2021 (12) TMI 134 - AAR - GST

Court rules GST payable on member contributions exceeding Rs. 7,500, applies to specific funds, water supply, limits input tax credit.

Outcome: The court held that GST is payable on contributions received from members, and if the monthly contributions exceed Rs. 7,500, GST is leviable on ... Supply - principle of mutuality - deeming of association and members as distinct persons - business (provision of facilities or benefits to members) - exemption under entry 77 - threshold of Rs. 7,500/- per month per member - interpretation of exemption notifications against assessee - treatment of sinking/repair/election/education funds - treatment of statutory or nil-rated charges in computing exemption threshold - distinction between supply of goods and supply of services (water supply) - input tax credit exclusion for construction/repairs to extent of capitalizationSupply - principle of mutuality - deeming of association and members as distinct persons - business (provision of facilities or benefits to members) - Liability to pay GST on contributions received from members. - HELD THAT: - The Authority held that activities undertaken by the housing society for maintenance and upkeep constitute 'services' and fall within the scope of 'supply' under the CGST Act. The amended provision deeming activities/transactions between a person (other than an individual) and its members as supplies, and treating the person and its members as distinct persons, settles the mutuality issue under GST. The definition of 'business' expressly includes provision by a club, association or society of facilities or benefits to its members for a subscription; contributions by members are consideration for those services. Consequently, the principle of mutuality as relied upon by the applicant does not negate GST liability in view of the amendment to Section 7. [Paras 5]The applicant is liable to pay GST on contributions received from its members.Exemption under entry 77 - threshold of Rs. 7,500/- per month per member - interpretation of exemption notifications against assessee - Whether exemption under entry 77 applies only to the first Rs. 7,500/- and whether excess amount is taxable only on differential or on entire contribution. - HELD THAT: - Entry 77 provides exemption for contributions 'up to' Rs. 7,500 per month per member for sourcing goods/services for common use. The Authority, following the statutory notification and the clarificatory position taken by CBIC (and observing that a challenged High Court decision is stayed), concluded that if a member's contribution exceeds Rs. 7,500, the member is not eligible for the exemption and the entire contribution is taxable. Exemption notifications are strictly construed in favour of the revenue. [Paras 5]If the monthly contribution exceeds Rs. 7,500 per member, GST is leviable on the entire contribution amount.Treatment of sinking/repair/election/education funds - deposit proviso to definition of consideration - Taxability of amounts collected towards Sinking Fund, Building Repair Fund and Election & Education Fund. - HELD THAT: - Although the applicant characterized such collections as deposits for future uncertain expenditure, the Authority found that these amounts are collected as per bye laws and statutory procedures, become the property of the society on collection, and are not shown or treated as refundable deposits. The proviso that a deposit is not consideration until applied does not operate in favour of the applicant in absence of evidence of refundable deposits or compliance with deposit formalities. Prior rulings of this Authority treating sinking fund contributions as taxable were also noted. Accordingly, such fund collections are treated as consideration for supply and are taxable. [Paras 5]Amounts collected towards sinking fund, building repair fund and election & education fund are liable to GST.Treatment of statutory or nil-rated charges in computing exemption threshold - exemption under entry 77 - threshold of Rs. 7,500/- per month per member - Whether supplies exempted or charged at nil rate are to be included in the value for computing the Rs. 7,500 threshold under entry 77. - HELD THAT: - Entry 77 expressly excludes in clause (b) activities which are exempt from levy of GST. The Authority observed that charges collected by the society on account of statutory dues (for example property tax, electricity charges) that are not subject to GST would be excluded while calculating the threshold limit of Rs. 7,500 per month per member. Thus, amounts representing exempt or nil rated supplies/statutory levies are not to be included in computing the Rs. 7,500 limit. [Paras 5]Supplies or charges which are exempt or nil rated (including statutory levies) are excluded in computing the Rs. 7,500 per month per member threshold under entry 77.Distinction between supply of goods and supply of services (water supply) - entry 99 - goods notification inapplicable where service is rendered - Whether contributions for supply of potable and treated (flush) water fall under entry 99 of Notification No.2/2017 (HSN 2201) attracting nil rate. - HELD THAT: - Notification No.2/2017 pertains to goods. The Authority found that the applicant is not selling water as goods but is rendering the service of supplying water (potable and treated) to members through storage, pumping and treatment systems, and charges relate to the service/process rather than sale of goods. Consequently, entry 99 of the goods notification is not applicable to the society's supply of water services. [Paras 5]Entry 99 of Notification No.2/2017 (HSN 2201) is not applicable; the society's supply of water is a service and not covered by that nil rated goods entry.Input tax credit exclusion for construction/repairs to extent of capitalization - Section 17(5) - works contract and immovable property - Eligibility to claim input tax credit on heavy repairs and maintenance not capitalized in books of account. - HELD THAT: - Section 17(5) bars ITC in respect of works contract services and goods/services used in construction, renovation, repairs to the extent of capitalization. The Authority noted that major repairs that extend the useful life of an asset are to be capitalized and ITC is not available to the extent of such capitalization. In absence of detailed facts demonstrating that the repair expenditure does not produce benefits to be capitalized, the Authority held ITC will not be available to the extent the expenditure is capitalized; minor repairs charged to expense may remain eligible subject to other conditions of Section 16. [Paras 5]ITC on heavy repairs and maintenance is not available to the extent such expenditure is required to be capitalized under Section 17(5) and its explanation; eligibility for non capitalized minor repairs remains subject to facts and Section 16 conditions.Final Conclusion: The Authority ruled that the housing society's collections from members constitute taxable supplies of services to distinct persons (society and members) and are liable to GST; where monthly contribution exceeds Rs. 7,500 the entire amount is taxable; sinking/repair/election/education fund collections are taxable; exempt or nil rated statutory charges are excluded when computing the Rs. 7,500 threshold; water supplied by the society is a service not covered by the goods nil rate entry; and input tax credit on repair/maintenance is disallowed to the extent such expenditure must be capitalized. Issues Involved:1. Liability to pay GST on contributions received from members.2. Exemption under entry no. 77 of Notification no. 12/2017-CTR.3. GST applicability on amounts collected towards specific funds.4. Inclusion of exempt supplies in computing the threshold amount.5. Taxability of contributions for water supply under entry 99 of Notification 2/2017-CTR.6. Eligibility for input tax credit on heavy repairs and maintenance expenses.Detailed Analysis:1. Liability to Pay GST on Contributions Received from Members:The applicant argued that based on the principle of mutuality, the society and its members are not distinct persons, and thus transactions between them should not be taxable. However, the judgment clarified that under the GST regime, the taxable event is the 'supply' of goods or services. The amendment to Section 7 of the CGST Act, 2017, deems activities or transactions between a person and their members to be supplies, thus making them taxable. The judgment concluded that the society and its members are distinct persons, and contributions received are considered as consideration for services, making them liable to GST.2. Exemption Under Entry No. 77 of Notification No. 12/2017-CTR:The applicant sought exemption for contributions up to Rs. 7,500 per month per member and argued that GST should be levied only on the amount exceeding Rs. 7,500. The judgment referred to the Circular No. 109/28/2019-GST, which clarified that if the contribution exceeds Rs. 7,500, the entire amount is taxable. Despite the applicant citing a contrary Madras High Court ruling, the judgment noted that the decision has been stayed and thus held that contributions exceeding Rs. 7,500 are fully taxable.3. GST on Amounts Collected Towards Specific Funds:The applicant contended that amounts collected for the Sinking Fund, Building Repair Fund, and Election and Education Fund are deposits and not consideration for services. The judgment disagreed, stating these funds are collected as per the society's bye-laws and are not refundable, thus constituting consideration for services. Therefore, these amounts are liable to GST.4. Inclusion of Exempt Supplies in Computing Threshold Amount:The applicant argued that supplies exempt from GST should not be included in computing the Rs. 7,500 threshold. The judgment agreed, stating that charges collected for property tax, electricity, and other statutory levies, which are exempt from GST, should be excluded when calculating the threshold limit.5. Taxability of Contributions for Water Supply Under Entry 99 of Notification 2/2017-CTR:The applicant claimed that contributions for potable and non-potable water supply should attract NIL GST under entry 99. The judgment clarified that the applicant is providing a service of water supply rather than selling goods per se. Therefore, the provisions of entry 99 of Notification 2/2017-CTR are not applicable, and such contributions are not exempt from GST.6. Eligibility for Input Tax Credit on Heavy Repairs and Maintenance:The applicant sought to claim ITC on expenses for heavy repairs and maintenance that are not capitalized. The judgment referred to Section 17(5) of the CGST Act, which restricts ITC on works contract services for construction of immovable property to the extent of capitalization. It concluded that ITC is not available for such expenses to the extent they are capitalized.Order:1. GST is payable on contributions received from members.2. If monthly contributions exceed Rs. 7,500, GST is leviable on the entire amount.3. GST is applicable on amounts collected for Sinking Fund, Building Repair Fund, and Election and Education Fund.4. Exempt supplies should be excluded when computing the Rs. 7,500 threshold.5. Contributions for water supply are not covered under entry 99 of Notification 2/2017-CTR and are taxable.6. ITC on heavy repairs and maintenance expenses is not available to the extent of capitalization.