2025 (5) TMI 1884 - AAR - GST

Resident Welfare Association corpus funds for building maintenance subject to GST as advance payment for services

AAR Tamil Nadu ruled that corpus/sinking fund collections by Resident Welfare Association from members for building maintenance and painting work in ... Levy of GST - corpus /Sinking Fund collected from members - rate of GST to be charged on the collection of Sinking fund - SAC code - set off of GST paid on such services (input service) against the GST payable on the amounts collected as corpus/sinking funds - requirement to levy or collect GST on maintenance charges, once registration is taken, provided that the monthly sum does not exceed Rs. 7,500/-. Whether collection of corpus fund/sinking fund/capital amounts from the residents for the purpose of painting and carrying out some building maintenance work in the common area of the apartment would be subject to the levy of GST? - HELD THAT:- Primarily, the activity of a Resident Welfare Association includes all the activities provided to its members within a society. A society is akin to a club which is composed of its members. Therefore, service provided by a housing society to its members shall be treated as service provided by one person to another. The applicant has stated in their application with regard to facts that they are registered under the provisions of the Tamilnadu Societies Registration Act, 1975 and hence fall within the definition of 'person'. As per definition of “consideration”, any collection in any form, from the members is a consideration and the activity done by the applicant is in the nature of 'supply of service'. Whether the activity of the society can be said to be in the course of furtherance of busines? - HELD THAT:- Proviso to the definition of 'consideration' states that deposit given for supply of goods or services shall not be considered as payment for the supply of goods or services unless the supplier appropriates such deposit as consideration for the said supply. The term 'deposit' in normal parlance, is 'an amount being held in any bank account, especially to earn and accumulate interest'. In most of the case, the amount collected as security deposit is kept as a security for providing supply of goods or services. Further, any amount which is returned back to the person who have made payment is termed as 'security deposit'. As the amount collected now is being used to render service to its members in future, it shall be rightly termed as 'Advance' towards the provision of service to be rendered in future. Therefore, the consideration received by the applicant from its members for the 'supply of service', agreed to be made' is liable to tax - the amount collected by the applicant from its members for setting up a sinking fund is an advance payment towards future supply of services and such payment comes under the definition of 'consideration' under clause (31) of Section 2 of the GST Act. The applicant is, therefore, liable to pay tax on such supply in terms of sub-section (2) of Section 13 of the GST Act. Thus, all the conditions for an activity fell under the 'scope of supply' is satisfied, the collection of 'corpus fund/sinking fund/ capital fund' by the applicant from the residents for the purpose of painting and carrying out some building maintenance work, in the common area of the apartment is a supply and hence would be chargeable to GST. The activity of the housing society would thus attract the levy of GST and the housing society would be required to register under Section 22 of the Act, if the turnover of the housing society exceeds 20 Lakhs and comply with the GST law - TRU vide Circular No.109/28/2019-GST (F. No. 332/04/2017-TRU) dated 22-07-2019 has given an extensive clarification on all possible questions arise on this issue. However, this clarification is applicable only to the monthly subscription collected from the members in Resident Welfare Association. As long as the monthly subscription per member is less than Rs. 7,500/-, GST is not liable to be paid as per the above Notification. The applicant is providing partly taxable (liable to pay GST on the corpus/sinking/capital fund) and partly exempted supply of service (Nil rate of Tax for subscription per month per member is less than Rs. 7,500/-). Therefore, the applicant is liable to restrict the claim of input tax credit to the extent of exempt turnover as per Rule 42 of the GST Rules. Conclusion - i) The amount of corpus/sinking/capital fund collected from the residents for the purpose of painting and carrying out some building maintenance work in the common area of the apartment is subjected to CGST and SGST and applicable tax need to be paid. ii) As the applicant liable to pay GST on the collection of corpus/sinking/ capital fund, they can utilize the ITC availed towards their outward liability subject to following the provisions of Section 17 (2) of the Act and Rule 42 of the Rules. iii) In terms of SI. No. 77 of Notification No. 12/2017-CT (Rate) dated 28-06-2017, read with Circular No. 109/28/2019-GST (F. No. 332/04/2017-TRU) dated 22nd Jul, 2019, if the subscription/contribution per month per member is less than Rs. 7,500/-, no GST is liable to be charged and collected from the members. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Authority for Advance Ruling (AAR) include:Whether the corpus fund or sinking fund collected by a Resident Welfare Association (RWA) from its members for future capital expenditures such as painting and building maintenance is liable to Goods and Services Tax (GST).If liable, what is the applicable GST rate and corresponding Service Accounting Code (SAC) for such collections.Whether the GST paid on inputs and input services related to such corpus/sinking fund activities can be claimed as Input Tax Credit (ITC) against the GST payable on the corpus fund collections.Whether the RWA is required to levy or collect GST on maintenance charges collected from members, particularly when the monthly amount does not exceed Rs. 7,500 per apartment.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Liability of GST on Corpus/Sinking Fund CollectionsRelevant Legal Framework and Precedents: The provisions of the Central Goods and Services Tax Act, 2017 (CGST Act) and Tamil Nadu Goods and Services Tax Act, 2017 (TNGST Act) are pari materia. Section 7 defines 'supply' to include all forms of supply of goods or services for a consideration by a person in the course of furtherance of business. Section 2(31) defines 'consideration,' and Section 2(17) defines 'business,' which includes provision of facilities or benefits by a club, association, or society for a subscription or other consideration. Notification No. 12/2017-CT (Rate) exempts certain supplies by non-profit entities up to a threshold amount. Circular No. 109/28/2019-GST provides clarifications on contributions by Resident Welfare Associations.Court's Interpretation and Reasoning: The AAR examined whether the corpus/sinking fund collected is a supply of service liable to GST. The applicant contended that corpus fund is a capital contribution, not consideration for a supply of service, as it is earmarked for future contingencies and not linked to immediate service provision. The Authority noted that the applicant is a registered society under the Tamil Nadu Societies Registration Act, 1975, thus qualifying as a 'person' under Section 2(84). The collection of corpus fund is for future services to members (painting, maintenance, repairs), which constitutes supply for consideration in the course of furtherance of business under Section 7.Key Evidence and Findings: The applicant provided minutes of meetings showing unanimous member approval for collection of Rs. 2,00,000 per apartment as sinking fund, to be collected in installments for specific future maintenance works. The corpus fund is accounted as a liability in the association's books, indicating it is not a deposit but an advance payment towards future services.Application of Law to Facts: The Authority held that the corpus fund collection meets all conditions of 'supply' - it is made for consideration, by a person (the RWA), in the course of furtherance of business. The amount collected is an advance payment for future supply of services and thus falls within the definition of 'consideration' under Section 2(31). The proviso excluding deposits from consideration does not apply, as the corpus fund is appropriated for supply of services and not refundable.Treatment of Competing Arguments: The applicant's argument that corpus fund is not consideration because it is a capital contribution and not for immediate services was rejected. The Authority reasoned that since the fund is used for future services, it cannot be treated as a mere deposit or capital contribution exempt from GST.Conclusion: The collection of corpus/sinking fund is a taxable supply of service under GST and liable to tax.Issue 2: Applicable GST Rate and SAC Code on Corpus/Sinking Fund CollectionsRelevant Legal Framework and Precedents: The collection falls under 'Services of membership organisation' classified under SAC 9995, taxable at 18% as per Notification No. 11/2017-CT (Rate). However, Notification No. 12/2017-CT (Rate) exempts subscription or contribution collected from members up to Rs. 7,500 per month per member.Court's Interpretation and Reasoning: The Authority affirmed that the corpus fund collection is taxable at 18% unless the monthly contribution per member is below the exemption threshold of Rs. 7,500, in which case GST is not applicable. The threshold exemption is applicable only on monthly subscription/contribution and not on lump sum corpus collections exceeding the threshold.Application of Law to Facts: The applicant's monthly maintenance charges do not exceed Rs. 7,500, qualifying for exemption on maintenance charges. However, the corpus fund collected as a lump sum amount exceeds the exemption limit and is taxable at 18% under SAC 9995.Conclusion: Corpus/sinking fund collections are taxable at 18% under SAC 9995 unless the monthly contribution per member is below Rs. 7,500, in which case exemption applies.Issue 3: Eligibility to Claim Input Tax Credit (ITC) on GST Paid for Corpus Fund ActivitiesRelevant Legal Framework and Precedents: Section 16 of the CGST Act permits ITC subject to conditions and limitations. Section 17(2) restricts ITC where inputs are used partly for taxable supplies and partly for exempt supplies. Rule 42 of CGST Rules governs apportionment of ITC in such cases.Court's Interpretation and Reasoning: Since the RWA provides both taxable supplies (corpus fund services) and exempt supplies (maintenance charges below threshold), the ITC claim must be restricted proportionally. The applicant is entitled to claim ITC on inputs and input services used for taxable supplies, such as repairs and capital goods, but must restrict ITC attributable to exempt supplies.Application of Law to Facts: The applicant can claim ITC on GST paid on capital goods and services used for taxable corpus fund activities, subject to apportionment rules. The restriction arises because some supplies are exempt due to the monthly charge exemption.Conclusion: ITC can be claimed on GST paid for inputs used in taxable corpus fund services, but must be restricted proportionally considering exempt supplies as per Section 17(2) and Rule 42.Issue 4: Requirement to Levy GST on Maintenance Charges Below Rs. 7,500 per MonthRelevant Legal Framework and Precedents: Notification No. 12/2017-CT (Rate) exempts subscription or contribution up to Rs. 7,500 per month per member for sourcing goods or services for common use in housing societies.Court's Interpretation and Reasoning: The Authority noted that as per the exemption notification and Circular No. 109/28/2019-GST, maintenance charges collected monthly up to Rs. 7,500 per member are exempt from GST. If the monthly maintenance charges exceed this limit or the aggregate turnover exceeds Rs. 20 lakhs, GST registration and payment become mandatory.Application of Law to Facts: The applicant's monthly maintenance charges do not exceed Rs. 7,500, so no GST is payable on these amounts. However, if the monthly charges or turnover exceed prescribed limits, GST would be applicable.Conclusion: No GST is payable on maintenance charges collected monthly up to Rs. 7,500 per member; beyond this threshold, GST registration and payment are required.3. SIGNIFICANT HOLDINGSThe Authority's key legal determinations include the following verbatim statements and principles:'The amount collected by the applicant from its members for setting up a sinking fund is an advance payment towards future supply of services and such payment comes under the definition of 'consideration' under clause (31) of Section 2 of the GST Act.''The collection of 'corpus fund/sinking fund/capital fund' by the applicant from the residents for the purpose of painting and carrying out some building maintenance work in the common area of the apartment is a supply and hence would be chargeable to GST.''In terms of SI. No. 77 of Notification No. 12/2017-CT (Rate) dated 28-06-2017, read with Circular No. 109/28/2019-GST dated 22nd Jul, 2019, if the subscription/contribution per month per member is less than Rs. 7,500/-, no GST is liable to be charged and collected from the members.''The applicant is entitled to take ITC in respect of GST paid on Capital Goods, goods and input services subject to restrictions under Section 17(2) of the Act and Rule 42 of the CGST Rules.'Core principles established include:Corpus/sinking fund collections by an RWA are taxable supplies under GST as advance payments for future services.Exemption from GST applies only to monthly subscriptions/contributions up to Rs. 7,500 per member, not to lump sum corpus fund collections exceeding this amount.ITC is available on inputs and input services used for taxable supplies but must be restricted proportionally when exempt supplies are also provided.GST registration is mandatory if turnover exceeds Rs. 20 lakhs or monthly contributions exceed Rs. 7,500 per member.Final determinations on each issue are:Corpus/sinking fund collections are subject to GST at 18% under SAC 9995 unless exempted by threshold notification.GST paid on inputs related to corpus fund activities can be claimed as ITC with appropriate restrictions.Maintenance charges up to Rs. 7,500 per month per member are exempt from GST; beyond that, GST is applicable.The RWA must register under GST if turnover or monthly contributions exceed prescribed limits and comply with GST regulations accordingly.