Dispute on valuation of supply of services by RWA's to their members

The Madras High Court in case of Greenwood Owners Association  has quashed a Finance Ministry circular prescribing Goods and Services Tax (GST) on the entire monthly contribution to Resident Welfare Association (RWA), if it is more than Rs 7,500.

The matter involved petitions filed by three RWAs in apartment complexes (Greenwood Owners Association, Oceanic Owners Association and TVH Lumbini Square Owners Association) located in different parts of Chennai and one individual (Sanjay Gupta).

Two issues were challenged - An order of the AAR levying tax on the entirety of the contribution to RWA and a circular dated July 22, 2018, and issued by the Finance Ministry amending the methodology to levy GST on contribution to RWA.

It may be mentioned that supply of service by RWA (unincorporated body or a registered non-profit entity) to its own members by way of reimbursement of charges or share of contribution up to an amount of Rs. 7,500/-* per month per member for providing services and goods for the common use of its members in a housing society or a residential complex are exempt from GST.

* Prior to 25th January 2018, the exemption was available if the charges or share of contribution did not exceed Rs. 5000/- per month per member. The limit was increased to Rs. 7500/- per month per member with effect from 25th January 2018. [Refer clause (c) of Sl. No. 77 to the notification No. 12/2018- Central Tax (Rate) dated 28.06.2019]

PRESS RELEASE BY CBIC DATED 13-JULY-2017

RWA shall be required to pay GST on monthly subscription/contribution charged from its members if such subscription is more than Rs. 5,000 per member (7,500/- after 25-Jan-2018) and the annual turnover of RWA by way of supplying of services and goods is also Rs. 20 lakhs or more.

CIRCULAR NO. 109/28/2019-GST DATED 22-JULY-2019

Q5. How should the RWA calculate GST payable where the maintenance charges exceed Rs. 7500/- per month per member? Is the GST payable only on the amount exceeding Rs. 7500/- or on the entire amount of maintenance charges?

Ans.: The exemption from GST on maintenance charges charged by a RWA from residents is available only if such charges do not exceed Rs. 7500/- per month per member. In case the charges exceed Rs. 7500/- per month per member, the entire amount is taxable. For example, if the maintenance charges are Rs. 9000/- per month per member, GST @18% shall be payable on the entire amount of Rs. 9000/- and not on [Rs. 9000 - Rs. 7500] = Rs. 1500/- .

VIEWS OF COURT

M/s TVH Lumbini Square Owners Association approached Tamil Nadu AAR [(2019) 107 taxmann.com 329 (AAR - TAMIL NADU)] to have clarification on the amount chargeable to GST and Tamil Nadu AAR held that where charges or share of contribution goes above 7500 rupees per month per member, such service will not fit above description and hence, such service is not exempt; such services are then fully chargeable to GST at applicable tax rate. M/s TVH Lumbini Square Owners Association filed Writ petition in Madras High Court which provided them relief to continue paying GST with exemption upto Rs. 7,500/- till final order is pronounced by the Court.

In a judgment rendered on 01/07/2021 in Greenwood Owners Association vs. UOI [TS-321HC(MAD),-2021-GST], the Hon'ble Madras HC has finally quashed the contents CBIC Circular No.109/28/2019 - GST dated July 22, 2019, which denied basic exemption up to Rs. 7500/- per member contribution has been upheld and Resident Welfare Association is liable for GST on members' monthly subscriptions 'only on amounts exceeding Rs.7500, and not on the entire amount.

The intendment of the exemption entry in question is simply to exempt contributions till a certain specified limit. The clarification by the GST Department even as early as in 2017 has taken the correct view

CONCLUSION

The above judgment would surely be a breather for RWA’s across the country as it has correctly laid down the position of law which had been interpreted by the authorities in a different context to deny the exemption from the basic limit also. The benefit of this judgment however may not be allowed by the departmental officers of other states except Tamil Nadu as the decisions of the High Court are binding on the subordinate courts and authorities or Tribunals under its superintendence throughout the territories in relation to which it exercises jurisdiction.

In my personal opinion, the Department will surely challenge the decision in Higher Forums as this judgement has countrywide impact & implications.

In so far as tax implications on housing societies are concerned, the position prevailing under Service Tax is sought to be continued under GST. The tax burden under GST will be lower as the society would be entitled to take ITC which was hitherto not allowed under service tax but if basic exemption of Rs. 7,500/- is not allowed then it would be additional tax burden on individual member of RWA’s which was never the intent of bringing GST.