The Hon’ble Madras High Court in Greenwood Owners Association v. Union of India [ W.P. Nos. 5518 and 1555 of 2020 dated July 01, 2021] held that contribution by the members of the Resident Welfare Association (RWA) only in excess of Rs. 7500/- per month per member would be taxable under the Goods and Services Tax Act, 2017 (GST Act).
Facts:
The Greenwood Owners Association (“the Petitioners”) are the RWA of apartment complexes, has been availing the benefit of exemption provisions, granted in Entry 77(c) of the Notification No. 12/2017-C.T. (R) dated June 28, 2017 (as amended) (“Service Exemption Notification”). As per interpretation of Entry 77 of Service Exemption Notification, an exemption was granted to contributions made to the Petitioners upto an amount of Rs 7500/- per month per member for sourcing of goods and services from a third person for the common use of the members of the RWA.
In some occasions, the contribution solicited from the Petitioners exceed Rs 7500/- so the question arises whether 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) becoming exigible to tax.
The Tamil Nadu Authority of Advance Ruling(“AAR”) passed a judgement in matter of M/s. TVH Lumbini Square Owners Association v. Union of India and Ors. [W.P. No. 27100 of 2019] according to which the grant of exemption was conditional upon the contribution being an amount of Rs.7,500/- or less. If the contribution exceeded the sum of Rs.7,500/-, then the very entitlement of that the Petitioners to exemption would stand defeated and the entirety of the amount collected would have to be brought to tax. In toeing the line of the AAR order, the Central Board of Indirect Taxes and Customs(“CBIC”)(“the Respondent”) has issued a Circular No. 109/28/2019-GST dated July 22, 2019 (“CN. 109/28/2019”).
The Petitioners aggrieved by the CBIC circular has come to the Hon’ble High Court of Madras.
Issue:
- Whether the Petitioners are liable for GST only on the member’s contribution towards maintenance charges etc. in excess of Rs.7,500 or on the entire contribution?
Held:
The Hon’ble Madras High Court in W.P. Nos. 5518 and 1555 of 2020 dated July 01, 2021, held as under:
- Observed that, there is no ambiguity in the language of the exemption provision of Entry 77 of Service Exemption Notification and thus the Respondent’s contention on relying on the judgement of the Hon’ble Supreme Court in case of Commissioner of Customs Import, Mumbai V. Dilip Kumar & Company (361 ELT 577) would not be applicable to the facts and circumstances of the present 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 77 of Service Exemption Notification, is clear and hence it is only a question of interpreting the same.
- Analysed that, to interpret the language in the Entry 77 of the Service Exemption Notification, compared with the different languages adopted by the Revenue in other entries granting exemption under diverse statutes.
- Further observed that, the words deployed in the Entry 78(exemption provided to service provider by ‘Artist’) of the Service Exemption Notification is a conscious one intended to have different applications.
- Noted that, the Hon’ble Supreme Court in case of Dilip Kumar(supra) reiterated the settled proposition that an Exemption Notification must be interpreted strictly. Consequently, the words employed in Entry 77 of the Service Exemption Notification 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.
- Further noted that, the term ‘upto’ does not define and connotes an upper limit. It is interchangeable with the term ‘till’ and means that any amount till the ceiling of ₹ 7,500/- would be exempt for the purposes of GST.
- Further observed the Respondent’s argument concerning slab rate. It opined that a slab is a measure of determining tax liability. The prescription of a slab connotes that income upto that slab would stand outside the purview of tax and tax exigible to a lower rate of tax and income above that slab would be treated differently. The intendment of the exemption Entry 77 of Service Exemption Notification is to exempt contributions till a certain specified limit.
- Held that, the judgement passed by the AAR and under the 109/28/2019 to the effect that any contribution above Rs.7,500/- would disentitle the Petitioner to exemption, is contrary to the language of the Entry 77 of Service Exemption Notification and both stand quashed. It has elucidated that only contribution to RWA in excess of Rs 7500/- would be taxable under the GST Act.
Relevant Provisions:
Entry No. 77 in Service Exemption Notification
Exemption from CGST on specified intra-state services:
| (1) | (2) | (3) | (4) | (5) |
| Sl. No. | Chapter, Section, Heading, Group or Service Code (Tariff) | Description of services | Rate (per cent.) | Condition |
| 1 | ……… | |||
| 77 | Heading 9995 | 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. |
Nil | Nil |
Entry No. 78 in Service Exemption Notification
Services rendered by an artist
| (1) | (2) | (3) | (4) | (5) |
| Sl. No. | Chapter, Section, Heading, Group or Service Code (Tariff) | Description of services | Rate (per cent.) | Condition |
| 1 | ……… | |||
| 78 | Heading 9996 | Services by an artist by way of a performance in folk or classical art forms of-
(a) music, or (b) dance, or (c) theatre, if the consideration charged for such performance is not more than one lakh and fifty thousand rupees: Provided that the exemption shall not apply to service provided by such artist as a brand ambassador. |
Nil | Nil |
Extract of Circular No. 109/28/2019:
Issues related to GST on monthly subscription/contribution charged by a Residential Welfare Association from its members – reg.
| Sl. No. | Issue | Clarification |
| 1. | …….. | |
| 5. | How should the RWA calculate GST payable where the maintenance charges exceed ₹ 7500/- per month per member? Is the GST payable only on the amount exceeding ₹ 7500/- or on the entire amount of maintenance charges? | The exemption from GST on maintenance charges charged by a RWA from residents is available only if such charges do not exceed ₹ 7500/- per month per member. In case the charges exceed ₹ 7500/- per month per member, the entire amount is taxable. For example, if the maintenance charges are ₹ 9000/- per month per member, GST @ 18% shall be payable on the entire amount of ₹ 9000/- and not on (₹ 9000₹ 7500) = ₹ 1500/- |
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