Activities carried out by co-operative housing society for its members is “supply” under GST

Introduction

Under GST, Supply is considered a taxable event for charging tax. The liability to pay tax arises at the ‘time of supply of goods or services’. Thus, determining whether or not a transaction falls under the meaning of supply is important to decide GST’s applicability. GST has been structured in a way that essential services and food items are placed in the lower tax brackets, while luxury services and products have been placed in the higher tax bracket. The GST council has fitted over 1300 goods and 500 services under four tax slabs broadly of 5%, 12%, 18% and 28% under GST. Certain supplies which are covered under Notification No.12/2017- Central Tax (Rate) Dated 28-06-2017 as amended by the Notification No.02/2018-Central Tax (Rate) dated 25-01-2018 are exempted from the levy of GST (i.e no GST will be charged on such supplies).

Provisions of Law

According to Entry 77 of the above notification, service by an unincorporated body or a non- profit entity registered under any law for the time being in force, to its own members by way of reimbursement of charges or share of contribution:-

a. as a trade union

b. for the provision of carrying out any activity which is exempt from the levy of Goods and service Tax; or

c. up to an amount of Rs 7500 per month per member for sourcing of goods or services from a third person for the common use of its members in a housing society or a residential complex.

Will the activities carried out by co-operative housing society for its members qualify as “supply” under the definition of Section 7 of the CGST Act, 2017?

A similar issue was raised before the Maharashtra Advance Ruling Authority (AAR) in the case of Apsara Co-operative Housing Society Limited.

Facts of the Case:-

1. Applicant is a co-operative housing society, registered under the Maharashtra State Cooperative Societies Act, 1960 formed by its members who are the shareholders.
2. For the purpose of achieving its objects, Applicant raises funds by collecting contributions, (charges), from members of the society.
3. The said charges, include property taxes, common electricity charges, water charges, contribution to repairs & maintenance funds, expenses on repairs and maintenance of the lifts of the society, including charges to running the lifts, contribution to sinking fund, service charges, car parking charges, interest on the defaulted charges, repayment of the installment of the loan and interest, non-occupancy charges, insurance charges, lease rent, non-agricultural tax, or any other charges.
4. Applicant Society uses the said funds for the specified purposes as enumerated in the bye laws, e.g., property taxes and water charges collected by the society from members is paid to the Municipal Corporation.
5. Applicant Society does not carry out any other activity other than those mentioned in the bye laws of the society, as evident from its Annual Report and Accounts.

AAR filed for:-

The present application has been filed M/s. Apsara Co-operative housing Society Limited, seeking an advance ruling in respect of the following questions:-

1. Whether the activities carried out by the applicant for its members qualify as “supply” under the definition of Section 7 of the CGST Act, 2017.
2. If the activities of the applicant are treated as supply” under CGST Act, 2017 then whether the applicant has correctly discharged the GST as per the illustrative copy of the invoice generated by the Applicant?

Proceedings of AAR Maharashtra

Observations of the AAR pertaining to the services provided by the Applicant

1. Applicant is a co-operative housing society, formed under the Maharashtra State Cooperative Societies Act, 1960 and does not carry out activities other than those mentioned in the bye laws of the society.
2. According to Section 2(16) of the Maharashtra Cooperative Society Act, 1960, “housing society ” means a society, the object of which is to provide its members with open plots for housing, dwelling houses or flats; or if open plots, the dwelling houses or flats are already acquired, to provide its members common amenities and services.
3. The applicant has submitted that, as a Society, their objects are to obtain conveyance from the Promoter (Builder), in accordance with the provisions of the Ownership Flats Act and the Rules made thereunder, of the right, title and interest, in the land with building/buildings thereon ; to manage, maintain and administer the property of the society; to raise funds for achieving the objects of the society, to undertake and provide for, on its own account or joint with a co-operative institution, social, cultural or recreation activities, and to do all things necessary or expedient for the attainment of the objects of the society, specified in the bye-laws and in view of above objects.

What do you mean by ‘supply’ under GST?

1. As per Section 9 of CGST Act, 201 7, levy of GST is on supply of goods and services.
2. The word “supply”, is defined in Section 7 of the CGST Act. As per Section 7 (1) of the said Act, “supply” includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business
3. The term “Supply”, defined under Section 7 is an inclusive definition and not an exhaustive one and therefore it has very wide connotations.
4. Therefore, the activities of Applicant in as much as they are obtaining conveyance from the promoter (Builder), managing, maintaining and administering the property of the society, raising fund for achieving the objects of the society, undertaking and providing any social, cultural or recreation activities can clearly be considered as rendering of “supply” of service being provided to its members.
5. AAR found from the definition of “supply” that,supply should be made by a person, for a consideration and should be made in the course of furtherance of business.

Can the applicant be considered as a ‘person’ as mentioned in the definition of supply?

1. The word “person” mentioned in Section 7 is defined in Section 2(84)(i) of the CGST Act, 2017 and amongst others, specifically includes ‘a co-operative society registered under any law relating to co-operative societies’.
2. Thus a registered co-operative society is a person within the meaning of the term in the CGST Act.
3. Thus in the subject case there is a supply made by a person i.e. the applicant.

Can the activities (supply of services) by the society i.e ‘a person’, can be said to be made for a consideration?

1. As per Section 2(31) of the CGST Act, 2017, consideration, in relation to the supply of goods or services or both, includes any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person.
2. From the definition of the term “consideration”, it can be construed that membership fees collected by the Applicant from its members is also meant for meeting expenses for activities undertaken by the applicant to achieve the various objects of the society as mentioned in By-laws of the Society.
3. Thus, membership fee collected by Applicant from its members will be treated as “consideration” paid for supply of services

Can the activity of the society i.e ‘a person’, be said to be in the course or furtherance of business?

1. The definition of business as per Section 2(17) of the CGST Act, 2017 includes, provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members
2. In the subject case, the applicant is making supply to its members and receiving -consideration for the same.
3. Further, as per the definition of “business”, AAR found that the various activities undertaken by the applicant for the benefit of its members will come under the scope of business.
4. In view of the above AAR was of the opinion that all the conditions as stipulated for considering the activities of applicant as “Supply” under the GST Law were fulfilled.

Observations of AAR on Principle of Mutuality

1. Applicant has contended that the Applicant Society and its members cannot be treated as distinct persons, by citing the “principle of mutuality”.
2. AAR already found that both, the Applicant as well as its members are to be considered as separate person.
3. The contention made by the Applicant with regard to the principle of mutuality to establish their claim that the Applicant Society and its member are not distinct entity is not tenable in so far as taxability in the GST regime is concerned.
4. Circular No. 109/28/2019- GST dated 22.07.2019 issued by the Government of India clarifies that Supply of service by Resident Welfare Association (unincorporated body or a non- profit entity registered under any law) to its own members by way of reimbursement of charges or share of contribution up to an amount of Rs. 7500 per month per member for providing services and goods for the common use of its members in a housing society or a residential complex are exempt from GST.
5. Prior to 25th January 2018, the exemption was available if the charges or share of contribution did not exceed Rs 5000/- per month per member. The limit was increased to Rs. 7500 per month per member with effect from 25th January 2018. [Refer clause (c) of SI. No. 77 to the notification No. 12/2018- Central Tax (Rate) dated 28.03.2018]
6. A reading of the said circular makes it clearly evident that it is the intention of the Government to tax Housing Societies under GST Laws subject to the condition that the reimbursement of charges or share of contribution of the members exceed an amount of Rs. 7500 per month per member for Supply of service rendered by Resident Welfare Association (unincorporated body or a non- profit entity registered under any law) to its own members.

Whether the applicant has correctly discharged the GST as per the illustrative copy of the invoice generated by the Applicant?

1.It is necessary first to decide whether the said question raised by the applicant is covered under Section 97(2) of the CGST Act, 2017, and thus maintainable, or liable for rejection.

2. The questions that can be posed in an application for an Advance Ruling under the provisions of the GST Act shall be in respect of:-

a. classification of any goods or services or both;

b. applicability of a notification issued under the provisions of this Act;

c. determination of time and value of supply of goods or services or both;

d. admissibility of input tax credit of tax paid or deemed to have been paid;

e. determination of the liability to pay tax on any goods, or services or both;

f. whether applicant is required to be registered;

g. Whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term.

3. In the instant case that, the question which has been raised by the applicant is not pertaining to any of the matters mentioned in Section 97(2) of the GST Act.

4. Section 97(2), which encompasses the questions, for the ruling by this Authority does not deal with the issue of whether the applicant has correctly discharged the GST as per the illustrative copy of the invoice generated.

5. AAR found that this question does not pertain to any matter in respect of which an Advance Ruling can be sought under the GST Act.

6. Hence, it was held that AAR did not have jurisdiction to pass any ruling on such matters and the said question was not maintainable under the GST Act.

The activities carried out by the applicant for its members would qualify as “supply” under the definition of Section 7 of the CGST Act, 2017. The question, whether the applicant has correctly discharged the GST as per the illustrative copy of the invoice generated by the Applicant, was not answered by the AAR.

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