Hon’ble Madras High Court has recently given a judgement in the matter of ‘Greenwood Owners Association & others Vs Union of India‘ holding that monthly contributions to RWAs only in excess of INR 7,500/- would be taxable under GST Law.
It is pertinent to note that Tamil Nadu AAR in the matter of TVH Lumbini Square Owners Association has ruled that if monthly contribution exceeds Rs.7,500/-, then GST is to be leviable on entire amount and exemption benefit would not be available. Post this AAR ruling, CBIC also issued a circular stating the same position. Hon’ble High Court has quashed both the captioned AAR ruling as well as CBIC circular. We have analysed the HC order in this update.
A. FACTS OF THE CASE
- The petitioner is a resident welfare association (RWA).
- Under GST Law, specific conditional exemption is being provided which says that no tax shall be payable upto7,500/- of contribution received from member per month by RWA.
- The petitioners have challenged the order of Tamil Nadu AAR & Circular No 109/28/2019 dated 22nd July 2019 issued by CBIC in which it was stated that “in case of contribution by member to RWA is above Rs.7,500/- per month, then the entire amount would be taxable”.
B. ISSUE BEFORE THE COURT
- How should the RWA calculate GST payable where the maintenance charges exceed Rs.7,500/- per month per member?
- Is the GST payable only on the amount exceeding Rs.7,500/- or on the entire amount of maintenance charges?
C. OBSERVATIONS AND JUDGEMENT OF THE HIGH COURT
- Hon’ble Madras High Court referred No. 77 of Notification 12/2017 – Central tax (Rate) dated 28th June 2017 as amended:
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)..
b)..
c) up to an amount of seven thousand five hundred 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
- Hon’ble High Court while passing the judgement made following observations:
> In the case of Dilip Kumar, 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 7,500/- can thus only be interpreted to state that any contribution in excess of the same would be liable to tax.
> 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.
- HC ruled that 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 in question and both stand quashed.
- HC finally clarified that it is only contributions to RWA in excess of Rs. 7,500/- that would be taxable under GST Law.
D. OUR COMMENTS
This is a welcome decision by Hon’ble Madras High Court on an important issue for various housing societies/ associations who were required to discharge GST on entire amount without granting the exemption benefit available to them through exemption notification. This issue has seen change in stand of CBIC from confirming applicability of GST only on the net amount in 2017 (through GST Flyer) to issue of circular in 2019 (post Tamil Nadu AAR ruling) stating that GST would be applicable on entire amount.
We hope that HC ruling would put an end to this issue and would enable RWAs to discharge their GST liability on the net amount as envisaged in exemption notification.
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