax accordingly, which is a separate matter.
Key Points:
Nature of Sinking Fund:
The sinking fund is an amount collected in advance from members for future replacement or purchase of capital assets like chillers, lifts, diesel generators, etc.
It is not collected for regular maintenance or service provision but as a reserve for capital expenditure.
Is Service Tax Applicable on Sinking Fund Collection?
Generally, service tax applies to “services provided”. Merely collecting money for capital asset replacement (a future capital expense) does not amount to a taxable service.
Since the RWA is not providing any service at the time of collecting the sinking fund — just collecting money to spend later — this is typically not considered a service.
Hence, no service tax is applicable on sinking fund invoices raised on members.
When Capital Assets Are Purchased and Installed:
At the time of purchase and installation of these assets, the vendor might charge VAT on the goods and service tax on the installation service.
RWA usually cannot claim CENVAT credit on these taxes.
But this does not translate to RWA needing to pay service tax on the sinking fund collected.
The tax charged by vendors is separate and not related to the amount collected as sinking fund.
Pure Agent Concept:
If RWA acts as a pure agent of its members (i.e., it collects money to spend on their behalf and invoices are in members’ names), then no service tax liability arises on RWA for collection.
The third argument that RWA acts as a pure agent holds well from a tax perspective.
Invoice in Members’ Name:
For pure agent treatment, invoices or receipts should ideally be in the members’ names, reflecting that RWA is collecting and spending on behalf of members.
However, in many practical RWA setups, invoices might be in the RWA’s name but still the activity can be considered as pure agent if proper documentation is maintained.
Summary:
Sinking Fund collection by RWA on members is NOT liable to service tax, because it is not a provision of taxable service but collection for future capital expenditure.
Service tax may be applicable only on actual services rendered (e.g., maintenance, security, housekeeping) and not on sinking fund collections.
Proper documentation supporting the pure agent status is recommended to avoid disputes.
When assets are purchased/installed, the vendors charge VAT/service tax accordingly, which is a separate matter.
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