2020 (9) TMI 737 - AAR - GST

Maintenance activities funded by member contributions subject to GST, exemptions based on threshold, water charges exempt.

The ruling determined that maintenance activities funded by member contributions are subject to GST. Lump-sum maintenance charges are taxable if the ... Services by a housing society to its own members by way of reimbursement of charges or share of contribution - exemption for sourcing of goods or services up to Rs. 7,500 per month per member under entry No.77 of Notification No.12/2017 - supply of water exempt from GST - time of supply of services - earliest of invoice date or receipt of payment - deposit versus advance - characterization of amounts collected as deposit not supply until utilized - taxability of contributions/endowment fund when not reimbursement for sourcing third party services - provision by a society to its members constitutes businessProvision by a society to its members constitutes business - supply of services - time of supply of services - earliest of invoice date or receipt of payment - Whether maintenance of layout funded by amounts collected from members is a service attracting GST - HELD THAT: - The authority held that provision of facilities or benefits by a society to its members falls within the definition of 'business' and that the maintenance activities (cleaning, upkeep of roads/parks, water/electrical maintenance) constitute provision of services. All three components of 'supply' are satisfied - there is a service, consideration is received from members, and the activity is in the course or furtherance of business. The time of supply is the earliest of issue of invoice or receipt of payment; amounts collected and held as deposits do not by themselves constitute supply until utilized for sourcing goods/services, and GST liability arises to the extent amounts are utilised for supply by third parties at the time of such supply. [Paras 12, 13, 14, 19]Maintenance of the layout from funds collected from members is a taxable service attracting GST.Deposit versus advance - characterization of amounts collected as deposit not supply until utilized - exemption for sourcing of goods or services up to Rs. 7,500 per month per member under entry No.77 of Notification No.12/2017 - Whether GST is payable immediately on lump sum/advance maintenance charges collected for unexpired periods or on utilisation, and how the exemption threshold is to be applied - HELD THAT: - The Authority found that lump sum or advance collections kept as deposits do not convert into supply at collection; taxability arises when amounts are utilised to source goods/services from third parties. When amounts are utilised in a tax period, the utilised sum (including apportioned share of endowment fund used) must be divided among all members; if the per member amount in that tax period does not exceed Rs.7,500, the exemption under entry No.77 applies and the utilised amount is exempt; if the apportioned per member utilised amount exceeds Rs.7,500 in that tax period, the entire amount is taxable. [Paras 14, 15, 19]GST is not payable merely on collection for unexpired periods; tax arises on utilisation and the exemption threshold of Rs.7,500 per member per month applies to the apportioned utilised amount in the relevant tax period.Supply of water exempt from GST - exemption for sourcing of goods or services up to Rs. 7,500 per month per member under entry No.77 of Notification No.12/2017 - Whether water charges collected by the society attract GST - HELD THAT: - Supply of water (other than specified packaged waters) is exempt under the relevant exemption entry. If water charges are levied separately and shown distinctly, they are exempt. If water charges are not separately shown but are included within the aggregate contribution, such amounts must be aggregated with other contributions and apportioned when determining whether the per member utilised amount in a tax period falls within the Rs.7,500 exemption under entry No.77. [Paras 16, 19]Separately collected water charges are exempt from GST; where included in general contributions they are to be included in the apportionment for applying the Rs.7,500 exemption threshold.Taxability of contributions/endowment fund when not reimbursement for sourcing third party services - services by a housing society to its own members by way of reimbursement of charges or share of contribution - Whether lump sum amounts collected as an endowment fund from members (not as reimbursement/contribution for sourcing third party services) are taxable - HELD THAT: - The Authority observed that amounts collected from members who sell their sites and which are retained as an endowment fund (with a promise of refund on takeover) are not contributions made as reimbursement for sourcing third party services. Such receipts, including the accretions/interest, form the society's fund and are used to provide services and clearances to sellers; therefore these receipts amount to supply of services and are taxable as unclassified services. Expenditures from the endowment fund used to source goods/services for members must also be proportionately considered when applying the Rs.7,500 exemption threshold. [Paras 17, 19]Amounts collected as endowment fund from members selling sites are taxable under GST.Exemption for sourcing of goods or services up to Rs. 7,500 per month per member under entry No.77 of Notification No.12/2017 - Scope and applicability of entry No.77 exemption to the applicant - HELD THAT: - The Authority set out six conditions for applicability of entry No.77: the provider must be an RWA/housing society; services must be to its own members; the receipt must be by way of reimbursement or share of contribution; the amount must not exceed Rs.7,500 per month per member; sourcing must be from a third person; and sourcing must be for common use of members. The exemption applies to the applicant only when these conditions are satisfied and the per member apportioned utilised amount in the tax period does not exceed Rs.7,500; otherwise the entire amount is taxable. [Paras 15, 18, 19]Entry No.77 applies to the applicant only subject to fulfillment of the specified conditions and up to Rs.7,500 per month per member on the apportioned utilised amount in the tax period.Final Conclusion: The Authority ruled that (i) maintenance of the layout funded by amounts collected from members is a taxable service; (ii) lump sum or advance collections held as deposits are taxable only when utilised to source goods/services and the utilised amount must be apportioned per member for that tax period; (iii) if the apportioned utilised amount per member does not exceed Rs.7,500 in the tax period, exemption under entry No.77 applies, otherwise the amount is taxable; (iv) separately charged water is exempt, but if included in general contributions it is to be apportioned for the Rs.7,500 threshold; and (v) endowment fund collections from members selling sites are taxable. Issues Involved:1. GST applicability on maintenance charges collected from members.2. GST applicability on lump-sum maintenance charges collected for a long period.3. GST applicability on water charges collected from residents.4. GST applicability on lump-sum endowment fund collected from members selling their sites.5. Applicability of exemption under Notification No. 12/2017 for maintenance charges.Issue-wise Detailed Analysis:1. GST Applicability on Maintenance Charges Collected from Members:The applicant, a housing society, provides maintenance services to its members, which include upkeep of roads, parks, and utilities. The authority determined that these activities qualify as 'business' under Section 2(17) of the CGST Act, 2017. The maintenance services provided by the applicant constitute a 'supply' under Section 7(1)(a) of the CGST Act, 2017, as they involve the provision of services for consideration in the course of business. Therefore, the activity of maintaining the facilities at the layout from the funds collected from the members of the Society is a service attracting GST.2. GST Applicability on Lump-sum Maintenance Charges Collected for a Long Period:The applicant collects maintenance charges either annually or once every ten years. The time of supply of services is determined by the earliest of the date of issue of the invoice or the date of receipt of payment. The collected amount is considered a deposit until utilized for maintenance services. The ruling clarified that the amount utilized for sourcing goods or services from third parties is liable for GST. However, if the amount utilized per member per month does not exceed Rs. 7,500, it is exempt under Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, as amended by Notification No. 2/2018 dated 25.01.2018. If the amount exceeds Rs. 7,500, the entire amount is taxable.3. GST Applicability on Water Charges Collected from Residents:The applicant collects water charges separately on a monthly basis for the cost of pumping and maintaining the water distribution system. The supply of water (except certain specified types) is exempt from GST under entry no. 99 of Notification No. 2/2017-Central Tax (Rate) dated 28th June 2017. If water charges are included in the total contribution without being shown separately, they must be considered while determining the threshold for exemption under entry No. 77 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.4. GST Applicability on Lump-sum Endowment Fund Collected from Members Selling Their Sites:The applicant collects a lump-sum amount from members selling their sites, which is kept as an endowment fund for major maintenance works. This amount is refundable when the layout is handed over to the local body. The ruling clarified that this collection does not qualify for exemption under entry 77(c) of Notification No. 12/2017-Central Tax (Rate) as it is not a reimbursement or contribution for sourcing goods or services. Instead, it is considered a service for providing no-objection certificates and other clearances, attracting GST at 18% under entry no. 35 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017.5. Applicability of Exemption under Notification No. 12/2017 for Maintenance Charges:The exemption under entry No. 77 of Notification No. 12/2017-Central Tax (Rate) is applicable to the applicant only if the maintenance charges do not exceed Rs. 7,500 per month per member. If the charges are collected annually or once in ten years, the amount utilized for maintenance in a particular tax period must be divided by the number of members to determine if it exceeds the Rs. 7,500 threshold. If it does, the entire amount is taxable; otherwise, it is exempt.Ruling Summary:1. Maintenance activities funded by member contributions attract GST.2. Lump-sum contributions for maintenance are taxable if the utilized amount per member per month exceeds Rs. 7,500.3. Water charges collected separately are exempt from GST; if included in total contributions, they are subject to the Rs. 7,500 threshold for exemption.4. Lump-sum endowment funds collected from members selling their sites are taxable at 18%.5. Exemption under Notification No. 12/2017 applies only if the maintenance charges do not exceed Rs. 7,500 per month per member.