Background:
Service tax on ‘club or association service’ which covers RWA, was introduced with effect from June 16, 2005 vide Section 65(105)(zzze) read with section 65(25a) [(25a) was later renumbered as (25aa)] of the Finance Act, 1994.
Prior to July 1, 2012, exemption was available to a RWA under Notification No. 8/2007-ST dated March 1, 2007, if the total consideration received from an individual member by the RWA for the services does not exceed three thousand rupees per month. This Notification was rescinded vide Notification No. 34/2012-ST dated June 20, 2012 with effect from July 1, 2012.
Post negative list regime i.e. with effect from July 1, 2012, Notification No.25/2012-ST (“Notification No. 25”) provides for exemption to service by a RWA to its own members by way of reimbursement of charges or share of contribution up to five thousand rupees per month per member for sourcing of goods or services from a third person for the common use of its members.
The Central Board of Excise & Customs (“CBEC”) vide Circular No. 175/01/2014-ST dated January 10, 2014 has provided clarifications regarding certain doubts raised over the scope of the exemption provided to RWA under the negative list approach as under:
Clarifications:
|
Sl. No. |
Doubt |
Clarification |
| 1. | (i) In a residential complex, monthly contribution collected from members is used by the RWA for the purpose of making payments to the third parties, in respect of commonly used services or goods [Example: for providing security service for the residential complex, maintenance or upkeep of common area and common facilities like lift, water sump, health and fitness centre, swimming pool, payment of electricity Bill for the common area and lift, etc.]. Is service tax leviable?
(ii) If the contribution of a member/s of a RWA exceeds five thousand rupees per month, how should the service tax liability be calculated? |
Exemption at Sl. No. 28 (c) in Notification No. 25 is provided specifically with reference to service provided by an unincorporated body or a non–profit entity registered under any law for the time being in force such as RWAs, to its own members.
However, a monetary ceiling has been prescribed for this exemption, calculated in the form of five thousand rupees per month per member contribution to the RWA, for sourcing of goods or services from third person for the common use of its members. |
| 2. | (i) Is threshold exemption under notification No. 33/2012-ST available to RWA? (ii) Does ‘aggregate value’ for the purpose of threshold exemption, include the value of exempt service? |
Threshold exemption available under notification No. 33/2012-ST is applicable to a RWA, subject to conditions prescribed in the notification. Under this notification, taxable services of aggregate value not exceeding ten lakh rupees in any financial year is exempted from service tax. As per the definition of ‘aggregate value’ provided in Explanation B of the notification, aggregate value does not include the value of services which are exempt from service tax. |
| 3. | If a RWA provides certain services such as payment of electricity or water bill issued by third person, in the name of its members, acting as a ‘pure agent’ of its members, is exclusion from value of taxable service available for the purposes of exemptions provided in Notification 33/2012-ST or Notification No. 25? | In Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006, it is provided that expenditure or costs incurred by a service provider as a pure agent of the recipient of service shall be excluded from the value of taxable service, subject to the conditions specified in the Rule.
For illustration, where the payment for an electricity bill raised by an electricity transmission or distribution utility in the name of the owner of an apartment in respect of electricity consumed thereon, is collected and paid by the RWA to the utility, without charging any commission or a consideration by any other name, the RWA is acting as a pure agent and hence exclusion from the value of taxable service would be available. However, in the case of electricity bills issued in the name of RWA, in respect of electricity consumed for common use of lifts, motor pumps for water supply, lights in common area, etc., since there is no agent involved in these transactions, the exclusion from the value of taxable service would not be available. |
| 4. | Is CENVAT credit available to RWA for payment of service tax? | RWA may avail Cenvat credit and use the same for payment of service tax, in accordance with the Cenvat Credit Rules. |
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Bimal Jain
FCA, FCS, LLB, B.Com (Hons)
Mobile: +91 9810604563
E-mail: bimaljain@hotmail.com
Author Bio
This circular is just a compilation of existing provisions & does not clarify or clear any prevailing confusions. There is absolutely no value adddition by this circular as the professionals were already clear about the above points even without this circular. As it is, levy of service tax for “sharing of expense” is ridiculous. In its greed to add revenue, the Department has lost sight of what is taxable service & what is sharing of common expenses. The expenses incurred by the flats is pooled & shared by the residents, where is the question of charging service tax. Going by the “creative thinking” of the Department, it will not be a surprise if service tax is leveied on “joint families” as the the elders do baby sitting for working couples & the couples look after / take care of their parents. So this “caring & sharing” may also come under the service tax levy.
How funny? What is the idea?
What service does a RWA [Resident Welfare Association] provide to its’ members in sharing the common expenses like the Security, Lift maint, Electricity for common lighting and water motors etc?
Rs. 5000 per member? When once in 3/4 years a major white wash etc. takes place it will definitely cross this PEANUT limit.
It is most ridiculous to consider these sharing of exp as rendering service and charging tax there on.
Hope some court comes heavily on such ridiculous circulars and indirect taxing outside the Act and Rules.
will it also apply to MAINTENENCE sOCITIES FORMED BY THE FLAT OWNERS IN MULTI STORIED COMMERCIAL BUILDINGS like in Cannaught Place area.
in such multistoried buildings there is one main meter of Electricity and the Maintenence society makes the payment . Such society recovers the charges as per reading of Sub-meter installed for each such user, Can the society recover Fixed Charge levied by Authorities on main meter bill? What will be the treatment in Service tax and also under oher laws if any applicable to such transactions? Pl Clarify
Read. Thanks.