Case Law Details
In re Vaishnavi Splendour Homeowners Welfare Association (GST AAAR Karnataka)
The contention of the Appellant is that contributions upto an amount of Rs 7500/- per member per month are exempted from GST by virtue of the above entry and for contributions above Rs 7500/- per member per month, the difference amount alone is liable to tax. This is not a correct interpretation of the Notification. The exemption as per the entry 77 of the Notf No 12/2017 CT (R) is available only when a member’s contribution per month is upto an amount of Rs 7500/-. A member who contributes an amount which is more than Rs 7500/-, will not be eligible for the exemption under entry No 77 and the entire contribution amount will be liable to be taxed. Hon’ble Supreme Court of India, Constitution Bench of Five Judges in the case of Commissioner of Customs (Import) Mumbai Vs. M/s Dilip Kumar and Company and Ors (Civil Appeal No. 3327 OF 2007) has held that the benefit of ambiguity in exemption notification cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue/state. Exemption notifications are subject to strict interpretation. We find that the Advance Ruling Authority had correctly interpreted this exemption Notification. The Circular No. 109/28/2019-GST dated 22.07.2019 issued by the CBIC only clarifies this position. The Appellant has argued that this Circular will apply only prospectively since it is oppressive in nature. This argument does not hold water since the said Circular does not introduce any new levy by its clarifications. The position regarding the exemption from GST was always applicable only when the individual member’s contribution per month was within Rs 7500/-. The Circular dated 22.07.2019 only clarified this position and did not bring in any new levy. Hence the question of applying the Circular prospectively does not arise.
FULL TEXT OF ORDER OF APPELLATE AUTHORITY OF ADVANCE RULING,KARNATAKA
PROCEEDINGS
(Under Section 101 of the CGST Act, 2017 and the KGST Act, 2017)
1. At the outset we would like to make it clear that the provisions of CGST, Act 2017 and SGST, Act 2017 are in pari materia and have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the KGST Act.
2. The present appeal has been filed under section 100 of the Central Goods and Service Tax Act 2017 and Karnataka Goods and Service Tax Act 2017 (herein after referred to as CGST Act, 2017 and SGST Act, 2017) by M/s. Vaishnavi Splendour Homeowners Welfare Association, (herein after referred to as Appellant) against the advance Ruling No. KAR/ADRG 47/2019 Dated: 17 Sept 2019.
Brief Facts of the case:
3. The appellant is an association of apartment owners in the condominium known as “Vaishnavi Splendour”. The association has 88 members and each of them contribute towards the maintenance of common areas/ facilities, lightings in the common areas, water, etc. The contributions of each member work out to more than Rs.7500 per month.
4. The appellant filed an application for Advance Ruling under section 98 of the CGST Act, 2017 and KGST Act,2017 on the following question:-
(i) Whether the applicant is liable to pay CGST and SGST on the amount of contribution received from its members?
(ii) If yes, whether it can avail the benefit of Notification No 12/2017 CT(R) dt 28.06.2017 (Sl.No 77) read with Notification No 02/2018 dt 25.01.2018 which provide for exempting from tax, the value of supply upto an amount of Rs 7500/-per month per member?
(iii) If the answer to (ii) is ‘yes’, whether it is required to restrict its claim of input tax credit?
(iv) Whether the applicant is liable to pay CGST/SGST on amounts which it collects from its members for setting up a corpus fund?
5. The Karnataka Advance Ruling Authority vide Ruling No. KAR/ADRG 47/2019dated 17th Sept 2019,(hereinafter referred to as impugned order) gave a ruling on the above questions as follows:-
(i) The applicant is liable to pay CGST and SGST on the amount of contribution received from its members as their activities amounts to taxable supply of service.
(ii) The benefit of exemption under entry No 77 of Notification No 12/2017 CT(R) dt 28.06.2017 (as amended by Notification No 02/2018 dt 25.01.2018), is available to the applicant only if maintenance charges (contributions) 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.
(iii) The applicant is eligible to claim input tax credit on the inward supplies of goods and services and this is subject to the restrictions as enumerated in Section 17(2) of the CGST Act read with Rule 42 of the CGST Rules and other restrictions applicable if any.
(iv) The applicant is not liable to pay CGST/SGST on amounts which it collects from its members for setting up a corpus fund.
6. Aggrieved by the ruling of the Authority on the issues at (i) and (ii) above, the appellant has filed an appeal under Section 100 of the CGST Act, 2017 and KGST Act, 2017 on the following grounds.
6.1. Appellant submitted that their transactions with its members are governed by the principle of mutuality propounded by the three member bench of the Honourable Supreme Court of India in the Civil Appeal No. 4184/2009 (State of West Bengal and Others Vs Calcutta Club India) and Civil Appeal No. 7497/2012 (Chief Commissioner of Central Excise and Service Tax and Others Vs. Ranchi Club Ltd. decided on 03/10/2019)wherein it is stated that supplies made to its members by the member associations, both incorporated as well as unincorporated, are governed by the principal of mutuality and therefore they cannot be charged to tax, be it as tax on sale of goods or as a tax on supply of service.
6.2. Appellant further submitted that GST is leviable only in the circumstances where there is existence of privity of contract between the supplier and the recipient. When the members’ association effects any supplies to its members, the supplier and the recipient are one and the same and therefore, there is an absence of privity of contract. Accordingly, there cannot be any charge of GST on such transactions.
6.3. Appellant further submitted that the Authority for Advance Ruling is a quasi-judicial authority; that quasi- judicial authorities are bound to decide the matters independent of departmental circulars; that departmental circulars clarifying the departmental stand on the matter cannot be the basis for the decision by the authority. Yet, Authority has given the ruling by merely following the CBIC Circular No. 109/28/2019-GST dated 22-07-2019. They contended that the ruling given by merely quoting the circular is not a speaking ruling.
6.4. They submitted that departmental circular would operate only prospectively by virtue of being in the nature of an oppressive circular. They relied on the Supreme Court judgments in the case of Commissioner of Central Excise vs Mysore Electricals Industries Ltd (Civil Appeal 4488/2005) and Suchitra Components Ltd vs Commissioner of Central Excise, Guntur (Civil Appeal 3596/2005) in this regard.
6.5. In view of the above appellant pleaded to hold that the amount of contributions received by the appellant from its members is not taxable or in the alternative, to hold that such amount of contributions as are in excess of Rs.7500 per month per member alone are taxable.
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