2019 (11) TMI 155 - AAR - GST

Homeowners' Association liable for CGST/SGST on member contributions; exemption clarified; input tax credit restrictions apply.

The applicant, a Homeowners' Association, was held liable to pay CGST and SGST on contributions received from members as they were considered taxable ... Supply of services by an association to its members - consideration for supply and definition of consideration - exemption under entry 77 of Notification No.12/2017 (upto Rs.7,500 per month per member) - restriction on input tax credit under Section 17(2) of the CGST Act (apportionment for exempt supplies) - proviso excluding deposits from consideration until applied (corpus/sinking fund)Supply of services by an association to its members - consideration for supply and definition of consideration - Liability to pay GST on contributions collected from members for maintenance services. - HELD THAT: - The Authority held that the applicant, an association of persons, supplies maintenance services to its members and receives consideration therefor. The definition of 'supply' under the Act covers all forms of supply of services for a consideration by a person in the course or furtherance of business, and the definition of 'business' includes provision of facilities by an association to its members. The contributions received are consideration for supply of maintenance services and therefore taxable under CGST/KGST. The applicant's contention that statutory obligation excludes the activity from being a supply was rejected. [Paras 5]The applicant is liable to pay CGST and SGST on contributions received from members as they constitute consideration for taxable supply of services.Exemption under entry 77 of Notification No.12/2017 (upto Rs.7,500 per month per member) - Applicability of the Notification No.12/2017 entry 77 exemption to maintenance charges. - HELD THAT: - The Authority found that services by a non profit unincorporated body to its own members by way of reimbursement or share of contribution for sourcing goods/services for common use are covered by clause (c) of entry 77 and exempt up to Rs.7,500 per month per member. However, relying on the departmental Circular No.109/28/2019-GST, the Authority clarified that if maintenance charges exceed Rs.7,500 per month per member, the entire amount is taxable and the exemption does not operate only on a portion above the threshold. [Paras 5]Exemption under entry 77 applies only when maintenance charges do not exceed Rs.7,500 per month per member; if charges exceed that amount the entire contribution is taxable.Restriction on input tax credit under Section 17(2) of the CGST Act (apportionment for exempt supplies) - Rule 42 - apportionment of common input tax credit - Whether input tax credit must be restricted where supplies are partly exempt under the notification. - HELD THAT: - The Authority observed that where a registered person effects supplies that are partly taxable and partly exempt, Section 17(2) mandates restriction of input tax credit attributable to exempt supplies. Since the applicant may have partly exempt turnover (where contributions are within the exemption limit) and partly taxable turnover (where contributions exceed the limit), it must restrict input tax credit attributable to exempt supplies as per Section 17(2) read with Rule 42 of the CGST Rules; remaining eligible input tax credit may be availed subject to other statutory restrictions. [Paras 5]The applicant must restrict input tax credit attributable to exempt supplies in accordance with Section 17(2) and Rule 42; other eligible credit may be claimed subject to statutory limitations.Proviso excluding deposits from consideration until applied (corpus/sinking fund) - definition of consideration - Taxability at the time of collection of amounts collected as corpus/sinking fund from members. - HELD THAT: - Relying on the proviso to the definition of 'consideration', the Authority held that a deposit given in respect of a future supply is not to be treated as payment for such supply until the supplier applies the deposit as consideration for the supply. Amounts collected as corpus/sinking fund are deposits for future supplies and are not consideration at the time of collection; they become taxable only when applied for providing services, at which time time of supply rules apply. [Paras 5]Amounts collected for corpus/sinking fund are not liable to CGST/SGST at the time of collection; they become taxable only when applied as consideration for supply.Final Conclusion: Advance ruling: (i) maintenance contributions received by the association are taxable supplies and liable to CGST/SGST; (ii) exemption under entry 77 (Notification No.12/2017 as amended) applies only where contributions do not exceed Rs.7,500 per month per member - if exceeded the entire amount is taxable; (iii) input tax credit must be restricted for the portion attributable to exempt supplies as per Section 17(2) and Rule 42, with remaining eligible credit claimable subject to law; (iv) corpus/sinking fund collections are deposits not taxable at collection and are taxed only when applied as consideration for supply. Issues Involved:1. Liability to pay CGST and SGST on contributions received from members.2. Applicability of exemption under Notification No. 12/2017 and Notification No. 2/2018.3. Requirement to restrict the claim of input tax credit.4. Liability to pay CGST/SGST on amounts collected for setting up a corpus fund.Detailed Analysis:1. Liability to Pay CGST and SGST on Contributions Received from Members:The applicant, a Homeowners' Association, argued that their activities, mandated by the Karnataka Apartment Ownership Act, 1972, do not constitute a 'supply' under Section 7 of the CGST Act, 2017, and hence should not attract GST. They contended that the contributions received are mere reimbursements and not consideration for services.However, the Authority for Advance Ruling (AAR) determined that the applicant is an Association of Persons (AOP) distinct from its members and is providing services in exchange for consideration. The term 'supply' under Section 7(1) of the CGST Act includes all forms of supply of goods or services made for consideration in the course of business. The definition of 'business' under Section 2(17) includes the provision of facilities or benefits by an association to its members. Therefore, the maintenance services provided by the applicant are considered taxable supplies of services.2. Applicability of Exemption Under Notification No. 12/2017 and Notification No. 2/2018:The applicant sought an exemption under entry No. 77 of Notification No. 12/2017-CT (R) dated 28.06.2017, as amended by Notification No. 2/2018-CT (R) dated 25.01.2018, which exempts contributions up to Rs. 7,500 per month per member. The applicant argued that even if contributions exceed Rs. 7,500, they should be exempted up to Rs. 7,500, and GST should be levied only on the excess amount.The AAR clarified that the exemption is available only if the maintenance charges do not exceed Rs. 7,500 per month per member. If the charges exceed this amount, the entire contribution is taxable. This interpretation aligns with Circular No. 109/28/2019-GST dated 22.07.2019, which states that if maintenance charges exceed Rs. 7,500 per month per member, GST is payable on the entire amount.3. Requirement to Restrict the Claim of Input Tax Credit:The applicant contended that the exemption of Rs. 7,500 per month per member is merely a reduction in the value of supply and does not convert the supply into an exempt supply. Therefore, they argued that they should be entitled to the full amount of input tax credit.The AAR concluded that the applicant is involved in both taxable and exempt supplies. As per Section 17(2) of the CGST Act, if goods or services are used partly for taxable supplies and partly for exempt supplies, the input tax credit should be restricted to the extent attributable to taxable supplies. Therefore, the applicant must restrict the claim of input tax credit as per Rule 42 of the CGST Rules, 2017.4. Liability to Pay CGST/SGST on Amounts Collected for Setting Up a Corpus Fund:The applicant argued that contributions towards the corpus fund are deposits and are refundable to members if not spent. They contended that such amounts are not consideration for any supply of goods or services and hence should not attract GST.The AAR agreed with the applicant, stating that the corpus fund contributions are deposits and do not form part of the consideration for supply of services at the time of collection. However, these amounts become taxable when utilized for the actual supply of services, and the time of supply must be determined as per Section 13 of the CGST Act, 2017.Ruling:1. The applicant is liable to pay CGST and SGST on contributions received from its members as these constitute taxable supplies of services.2. The exemption under entry No. 77 of Notification No. 12/2017-CT (R) is available only if maintenance charges do not exceed Rs. 7,500 per month per member. If the charges exceed Rs. 7,500, the entire amount is taxable.3. The applicant must restrict the claim of input tax credit as per Section 17(2) of the CGST Act and Rule 42 of the CGST Rules.4. The applicant is not liable to pay CGST/SGST on amounts collected for setting up a corpus fund at the time of collection, but these amounts become taxable when utilized for the actual supply of services.