2022 (11) TMI 390 - AAAR - GST

Housing society cannot claim ITC on repair work contracts as activities constitute membership services, not works contract services under section 17(5)(c)

In Re: M/s. Mahavir Nagar Shiv Shrushti Co-op. Housing Society Limited,

AAAR held that a housing society cannot claim ITC on works contract services received from contractors for building repairs and renovations. The society's ... Eligibility of avail ITC - Works contract services - Supply or not - activities of the society for its members - requirement to obtain registration under the GST law - If the activities of the applicant are treated as “supply” under the CGST Act, 2017 then whether the applicant is eligible to claim the ITC on input and inputs services for repairs, renovations & rehabilitation works carried out by the Applicant? Whether the Appellant can be construed as providing works contract services to its members while undertaking the activities relating to major repairs, renovations and rehabilitation works for the society by entering into an agreement with a contractor, namely, M/s. Unique Rehab Pvt. Ltd., which carry out the said repair, renovation, and rehabilitation work of the society? HELD THAT:- The Appellant society has been formed with an objective to facilitate or benefit their members by way of undertaking the aforesaid activities, thereby, providing services to their members against certain considerations called charges in terms of their Bye-laws. Accordingly, they have been levying 18% GST on the taxable components of the charges collected by them from their members. The same is evident from the invoices submitted by them along with the subject appeal memorandum. Here, although the Appellant have not mentioned, on their invoices, the SAC (Service Accounting Code) of the services being provided by them to their members, it is worthwhile to mention that all the said underlying services provided by the Appellant-society will be covered under the heading 9995 enumerated at SI. No. 33 of the Notification No. 11/2017-C.T. (Rate) dated 28.06.2017 having the description “services of membership organization”, as all the underlying services including the services related to building repair and renovation for which the Appellant society is charging, from their members, a contribution towards the building repair fund arc being supplied in the capacity of the cooperative society only, which is nothing but a membership organization. The Appellant's contention of providing the works contract services to their members is not acceptable on another ground that society provides many services, such as security services, cleaning services, repair and maintenance services, etc., for which they recover the cost from their members under the head “maintenance charges”, and the Appellant society are not claiming to be provider of the aforesaid services and charging for the said services under different heads - it is clearly evident that they are trying to take this stand of providing works contract services to their members solely to avail ITC of the tax paid to the contractor on the works contract services, which were otherwise not available to them under the restrictions imposed under section 17(5)(c) of the CGST Act, 2017. Section 17 says that ITC would be available on tax paid on works contract services when such services are the input services for further supply of works contract service. Appellant does not fulfill the conditions laid down above. It has to be understood that the exception carved out to provide ITC in the case of tax paid on works contract is for those who in turn provide works contract service. For e.g., when a principal gets a contract of work executed from a sub-contractor and provides the same to the employer. In such a case, the principal becomes eligible for ITC even though the contract results in immoveable property - The society itself is not works contract service provider, nor it is in the business of providing works contract services. The works contract services received by society, from appointed contractor, are for the common benefit of the members. Hence, the Society's contention that they are providing works contract services to their members, and hence, eligible for the ITC of the tax paid to their appointed contractor can't be agreed to. Accordingly, they are not eligible for the ITC of tax paid to their contractors in terms of the limitations provided under section 17(5)(c) of the CGST Act. 2017. Issues Involved:1. Whether the activities carried out by the applicant for its members qualify as 'supply' under Section 7 of the CGST Act, 2017.2. Whether the applicant is liable to obtain registration under the GST law.3. Eligibility of the applicant to claim Input Tax Credit (ITC) on input and input services for repairs, renovations, and rehabilitation works.Detailed Analysis:Issue 1: Definition of SupplyThe Appellant Society initially questioned whether their activities for members qualify as 'supply' under Section 7 of the CGST Act, 2017. However, this question was withdrawn during the personal hearing.Issue 2: GST RegistrationSimilarly, the question regarding the necessity for the Appellant to obtain GST registration was also withdrawn during the personal hearing.Issue 3: Eligibility to Claim ITCThe core issue revolves around whether the Appellant Society can claim ITC on the GST paid for works contract services received from their contractor for repairs, renovations, and rehabilitation works.- Appellant's Argument:- The Appellant Society argued that they provide works contract services to their members and should be eligible for ITC on the GST paid to the contractor.- They contended that under Section 16(1) of the CGST Act, 2017, they are entitled to ITC as the services are used in the course or furtherance of business.- They further argued that Section 17(5)(c) should not apply as they are providing works contract services to their members, thus qualifying for the exception clause.- Respondent's Argument:- The Respondent maintained that the works contract services are not a facility provided by a club or society.- They emphasized that the issue was about the eligibility of ITC on particular inward supply, not the classification of outward supplies.- They cited a previous decision in the case of Las Palmas Co-op. HSL, where it was held that ITC on works contract services for immovable property is not admissible.- Appellate Authority's Findings:- The Authority examined the general activities and functions of a Co-operative Housing Society as per their Bye-laws, which include managing, maintaining, and administering the property of the society.- It was noted that the society raises funds by collecting contributions (charges) from its members for various services, including repairs and maintenance.- The Authority concluded that the services provided by the Appellant Society to its members, including repair and renovation services, fall under the heading 'services of membership organization' as per Notification No. 11/2017-C.T. (Rate).- The Authority disagreed with the Appellant's contention that they provide works contract services to their members. It was noted that the society's core function is to manage and maintain the property, not to provide works contract services.- The Authority held that the Appellant Society is not eligible for ITC on works contract services received from their contractor, as per the restrictions under Section 17(5)(c) of the CGST Act, 2017. The section stipulates that ITC is not available for works contract services when supplied for construction of immovable property, except where it is an input service for further supply of works contract service.Conclusion:The Appellate Authority upheld the Advance Ruling passed by the MAAR, concluding that the Appellant Society is not eligible to avail ITC on the GST paid for works contract services received from their contractor. The ruling emphasized that the society's activities are classified under 'services of membership organization' and not as works contract services, thereby falling under the restrictions imposed by Section 17(5)(c) of the CGST Act, 2017.