Taxability of amount received by Cooperative Housing Society from its members in GST Regime
Recently the Hon’ble Mumbai CESTAT in the case of Tahnee Heights Co-operative Housing Society Limited (hereinafter referred to as ‘Society’ or ‘appellant’) Vs Commissioner of CGST, Mumbai South reported in 2019 (21) GSTL 440 (Tri-Mum) has held that society is not providing any service to its members and share of contribution received from members is to meet various purposes. The period involved was July 2015 to January 2017.
Facts of the Case
1. For the period July 2015 to January 2017, the appellant had paid service tax amount of Rs.20,77,586 under the category of ‘Club or Association Service’ in respect of the contributions received from its members. Such amount was paid under protest.
2. The appellant filed refund applications before the jurisdictional service tax authorities claiming refund of service tax paid on such service.
Contention of the appellant
1. There is no involvement of any consideration inasmuch as the appellant only recovers contribution from the members and its apportionment is pre-decided in accordance with the bye-laws of the society.
2. The principle of mutuality is applicable between appellant and its members. Thus, the appellant and its members are not distinct persons. Hence transaction does not fall within the ambit of first part of the definition of ‘Service’.
3. The appellant is an incorporated person hence explanation 3(a) of section 65B(44) of the Finance Act 1994 does not apply for levy of service tax.
Decision of the CESTAT
1. Association was formed or constituted and existed for the exclusive purpose of catering/meeting to the requirements of its members, as per the laid down policy in the bye law, it cannot be said that there is involvement of two persons, one to be termed as the Service Provider and other as the service receiver. Thus, the incorporated association and its member being one and the same, the activities undertaken or the services provided by the former will not be considered as service, exigible to service tax under the principle of mutuality.
2. The appellant also does not provide any services to its members who pay the amount towards their share of contribution for occupation of the units in their respective possession.
Applicability of above judgment in the GST regime
Though the above judgment pertains to service tax regime post negative list, however the same is equally applicable in the instant case. The same is analysed in the context of GST regime: –
Section 9(1) of CGST Act 2017, which is charging section for levy of GST, reads as follows: –
(1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person
Thus, GST is levied on supply of goods or services or both.
The term ‘supply’ has been defined vide section 7 of CGST Act 2017 in the following manner: –
SECTION 7. Scope of supply. — (1) For the purposes of this Act, the expression “supply” includes —
(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;
(b) import of services for a consideration whether or not in the course or furtherance of business; and
(c) the activities specified in Schedule I, made or agreed to be made without a consideration;
It is evident from the above definition of supply that to constitute a supply under section 7(1)(a), the following conditions must be satisfied: –
(i) All forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration
(ii) Supply should be in the course or furtherance of business
(iii) There must be two persons
The fulfilment of above conditions is analysed below in the context of contribution received by Cooperative Housing Society from its members for determining the taxability under GST regime.
(i) Provision of facilities by a Cooperative Housing Society to its members is for consideration. Thus, first condition has been fulfilled.
(ii) Provision of facilities by cooperative housing society to its members is in the course or furtherance of business by virtue of section 2(17)(e) of CGST Act 2017 which reads as follows: –
‘Business’ includes provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members
In view of the above, second condition has been fulfilled.
(iii) The Cooperative Society and its members are not distinct persons due to doctrine of mutuality. The said has been confirmed by the Hon’ble CESTAT in the case of Tahnee Heights Co-operative Housing Society Limited 2019 (21) GSTL 440 (Tri-Mum) which in turn has relied upon the following judgments: –
(a) Federation of Indian Chambers of Commerce & Industry v. Commissioner — 2015 (38) S.T.R. 529 (Tribunal)
(b) Matunga Gymkhana v. Commissioner — 2015 (38) S.T.R. 407 (Tribunal)
(c) Commissioner v. Rajpath Club Ltd. — Order dated 26-4-2018 in Appeal No. ST/11732/2017, by CESTAT, Mumbai
In view of the above, the 3rd condition has not been fulfilled since due to principle of mutuality, there is absence of two persons i.e. supplier of goods/supplier of services. There is no provision in the law which override the principle of mutuality between Cooperative Housing Society and its members.
It is evident from the above that provision of facilities by Cooperative Housing Society to its members is not a supply of service under GST regime.
Validity of entry number 77 of Exemption Notification
Entry number 77(c) of exemption notification number 12/2017-C.T. (Rate), dated 28-6-2017 exempts the following supply of services: –
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 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.
Merely because exemption has been granted in respect of amount received by Cooperative Housing Society by way of contribution from its members, the said activity does not automatically become taxable Supply. To become a taxable supply, activity must fall within the charging section. Reliance in this regard is placed upon the judgment of Hon’ble Supreme Court in the case of MOTI LAMINATES PVT. LTD. 1995 (76) E.L.T. 241 (S.C.) wherein the Apex Court held that merely because a description of goods is mentioned in the Central Excise Tariff the levy of excise duty does not arise unless the goods in question has been produced or manufactured.
Applying the ration of above decision in respect of amount received by Cooperative Housing Society by way of contribution from its members, it can be inferred that the said activity does not automatically become taxable Supply merely because exemption has been granted in respect of said activity by way of exemption notification.
The principle of mutuality is based on common law principles. It rests on the theory that a person cannot make a profit from himself/herself. An amount received from oneself cannot be regarded as income so as to be liable to tax. However, litigation often arises on its application to facts of cases. There has been a controversy in the context of co-operative housing society as also other societies on applicability of the principle of mutuality to the amount collected by the society from its existing or incoming member. It is advised that government should amend the charging section to align the same with the Principle of Mutuality to avoid unnecessary litigation in future.