Madras High Court decision | Maintenance charges in an Association in excess of Rs.7500 is only liable for GST
As per Entry 77 of Notification No. 12/2017- Central Tax (Rate) amended by Notification No. 2/2018- Central Tax (Rate) dated 25th January 2018
Service by an unincorporated body or a non- 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) as a trade union;
(b) for the provision of carrying out any activity which is exempt from the levy of Goods and service Tax; or
(c) up to an amount of seven thousand five hundred 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.
From the reading of the law it is clear that if the maintenance charges are within Rs.7,500 per month per person then such charges are exempt. Issue arises when such maintenance charges cross Rs.7,500 per month per person since the law uses the word “up to” which caused confusion as to whether the entire amount or the amount over and above Rs.7,500 is liable for tax.
The GST flyers issued at the start of the new regime stated that the amount over and above the exemption limit shall be charged for tax, the relevant extract of the flyer
“Further, the question would then arise that if the monthly bill is say Rs.6,000/- (and the same is on account of services for common use of its members), will GST be applicable on Rs. 6,000/- or Rs.1, 000/-. In such cases, exemption is available up to an amount of Rs.5,000/- and GST would be applicable on the amount in excess of Rs.5, 000/-“
One of the petitioners M/s TVH LUMBINI SQUARE OWNERS ASSOCIATION of the case approached the Authority for Advance Ruling, TN on the same issue to which the AAR gave a ruling that the entire amount shall be liable to GST, the ruling of the AAR reads as follows
“If a service by the applicant, a registered housing society/resident welfare association to its members by way of reimbursement of charges or share of contribution for sourcing of goods or services from a third person for the common use of its members, is such that it is above 7500 rupees per month effective from 25.01.2018 (5000 rupees before), it is not eligible S No 77 (c) of Notification No. 12/17-CT . (Rate) dated 28.06.2017 as amended for CGST and of SI No 77 (c) of Notification No.11(2)/CTR/532(d-15)/2017 vide G.O. (Ms) No. 73 dated 29.06.2017 as amended for SGST. COST and SGST at appropriate rates are to be paid by the members on the full amount of reimbursement of charges or share of contribution,”
The High Court of Madras held that
- The plain words employed in Entry 77 being, ‘up to’ 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 term ‘up to’ 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.7500/- would be exempt for the purposes of GST.
- The intendment of the exemption Entry in question is simply to exempt contributions till a certain specified limit. The clarification by the GST department even as early as in 2017 has taken the correct view. The conclusion of the AAR as well as the Circular [109/28/2019-GST dated 22.07.2019] to the effect that any contribution above Rs.7500/- would disentitle the RWA to exemption, is contrary to the express language of the Entry in question and both stand quashed.
- It is only contribution to RWA in excess of Rs.7500/- that would be taxable under GST Act.
Please find the attached copy of the decision in this regard. GREENWOOD OWNERS ASSOCIATION Vs UoI