Notification No. 25/2012- ST dated 20.06.2012 clause no. 28(c ) 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.
CBEC has issued a Circular No. 175/01/2014- ST dated 10.1.2014, which has clarified certain doubts regarding the scope of the present exemption extended to RWAs under the negative list approach as below :
Doubt-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?
Clarification
Exemption at Sl. No. 28 (c) in notification No. 25/2012-ST 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.
Doubt-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?
Clarification
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 10 lacs 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.
Doubt-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 25/2012-ST ?
Clarification
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.
Doubt-4
Is CENVAT credit available to RWA for payment of service tax?
Clarification
RWA may avail cenvat credit and use the same for payment of service tax, in accordance with the Cenvat Credit Rules.
CIRCULAR NO. 175/01/2014  ST, Dated: January 10, 2014

Subject : Levy of service tax on services provided by a Resident Welfare Association (RWA) to its own members – regarding.

Service tax on ‘club or association service’ which covers Resident Welfare Association (RWA) was introduced with effect from 16.06.2005, vide section 65(105)(zzze) read with section 65(25a)[(25a) was later renumbered as (25aa)]. Under the positive list approach which was followed prior to 1 st July 2012, exemption was available under notification No. 8/2007-ST dated 01.03.2007, 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 20th June 2012, with effect from 1 st July, 2012.

2. Under the negative list approach, with effect from 1st July, 2012, Notification No.25/2012-ST [sl.no.28 (c)] 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.

Certain doubts have been raised regarding the scope of the present exemption extended to RWAs under the negative list approach. These doubts have been examined and clarifications are given below:

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. 25/2012-ST 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.
If per month per member contribution of any or some members of a RWA exceeds five thousand rupees, the entire contribution of such members whose per month contribution exceeds five thousand rupees would be ineligible for the exemption under the said notification. Service tax would then be leviable on the aggregate amount of monthly contribution of such members.
2. (i)Is threshold exemption under notification No. 33/2012-ST available to RWA?
(ii)Does ‘aggregate value’ for the pusrpose 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 25/2012-ST ? 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.

 3. Trade Notice/ Public Notice to be issued. Hindi version to follow.

F. No.354/237/2013-TRU

[Raj Kumar Digvijay]
Under Secretary to the Government of India

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6 Comments

  1. jay says:

    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.

  2. Jayant Lakhkar says:

    Thank you for informing the Service Tax provisions relating to RWA activities vis-a-vis its members.

    It will be very informative to learn the Service Tax provisions applicable to the following types of Organisations of housing complexes especially in Mumbai-Pune area:

    (1) A Deemed Co-operative Society where the Society runs the day-to-day activities similar to a RWA.

    (2) A registered Co-operative Society of a building complex, where the Members are holders of the shares issued by the Society.

    I will be thankful to learn the Service Tax provisions applicable to these two types of organisations.

  3. R.L.Garg says:

    sir, will it also apply to Maintenence Socities created in Multi Storied Commercial buildings for day to day maintenence functions and collecting the electricity charges from various users as per their sub-meter reading, Can the fixed charges levied by the authorities on main meter be recovered and exemption claimed.

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