Introduction
Several of the Resident Welfare Associations [RWA] were taking shelter of mutuality concept to claim an exclusion from tax net in erstwhile taxation regime. The doctrine of mutuality states that when the contributors and the beneficiaries are the same, whereby the supplies are provided by members for themselves and consumed by the members, the levy of tax fails, as there is no distinct supplier and recipient.
The Supreme Court in the decision by its larger bench in the case of State of West Bengal v. Calcutta Club Ltd. (2019-TIOL-449-SC-ST-LB) held that contribution made by the members to their association shall not be liable for sales/service tax. It is significant to note at this juncture that the mutuality principle may need to be judicially tested under GST law and may take many years for final clarity to come in this regard under GST from the highest levels of jurisdiction.
In this backdrop, there has been a number of RWA's who have prudently chosen to pay GST on the monthly maintenance charges collected from the members for the use of common facilities.
Further, under the GST regime, there is an unconditional exemption up to Rs. 7500 [Rs.5000 from July 2017 till 25.1.2018] per month per member for sourcing of goods or services from a third person for the common use of its members in a housing society or residential complex[notification no.12/2017-CT(R) entry 77. Extract of entry as under:
Service by an unincorporated body or anon-profit entity registered under any law for the time
being in force, to its own members by way of reimbursement of charges or share of contribution-
(a) …..;
(b)……
Or (c) up to an amount of five thousand rupees per month* per member for sourcing of goods or
services from a third person for the common use of its members in a housing society or a residential complex.*Amended to Rs.7,500/- vide Notification No.2/18 dated 25.01.2018.
Circular no. 109/28/2019- GST, had clarified that GST would be applicable on the entire amount when the contribution for maintenance charges by members exceeds Rs.7500 pm per member. This seems to be contrary to earlier clarification in the sectoral flyer relating to Co-operative Housing Society issued by the CBIC during 2017 wherein it was specifically mentioned that only the amounts in excess of Rs. 5,000 [or Rs. 7,500 (as presently applicable) would be liable to GST. This circular no.109 handled to a great deal of confusion on eligibility to an exemption from GST to Residential welfare association's (RWA's)leading to quite a few of the RWA's discharging GST on the gross amount, when the maintenance exceeded Rs. 7500.
However, the recent judgment of the High Court in Greenwood Owners Association vs. UOI (2021-TIOL-1505-HC-MAD-GST) has held that it is only contributions to RWA in excess of Rs.7,500/- that would be taxable under GST Act.
In this article, the paper writer has examined this latest decision of High Court and the implication of the same.
Analysis of the recent decision and its impact
Background and Issue
Petitioners challenges an order of the authority for Advance Ruling (AAR) levying tax on the entirety of the contribution to an RWA. Further challenge to Circular No.109/28/2019 also on the same issue.Since contributions from members of RWA on some occasions was more than Rs.7,500/- one of the questions that arose was whether, in a case where the contribution exceeded the amount of Rs.7,500/-, the resident in that RWA would lose the entitlement to exemption altogether, as a result that the entire contribution would be liable to GST or whether the exemption would still continue to be available upto to a sum of Rs.7,500/- and only the difference (excess) becomes exigible to tax.
Decision
No ambiguity presents itself on a plain reading of the Entry and the intention is clear, so as to remove from the purview of taxation contribution upto an amount of Rs.7,500/-. The term 'upto' hardly needs to be defined and connotes an upper limit. It is interchangeable with the term 'till' and means that any amount till the ceiling of Rs.7,500/- would exempt for the purposes of GST.
In the case of Dilip Kumar (2018-TIOL-302-SC-CUS-CB), the Supreme Court reiterates the settled proposition that an Exemption Notification must be interpreted strictly. The plain words employed in Entry 77 being, 'upto' an amount of Rs.7,500/-. There is no ambiguity in the language of the exemption provision in this case and thus the judgment of the Supreme Court in Dilip Kumar (supra) would not be applicable to the facts and circumstances of this case. The ratio of that decision would apply only in a case where the provisions granting exemptions are ambiguous, whereas, in the present case, the Entry is clear and hence it is only a question of interpreting the same.
The plain words employed in Entry 77 being, 'upto' an amount of Rs.7,500/-can thus only be interpreted to state that any contribution in excess of the same would be liable to tax.
The intendment ofthe exemption Entry in question is simply to exempt contributions till a certain specified limit. The clarification by the GST Department even as early as in2017 has taken the correct view.
The conclusion in the AAR supra as well as the Circular to the effect that any contribution above Rs.7,500/- would disentitle the RWA to exemption, which was contrary to the express language of the entry is rightly quashed.
Impact of the decision
In the considered view of the paper writer, this view has rightly confirmed what was the interpretation placed all along that it is only contributions to RWA in excess of Rs.7,500/- that would be taxable under GST Act. The term “upto” in common understanding means- something is less than or equal to but not more than a stated value.
The recent decision is in line with the intention of the exemption entry. It may be noted this exemption is not available in case of receipts from members for the services provided exclusively to such members and not for the common use of members. The exemption would not be available in cases of charges collected for specific purposes like rent from clubs, advertisement incomes, etc. Further when the exemption is claimed, then the proportionate credit to be reversed to the extent related to exempted supplies vide section 17(2) r/w rules 42/43 of GST.
Conclusion
To summarise, in paper writers view, the exemption from GST for the contribution upto Rs 7,500/- pm per member for sourcing goods and services from third party for the common use of members, continues to be available.
In this article the paper writer has examined the implication of this latest decision.
The author can also be reached at roopa@hiregange.com.