1.0 ISSUES TO BE ADDRESSED
The primary issue under consideration is the exemption given under GST statute for member’s contribution in Co-operative housing society, its interpretation, benefits and our opinion on such issue. The Issue can be analyzed from following points:
A. Relevant provisions under CGST Act
B. Expert Opinions
C. Consequence of Misreading or Misinterpretation
2.0 RELAVANT PROVISIONS UNDER CGST ACT
As per Section 9 of CGST Act, 2017, levy of GST is on supply of goods and services. As per Section 7 expression “supply” includes–– (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business
The definition of “person” in Section 2(84) (i) of the CGST Act, 2017 specifically includes a co- operative society registered under any law relating to co-operative societies. Thus a registered co-operative society is a person within the meaning of the term in the CGST Act.
The next question which arises is whether the activity of the society can be said to be in the course or furtherance of business. As per definition of business u/s section 2(17) (e) of the CGST Act, 2017 “business” includes:
“Provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members”
Thus, as per section 2(17)(e) of the CGST Act, 2017 provision by a club, association, society, or any such body (for a subscription or any other consideration) of any facilities or benefits to its members is deemed to be a business. The activities of the housing society would thus attract the levy of GST and the housing society would be required to register and comply with the GST Law.
CBIC has, through various Notifications, listed out the supplies which are exempt from levy of tax (i.e. GST). By Notification No. 12/2017 – Central Tax (Rate) dated 28th June, 2017 CBIC has issued list of exempted supplies and conditions for such exemption. The said Notification, under heading 9995, states as follows:
“Service by an unincorporated body or a non- profit entity registered under any law for the time being in force, to its own members by way of reimbursement of charges or share of contribution: (a) as a trade union; (b) for the provision of carrying out any activity which is exempt from the levy of Goods and service Tax; or (c) up to an amount of five thousand rupees per month per member for sourcing of goods or services from a third person for the common use of its members in a housing society or a residential complex”
It was clarified through above referred notification that up to monthly contribution of ₹5000, such contribution is exempt from GST liability, if it is to be used for common use of member.
Further, in its 25th Meeting held on 18th January, 2018, the GST Council had recommended several measures granting relief from GST on a number of goods and services. One of the important reliefs granted by the Council is to enhance the limit of contribution made by members of a Resident Welfare Association (RWA) for the purpose of exemption from GST. Where the Council had recommended that the limit may be enhanced from Rs. 5,000 to Rs 7,500 per month per member. Services provided by RWAs (unincorporated body or a registered non-profit entity) to their members were hitherto exempt against contribution of up to an amount of Rs. 5,000 per month per member.
Further, question arises as to whether statutory dues such as property tax, electricity charges etc. would form part of the monthly maintenance bill raised by the society on its members and are to be included in calculating the monthly limit of ₹7500 ?
As per clause (b) of the above notification, exemption is available to housing societies for provision of carrying out any activity which is exempt from the levy of Goods and Services Tax assuming that a housing society is a non-profit registered entity; and property tax and electricity is exempt from the levy of GST. Thus, charges, collected by the society on account of property tax, electricity charges and other statutory levies would be excluded while calculating the limit of ₹7,500/-
3.0 SOME EXPERT OPINIONS
It is well settled opinion that where monthly maintenance of member does not exceed prescribed limit i.e. ₹7500, no GST will be charged on such contribution made by member. But the question is, where the contribution exceeds ₹ 7500, in such case, the GST will be charged on excess part i.e. (contribution amount – ₹7500) x GST Rate? Or would GST be charged on whole of contribution i.e. contribution amount x GST Rate.
The Institute of Cost Accountants of India, in its tax bulletin for September, 2018 1, has taken a view that member contribution lower than ₹7500 is exempt from tax and contribution which exceeds ₹7500 are wholly taxable under GST.
As per Mr. Dinkar Bhave, an expert in Goods and Service Tax Law, has given a similar view on “itatonline.org”. Extracts of his opinion are as follows:
“A plain reading of this Exemption Entry 77, will show that the ceiling limit per member per month is Rs 5,000, and if the amount exceeds even by say Rs 100, then the entire amount of Rs 5,100 becomes liable to be taxed @ 18%, rate of tax currently fixed”
However, Mr. Sujit kumar Sinha, another expert on the subject, has a different view on this matter. In his column 2, he has opined that GST is a vastly different law from Service tax and hence interpretation raised under service tax law cannot be relied on for GST. In his view, only the excess amount would be chargeable to tax i.e. amount exceeding ₹ 7500 would be counted as taxable supply and till ₹7500 it will be taken as exempt supply.
E.g., if the Society charges ₹ 9000/month maintenance for a flat, the total amount to be collected from the Member is [₹ 9000 + 18% of ₹ 1500] However if the amount charged per flat is less than 7500/month than no GST would be applicable.
A similar conclusion is drawn by Mr. Rohit Pithisaria in his note 3 as below:
If the monthly limit is crossed, GST is applicable only on the amount which is over and above the exemption limit.
This view is further supported by Central Board of Indirect Tax & Customs (CBIC) and National Academy of Customs, Indirect Taxes, & Narcotics (NACIN) in their flyers issued on this issue. Under chapter 41 of the said flyer, issued on CBIC website, this issue is clarified by following wordings [please note that this flyer was issued when the limit was Rs. 5,000 and hence the example is as per Rs. 5,000]
“Further, the question would then arise that if the monthly bill is say Rs. 6,000/- (and the same is on account of services for common use of its members), will GST be applicable on Rs. 6,000/- or Rs.1,000/-. In such cases, exemption is available up to an amount of Rs.5, 000/ and GST would be applicable on the amount in excess of Rs.5, 000/-.“
4.0 CONSEQUENCE OF MISREADING OR MISINTERPRETATION
In both the opinions the taxability would change materially since if whole of the contribution is considered as taxable then in such case the Society has to collect and pay the output tax. However, society will get credit of Input taxes.
In 2nd scenario where only excess contribution is chargeable to tax, in such case the ITC would be proportionately available to the extent of Taxable supply.
As can be seen from the analysis, the issue is still a grey area. There is no definitive and unambiguous provision in the law on the matter. Since GST is a relatively new legislation with limited judicial review or interpretation of the various aspects, there is no judicial case guidance also. Hence, any interpretation can at best be a risky proposition based on best judgment.
However, having said that, after analyzing and interpreting the Act and the notifications as also the context and purpose of the exemption, an interpretation can be drawn that only the excess amount should be taxable under GST and not whole of the contribution, as otherwise it’ll diminish the purpose of notified exemption.
GST and service tax laws are based on vastly different premises and purposes. Hence interpretation under both the statutes may be different and one may not fall back on the interpretation under the old service tax law while concluding anything under the GST law. Further, in press release dated 13/07/2017, it was clarified that services provided by a Housing Society [Resident Welfare Association (RWA)] will become cheaper under GST and not expensive. Under GST, a Housing Society [Resident Welfare Association (RWA)] is eligible for such ITCs on which they were not eligible in previous regimes and therefore one can infer that there is an attempt made under GST regulations to bring relief to Housing societies.
Accordingly, in our considered view, Societies may charge GST on contribution received in excess of ₹7,500 as it would lead to lesser amount of Tax burden on member’s of the society. Although society will not get full credit of Input tax credit but still it will be beneficial in the longer run.
However, each Society may, at their own discretion, choose the path of paying GST on the full value whenever the amount is exceeding Rs. 7,500. If stakes are high, the Society may think of approaching the Advance Ruling Authority [AAR] to get an advance ruling in the matter.