RWA services lose complete GST exemption when monthly contributions exceed Rs. 7,500, making entire amount taxable

AAR West Bengal ruled that RWA services lose complete exemption under Notification 12/2017 when monthly contributions exceed Rs. 7,500, making the entire amount taxable rather than just the excess. GST applies to corpus fund collections as they constitute advance payments for future services under Section 2(31) of GST Act. Common area electricity charges recovered on actual basis are taxable as part of composite supply of maintenance services when exemption threshold is exceeded.

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Issues Involved:
1. Taxability of monthly contributions exceeding INR 7500.
2. Taxability of amounts collected for setting up a corpus fund.
3. Taxability of common area electricity charges.

Summary:

Issue 1: Taxability of Monthly Contributions Exceeding INR 7500
The applicant questioned whether they could avail the benefit of Notification No. 12/2017 dated 28.06.2017 read with Notification No. 02/2018 dated 25.01.2018, which exempts from tax the value of supply up to INR 7500 per month per member. The Authority referred to Circular No. 109/28/2019-GST, which states that if maintenance charges exceed INR 7500 per month per member, the entire amount is taxable. The applicant's reliance on the Madras High Court's ruling in Greenwood Owners Association vs Union of India was noted, but the Authority highlighted that the Division Bench stayed the Single Bench's order. Consequently, the Authority ruled that if the monthly contribution exceeds INR 7500, the entire amount is taxable.

Issue 2: Taxability of Amounts Collected for Setting Up a Corpus Fund
The applicant argued that amounts collected for a corpus fund should not be considered as supply and therefore not taxable. The Authority found that such contributions are advance payments for future supply of services and qualify as 'consideration' under Section 2(31) of the GST Act. Thus, the applicant is liable to pay tax on these amounts.

Issue 3: Taxability of Common Area Electricity Charges
The applicant contended that common area electricity charges recovered on an actual basis should not be taxable. The Authority referred to Circular No. 206/18/2023-GST, which clarifies that electricity charges recovered on an actual basis by RWAs acting as pure agents are not taxable. However, the Authority found that the applicant bundled electricity charges with other maintenance services and did not show them separately in invoices. Therefore, these charges form part of a composite supply, making them taxable if the common area maintenance services do not qualify for exemption under Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.

Ruling:
1. The exemption is not available when maintenance charges exceed INR 7500 per month per member; the entire amount is taxable.
2. Amounts collected for setting up a corpus fund are advance payments for future services and are taxable.
3. Common area electricity charges are taxable as part of a composite supply if the maintenance services do not qualify for exemption.

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