GST ON CORPUS FUND FOR SPECIFIC PURPOSE IN A RESIDENT WELFARE aSSOCIATIN

[MANIVANNAN SHANMUGAM]

A Resident Welfare Association having an annual Turnover of Monthly Maintenance charges collected from its members - per month per flat is less than Rs.3000/- totalling to Rs.14,20,000/- . When a contribution of Rs.14.00 lacs is received for any Major Repairs like Lift Modernisation i.e New Lift, whether the Contribution for special purpose is also to be reckoned for Annual Turn Over.? Or that Fund is not to be included for determining the threshold limit for GST levying?

[KASTURI SETHI]

2023 (12) TMI 230 - AUTHORITY FOR ADVANCE RULING, WEST BENGAL - IN RE : PRINSEP ASSOCIATION OF APARTMENT OWNERS

 

[KASTURI SETHI]

2020 (2) TMI 435 - APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA - IN RE: VAISHNAVI SPLENDOUR HOMEOWNERS WELFARE ASSOCIATION

 

[KASTURI SETHI]

(1) Management, Maintenance or Repair services — Consideration received for providing maintenance and upkeep of common area, common amenities, common facilities in a plaza/complex for and on behalf of its occupants/shop owners by entering into individual contracts with each of them, whether liable to Service Tax?

(2) Management, Maintenance or Repair services — Electricity/water/insurance charges collected from occupants of plaza/complex and paid to respective Departments, whether liable to Service Tax?

(3) Cenvat credit whether can be denied merely on the ground of deficiency in documents though the same otherwise admissible?

(4) Demand — Extended period of limitation whether invocable when amount collected from service recipient though reflected in Annual Financial Statements not disclosed to Department?

The Supreme Court Bench comprising Hon’ble Mrs. Justice B.V. Nagarathna and Hon’ble Mr. Justice Augustine George Masih on 13-2-2024 after condoning the delay admitted the Civil Appeal Diary No. 10007 of 2019 filed by Plaza Maintenance and Services Ltd. against the CESTAT Final Order Nos. 41806-41807/2017, dated 28-8-2017 (Plaza Maintenance and Services Ltd. v. Commissioner - 2017 (9) TMI 162 - CESTAT CHENNAI). While admitting the appeal, the Supreme Court passed the following order :

Delay condoned.

Admit.

The Appellate Tribunal in its impugned order had held that the assessee-company providing Management, Maintenance or Repair services such as common area maintenance, water purifying services, engaging security personnel and maintenance and repair of lift and escalator, etc., of plaza/complex for and on behalf of its occupants/shop owners by entering into individual contracts with each of such occupants/shop owners, was liable to pay Service Tax on consideration received for providing such services. Their plea that since the consideration received by them was on ‘no profit and no loss’ basis and same deposited in corpus fund of the occupants/shop owners, hence not liable to Service Tax, was not acceptable in view of provisions of Section 67 of Finance Act, 1994 which does not mention that the consideration received should be with a profit motive or that the services provided should be a commercial activity. The accounting pattern adopted by the assessee by crediting the surplus/deficit in the accounts of the occupants and not accounting same as Revenue in his books of account would not make the charges collected from such occupants as not consideration as envisaged under the aforesaid Section. Further, the assessee cannot be said as a pure agent of the occupants as the said occupants had no legal obligation with him. It was also held that the assessee being a separate legal entity having entered into contracts with third persons for providing services for and on behalf of the occupants and collected charges especially for providing maintenance and upkeep of common area, common amenities, common facilities cannot be considered to be outside purview of levy of Service Tax on the ground of mutuality of interest.

The Tribunal had further held that electricity/water/insurance charges collected by the assessee from the occupants of plaza of which basic maintenance services were entrusted to them and paid to the respective authorities, were not liable to Service Tax in view of the decision of the Delhi High Court in the case of Intercontinental Consultants & Technocrats Pvt. Ltd. [2012 (12) TMI 150 - DELHI HIGH COURT] and the decision of the Madras High Court in the case of Sangmitra Services Agency [2013 (7) TMI 862 - MADRAS HIGH COURT)].

The Tribunal had also held that the Cenvat credit cannot be denied on the ground of deficiency in documents when the same was otherwise admissible.

The Tribunal had held that the extended period of limitation was invocable when the assessee did not disclose to the Department the maintenance charges collected from occupants/shop owners as evident from Annual Financial Statements as well as other documents.

[Plaza Maintenance and Services Ltd. v. Commissioner - 2024 (2) TMI 1544 - SC ORDER].

[KASTURI SETHI]

Corpus fund is also known as endowment fund. It is to be included in the aggregate turnover to arrive at threshold limit. Go through the following decision of AAR 

2020 (9) TMI 737 - AUTHORITY FOR ADVANCE RULING, KARNATAKA - IN RE : GNANAGANGA GRUHA NIRMANA SAHAKARA SANGHA NIYAMITHA

 

[YAGAY andSUN]

This is a great question and a fairly common scenario for Resident Welfare Associations (RWAs). Let’s break it down and address it clearly under GST law:

🧾 Basic Facts Recap:

• Monthly maintenance collected per member/flat: Less than ₹3,000
• Annual regular maintenance collection: ₹14,20,000 (exempt under GST)
• One-time contribution received for lift modernization: ₹14,00,000

✅ GST Applicability for RWAs – Threshold Rule:

⚖️ GST Registration Threshold:

• An RWA is liable to register under GST if aggregate turnover exceeds ₹20 lakhs in a financial year (₹10 lakhs for special category states).

But what is “aggregate turnover”?

Defined in Section 2(6) of the CGST Act, aggregate turnover includes:

All taxable supplies (excluding inward supplies on which tax is payable on reverse charge basis), exempt supplies, exports of goods or services or both, and inter-State supplies of persons having the same PAN, to be computed on an all-India basis but excludes CGST, SGST, UTGST and IGST.

✅ Maintenance Charges up to ₹7,500 per Member

• As per Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 (entry 77), monthly contributions up to ₹7,500 per member are exempt from GST.
• Since your monthly per-flat contribution is less than ₹3,000, it is fully exempt.

❓ What About the One-Time Contribution of ₹14 Lakh for Lift Modernization?

Yes, the special contributions (like for lift repair, generator purchase, painting, etc.) are also considered part of aggregate turnover under GST for the purpose of determining the ₹20 lakh limit.

✅ These are “consideration” for services provided by the RWA to members, hence, they qualify as supply under GST—even if not regular monthly charges.

Therefore:

• The ₹14 lakh one-time contributionwill be included in aggregate turnover.
• Your total aggregate turnover will now be:
  • ₹14.20 lakh (regular maintenance) + ₹14.00 lakh (lift modernization) = ₹28.20 lakh
  • Which exceeds ₹20 lakh, triggering mandatory GST registration.

🛑 Even if monthly charges per member are < ₹7,500...

Once aggregate turnover crosses ₹20 lakh, the exemption limit per member is not applicable.

So, post-registration, entire monthly maintenance (even < ₹7,500) becomes taxable, unless you maintain separate accounts and claim exemption only on eligible contributions.

✅ CBDT and CBIC Clarification

CBIC has clarified through various FAQs that special contributions for major repairs are taxable, and they must be considered in turnover.

Relevant Circular:

• CBIC Circular No. 109/28/2019-GST dated 22 July 2019:

"Amounts collected by the RWA for major repairs, installation of lift, etc., would be liable to GST, even if collected as a lump sum."

✅ Summary:

Particular	Amount (₹)	Included in Turnover?	GST Applicable?
Monthly Maintenance (< ₹3,000/flat)	₹14,20,000	✅ Yes	❌ Exempt (if under ₹7,500/member and turnover < ₹20L)
One-time Lift Contribution	₹14,00,000	✅ Yes	✅ Taxable once RWA exceeds ₹20L turnover
Total Turnover	₹28,20,000	✅	✅ RWA liable to register under GST

📄 Suggested Actions:

1. Register under GST (since turnover > ₹20 lakh).
2. Charge GST on all taxable collections going forward.
3. Maintain separate accounting for exempt and taxable components.
4. Consider input tax credit (ITC) for goods/services used for lift modernization.

*** 

[Sadanand Bulbule]

I welcome the replies of the experts.

[Shilpi Jain]

I assume this contribution of Rs. 14L that is received is used up and not in the nature of corpus fund. In that case, it will itself be a taxable supply and at the same time t/o exceeds Rs. 20L.

However, consider the recent decision of the HC in the case of Indian Medical association which has held that contributions from members is not taxable under GST.

AI Summary

GST Threshold Calculation: One-Time Lift Modernization Contribution Counts Toward Aggregate Turnover Determination A Resident Welfare Association collected monthly maintenance charges totaling Rs. 14.20 lakhs and received a one-time contribution of Rs. 14 lakhs for lift modernization. The key issue is whether this special purpose contribution should be included in calculating the annual turnover for GST threshold determination. Based on legal interpretations, the one-time contribution is considered part of aggregate turnover, which would trigger mandatory GST registration since the total exceeds Rs. 20 lakhs.