Exemption is not available when the maintenance charges exceed Rs. 7,500/- per month per member

The Authority for Advance Ruling, West Bengal in the case of Prinsep Association of Apartment Owners, In re [Order No. 22/WBAAR/2023-24 dated November 29, 2023] ruled that the exemption is not available when the maintenance charges exceed Rs. 7,500/-per month per member. Where the charges exceed Rs. 7,500/- per month per member, the entire amount is taxable. Further, the amount collected from members for setting up a sinking fund is an advance payment towards future supply of services and the Assessee is, therefore, liable to pay tax on such supply. Lastly, an amount collected on account of common area electricity charges, being a part of composite supply, is taxable in cases where the supply of common area maintenance services as provided by the Assessee fails to qualify for exemption under serial number 77 of the Notification No. 12/2017-Central Tax (Rate) dated June 28, 2017,("Notification No. 12/2017") as amended.

Facts:

M/s Prinsep Association of Apartment Owners ("the Applicant") was an Association of Persons, registered with Association of Apartment Owners under the West Bengal Act XVI of 1972 with 246 members. It was responsible for managing the day-to day activities, organizing events, managing facilities in the apartment as well as safeguarding the rights of the unit holders of the society. To provide these services, the Applicant collected monthly subscriptions as maintenance charges from its members.

The instant application is related to taxability of such monthly subscription charges in terms of serial number 77 of Notification No. 12/2017, as amended. The other issues are in respect of liability to pay tax on amount collected for common area electricity charges and corpus fund.

The Applicant has filed for advance ruling under Section 97(1) of the Central Goods and Services Tax Act, 2017 ("the CGST Act") and the Central Goods and Services Tax Rules, 2017 ("the CGST Rules") on the following:

1. Whether GST would be charged over and above Rs.7500 or the total amount collected from members?
2. Whether the Applicant is liable to pay CGST/SGST on amounts which it collects from its members for setting up a corpus fund for future contingencies/ major CAPEX?
3. Whether the Applicant is liable to pay CGST/SGST on collection of common area electricity charges paid by the members and the same is recovered on the actual electricity charges?

Issue:

Whether GST would be charged over and above Rs. 7500 or the total amount collected from members?

Held:

The Authority for Advance Ruling, West Bengal in Order No. 22/WBAAR/2023-24 held as under:

• Observed that, GST on monthly subscription/contribution charged by a Residential Welfare Association from its members have been clarified by Circular No. 109/28/2019-GST dated July 22, 2019("the Circular"). It states that the exemption from GST on maintenance charges charged by a RWA from residents is available only if such charges do not exceed Rs. 7500/- per month per member. In case, the charges exceed Rs. 7500/- per month per member, the entire amount is taxable.
• Relied on, on the judgement by the Hon'ble High Court of Madras in the case of Greenwood Owners Association [W.P. Nos. 27100, 30004 of 2019 and 1555 & 5518 of 2020 dated July 01, 2021] wherein the Hon'ble Court held that the conclusion of the AAR as well as the Circular to the effect that any contribution above Rs. 7,500/- would disentitle the RWA to exemption, is contrary to the express language of the entry No. 77 and both stand quashed. Only contributions to RWA in excess of Rs. 7,500/- would be taxable under GST Act.
• Relied on, the Hon'ble Division Bench of Madras High Court in the case of Union of India v. TVH Lumbini Square Owners Association [W.A. Nos. 2318 and 2321 of 2021 dated September 09, 2021] while admitting the appeal petition filed by the Revenue, observed that the legal issue has been decided because the Single Bench not only quashed the proceedings of the Tamil Nadu Authority for Advanced Ruling, but also the Circular issued by the Department, which required verification. The Hon'ble Division Bench thereafter held that since the circular has wider ramification, that portion of the order passed in the writ petitions, shall remain stayed until further orders.
• Noted that, Serial No. 77 of Notification No. 12/2017 prior to the amendment made vide Notification No. 02/2018, exempts services by an unincorporated body or a non-profit entity to its own members up to an amount of Rs. 5000/- per member for sourcing goods or services from a third person for the common use of its members in a housing society or a residential complex. This limit has been enhanced to Rs.7500/- w.e.f. January 25, 2018.
• Opined that, the Government intends to provide the exemption only in cases where contribution received from a member per month is below the specified limit of Rs.7500/-. In other words, where the contribution exceeds the limit, taxability of such services by RWA shall not get covered by entry number 77 of the Notification No. 12/2017. Therefore, the contentions of the Applicant are untenable because in the event of the monthly contribution charged to a member exceeding Rs. 7,500/- per month, tax is payable only on the differential amount.
• Observed that, the amount collected by the Applicant from its members towards sinking fund is only meant for meeting expenses for future supply of services and therefore such contribution cannot qualify as a deposit. Thus, the amount collected by the Applicant from its members for setting up a sinking fund is an advance payment towards future supply of services and such payment comes under the definition of 'consideration' under Section 2(31) of the GST Act. The Applicant is, therefore, liable to pay tax on such supply in terms of section 13(2) of the CGST Act.
• Noted that, the Applicant collects the electricity charges consumed for common area from its members on pro-rata basis. Any amount collected on account of consumption of electricity has not been shown separately in the invoice. Therefore, electricity is being supplied bundled with supply of goods and services sourcing from a third person for the common use of its members. Thus, supply of electricity forms a part of composite supply where the principal supply is the supply of common area maintenance services. The Applicant is therefore liable to pay tax on collection of common area electricity charges if the services for common area maintenance fails to qualify for exemption under serial number 77 of the Notification No. 12/2017.

Our Comments:

As per CBIC Circular No. 109/28/2019-GST dated July 22, 2019, if a person holds more than one apartment in same society or residential complex, he gets separate exemption of Rs. 7,500 for each apartment.

For example, if a person owns two residential apartments in a residential complex and pays Rs. 15,000 per month as maintenance charges towards maintenance of each apartment to the RWA (Rs. 7,500 per month in respect of each residential apartment), the exemption from GST shall be available to each apartment.

OFFICIAL JUDGMENT COPY HAS BEEN ATTACHED