2023 (10) TMI 469 - AAR - GST

RWAs face GST on maintenance charges above Rs 7500 per member monthly despite turnover exemptions

AAR Telangana ruled on GST exemptions for Resident Welfare Associations. Common area electricity charges collected on actual basis and paid directly to ... Exempt supply (electrical energy) - pure agent (Rule 33, CGST Rules) - time of supply of services - receipt of payment - advances - taxability and reporting (GSTR-1 / GSTR-3B) - exemption for unincorporated body / non profit entity to its own members (threshold per member) - threshold exemption for RWAs - entire amount taxable where contribution per member exceeds thresholdExempt supply (electrical energy) - pure agent (Rule 33, CGST Rules) - composite supply - Whether common area electricity charges collected by the society and passed on in full to the electricity provider are taxable when electricity is an exempt supply. - HELD THAT: - Notification granting exemption to electrical energy treats supply of electrical energy as exempt and contains no conditions; Rule 33 excludes from value of supply amounts recovered by a supplier acting as a pure agent, subject to its conditions and illustration. The society collects electricity charges on actual basis and remits the same in full to the electricity department without any additional loading. Applying the illustration to Rule 33 and the exemption notification, the society acts as a pure agent for the collection and payment of electrical energy charges, and such amounts are not includible in the value of any supply by the society. Further, electrical energy remains an exempt supply and cannot be treated as part of a composite supply with other taxable supplies because a composite supply must consist of two or more taxable supplies. The combined reading of the exemption notification and Rule 33 leads to the conclusion that the electricity charges collected and passed on in full are not taxable at the hands of the society. [Paras 7]Common area electricity charges collected on actuals and fully remitted to the electricity department by the society are not taxable at the society's hands by reason of the exemption for electrical energy and the society acting as a pure agent under Rule 33.Time of supply of services - receipt of payment - advances - taxability and reporting (GSTR-1 / GSTR-3B) - notification exempting advances to supplier of goods - Whether GST on advance maintenance charges collected by the society is payable at the time of collection or only in the month(s) to which the advance pertains. - HELD THAT: - Section 13(2) (time of supply of services) provides that the time of supply of services is the earliest of date of issue of invoice or date of receipt of payment; Section 31(2) permits issuance of invoice before or after provision of service. Therefore, receipt of an advance for services gives rise to time of supply at the moment of receipt. Advances for goods are treated differently under a specific notification exempting tax on receipt of advances by suppliers of goods; that exemption does not apply to advances for services. Advances received towards services must be reported in GSTR 1 (as advances) and the corresponding tax liability discharged in GSTR 3B for the tax period in which the advance is received. [Paras 7]Advances collected towards supply of services give rise to tax liability at the time of receipt and must be reported in the relevant return and discharged in the tax period in which the advance is received.Exemption for unincorporated body / non profit entity to its own members (threshold per member) - threshold exemption for RWAs - entire amount taxable where contribution per member exceeds threshold - Whether, when the monthly contribution per member exceeds the notified threshold for RWAs, GST is leviable on the entire contribution or only on the excess over the threshold. - HELD THAT: - The notification exempts services by an unincorporated body or non profit entity to its own members for sourcing goods or services for common use up to the specified amount per member. The Authority interprets the amended entry to mean that where the maintenance collected per member exceeds the notified threshold, the whole amount collected from that member is chargeable to GST. Thus, if the monthly contribution per member equals or exceeds the threshold, GST is payable on the entire contribution and not merely on the portion exceeding the threshold. If the per member monthly charge is below the threshold, GST need not be paid even if the RWA's annual turnover exceeds the specified turnover limit. [Paras 7]Where the amount collected for maintenance per member exceeds the notified threshold, GST is leviable on the entire amount collected per member; if the per member amount is below the threshold, no tax is payable on those amounts notwithstanding annual turnover.Final Conclusion: The Authority rules that (1) electricity charges collected on actuals and passed in full to the electricity provider are not taxable at the society's hands as electrical energy is exempt and the society acts as a pure agent; (2) advances received for services give rise to tax liability at the time of receipt and must be reported and discharged in the period of receipt; and (3) where per member maintenance exceeds the notified threshold, GST is chargeable on the entire amount collected per member. Issues Involved:1. GST exemption on common area electricity charges.2. GST on advance maintenance charges.3. GST exemption on electricity charges collected and paid to the electricity department.4. GST applicability on contributions exceeding the threshold limit for Resident Welfare Associations (RWA).Summary:Issue 1: GST exemption on common area electricity chargesThe applicant, a mutually aided cooperative society, collects common area electricity charges from its members and pays them to the Electricity Department without any additional amounts. As per Section 11(1) of the CGST Act 2017 and Notification No. 02/2017 dated 28.06.2017, the supply of electrical energy is exempt from GST. Rule 33 of the CGST Rules, 2017, supports this by excluding costs incurred by a supplier as a pure agent. The applicant qualifies as a pure agent, and thus, the common area electricity charges are exempt from GST.Issue 2: GST on advance maintenance chargesAccording to Section 13(2) and Section 31(2) of the CGST Act, the time of supply of services is the earliest of the date of issue of invoice or receipt of payment. Therefore, GST on advance maintenance charges should be reported in the GSTR-1/GSTR-3B for the relevant tax period, and the liability needs to be discharged at the time of receipt of the advance.Issue 3: GST exemption on electricity charges collected and paid to the electricity departmentThe applicant acts as a facilitator, collecting electricity charges based on individual consumption measured by sub-meters and paying the total cost to the Electricity Department. As per the same reasoning in Issue 1, since the applicant is a pure agent and the supply of electricity is exempt under Notification No. 02/2017, these electricity charges are also exempt from GST.Issue 4: GST applicability on contributions exceeding the threshold limit for Resident Welfare Associations (RWA)Notification No. 12/2017 as amended by Notification No. 02/2018 states that services by an unincorporated body or non-profit entity to its members are exempt up to Rs. 7500 per month per member. If the monthly contribution exceeds Rs. 7500, GST is chargeable on the entire amount at 18%. Therefore, if the maintenance charges exceed Rs. 7500 per month per member, GST should be collected on the total contribution.Rulings:1. Common area electricity charges collected on an actual basis are exempt from GST.2. GST on advance maintenance charges should be deposited at the time of receipt of the advance.3. Electricity charges collected and paid to the electricity department are exempt from GST.4. If the monthly contribution exceeds Rs. 7500, GST should be collected on the total contribution.