Per High court judgment in the case of Greenwood Owners Association & Ors. v. Union of India & Ors.(2021) 36 J.K.Jain’s GST & VR 57 (Mad), monthly contribution of members collected by Resident Welfare Associations (RWA) are Liable to GST on contribution exceeding Rs.7500/- under HSN code 9995. The circular No.109/28/2019 dated 22.7.2019 issued by CBIC & AAR order dated 21.6.2019 was quashed.

Now when maintenance charge exceeds Rs.7500/- p.m.(say Rs.10000/-), then it will have two components as under;

a) Rs.7500/- Component will be levied at Nil rate of GST.

b) Rs.2500/- Component will be levied at applicable rate of GST.

In such an eventuality, what will be the treatment u/s 17(2), GST Act, 2017 for apportionment of credit.

S.17(2), GST Act, 2017, reads as under;

(2) Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.

This sub-section restricts ITC attributable to the taxable supplies including zero-rated supplies. As such the ITC attributable for effecting exempt supplies is to be reversed as per formula laid down in Rule 42, GST Rules, 2017.

Now what is the exempt supply?

S.2(47), GST Act, 2017, defines exempt supplies as under;

S.2(47). “exempt supply” means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply;

As per above definition, the following types of supplies are termed as “exempt supply”;

i) Supplies attracting nil rate of tax or

ii) Supplies which are wholly exempt from tax u/s 11, GST Act or

iii) Supplies which are wholly exempt from tax u/s 6, IGST Act,

iv) non-taxable supply

In view of this definition of “exempt supply”, in the above example taken by us, the Component Rs.7500/- is being levied at Nil rate of GST & the Component Rs.2500/- is being levied at applicable rate of GST, which is a taxable supply.

Accordingly, per section 17(2) read with S2(47) & rule 42, ITC to the extent of Nil rated supply of Rs7500/-will be reversed.

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4 Comments

  1. Om Prakash Jain says:

    Vswami Sir,
    Kindly elaborate what you want to say. You have used three words, DOCTRINE of MUTUALITY, conventional DISclaimer & surrounding uncertainties. I have written the article as per commentary of law. Still, I shall be glad to comment on what you want to say.
    CA Om Prakash Jain s/o J.K.Jain, Jaipur
    Tel:9414300730

  2. Om Prakash Jain says:

    V.V.KALYANASUNDARAM, Sir,
    The word “or” is used netween ‘NIL rated’ or ‘wholly exempt supply’, meaning thereby that Nil rated supply alone is also covered under ‘Exempt supply’ u/s 2(47). Nil rated supply has not been defined in the Act. In my view, the component of Rs7500/- will fall under Nil rated supply & therby it will be exempt supply within the meaning of S.2(47). The other component of Rs.2500/- is taxable supply u/s 2(108). So far as S.17(2) is concered, it does not talk of two separate supplies. It restricts the ITC to so much of the input tax as is attributable to the taxable supplies. And rule 42 gives formula for its calculation.
    I hope the Matter is clear now.
    CA Om Prakash Jian s/o J.K.Jain, Jaipur
    Tel:9414300730

  3. vswami says:

    “……………..Accordingly, per section 17(2) read with S2(47) & rule 42, ITC to the extent of Nil rated supply of Rs7500/-will be reversed.”
    < !?!
    ITC <???

    ADMN. ' DOCTRINE of MUTUALITY', as earlier commented, not urged hence not gone into. !

    Why yet again the conventional DISclaimer is missing, despite the surrounding uncertainties ?

  4. V.V.KALYANASUNDARAM says:

    Though logically it is acceptable to reverse the credit it may still has to clear the legal hurdle.17 (2) contends reversal has to be done for partially exempted supplies. If there are two supplies one is exempted and another is not, then we can hold this view. 2)Exempt supplies definition covers wholly exempt and Nil rate. This case is not coming in the ambit of NIL rate or wholly exempt

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