Single Bench Order w.r.t Exemption provided to contribution upto Rs. 7,500/- PM to RWA under challenge before DB

The Madras High Court is reviewing a single bench order that quashed proceedings regarding a GST exemption for Resident Welfare Associations (RWAs). The exemption allowed for GST to be paid only on maintenance charges exceeding Rs 7,500 per person per month. However, the Division Bench has noted that if contributions exceed this limit, the entire amount may be taxable, and the interpretation of 'upto' is being considered.

In Union of India v. M/S TVH Lumbini Square Owners Association [W.A.Nos.2318 and 2321 of 2021 dated September 09, 2021], the current appeal has been filed against the Ld. Single Judge Bench ruling provided in M/S TVH Lumbini Square Owners Association v. Union of India [W.P.No.27100 of 2019 and WMP.No.26479 of 2019 dated July 01, 2021].

The Ld. Single Bench in the Hon'ble Madras High Court quashed the proceedings of M/s. M/S TVH Lumbini Square Owners Association [Order No.25/ARA/2019, dated June 21, 2019] of Tamil Nadu Authority for Advance Ruling ("TNAAR"). As per the said Ruling, it was held that housing societies may pay Goods and Services Tax ("GST") only on the maintenance charges collected, which is more than Rs.7,500 per person per month and not on the entire amount.

The Hon'ble Madras High Court in W.P.No.27100 of 2019 and WMP.No.26479 of 2019 dated September 13, 2019 ruled in favour of RWA's that the conclusion provided in the Order No.25/ARA/2019,dated June 21, 2019 by TNAAR as well as the Circular No.109/28/2019- GST dated July 22, 2019 is contrary to the express language of the Entry in question and both stand quashed. It further clarified that it is only contributions to RWA in excess of Rs.7,500 that would be taxable under GST Act.

The Ld. Division Bench of the Hon'ble Madras High Court in the current appeal noted that the entire transaction on which GST is applicable cannot be bifurcated. If the RWA member contribution exceeds Rs 7,500, the entire amount contributed would be subject to tax. Along with that, it went on to interpret the term "upto" by observing that there can be two interpretations; it either means exemption is granted only when the transaction value is less than Rs.7,500 or exemption is granted only for Rs.7,500 when the transaction value is more than 7,500.

Further, referring to S no. 28(c) of Notification No.25/2012-ST dated July 01, 2012, which provided for an exemption given for contributions upto Rs 5,000 per month per member to RWA, as well as referring to clarification issued through Circular no. 175/01/2014 – ST dated January 10, 2014 which state that if the contribution per member exceeds Rs. 5000/-, the entire contribution of such members whose contribution exceeds Rs. 5000 would be ineligible for exemption under the said notification.    

Further noted, that the legal issue is yet to be decided since the Ld. Single Bench not only quashed the proceedings of TNAAR but also the Circular issued by the Department.

Our Comments

1. In M/s. M/S TVH Lumbini Square Owners Association [Order No. 25/ARA/2019, dated June 21, 2019] by TNAAR, it was held that entire contribution of members towards maintenance charges which is collected by the RWA in a case where it exceeds Rs 7500 a month is taxable and no exemption to this effect it to be provided.
2. Being aggrieved by the ruling, the Petitioner approached the Hon'ble Madras High Court in M/S TVH Lumbini Square Owners Association v. Union of India [W.P.No.27100 of 2019 and WMP. No. 26479 of 2019 dated July 01, 2021] wherein not only the above mentioned ruling by TNAAR was quashed but Circular No.109/28/2019- GST dated July 22, 2019 was also quashed on the ground of the two being contrary to express language of the Entry 77 of Notification No. 12/2017-C.T.(R) dated June 28, 2017(as amended)("Services Exemption Notification")