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Notification No.02/2018-Central Tax (Rate) dated 25-01-2018

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Religious Trust to pay GST on renting of temporary residential rooms for consideration to devotees- Karnataka AAAR

Religious Trust to pay GST on renting of temporary residential rooms for consideration to devotees- Karnataka AAAR

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.

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).

According to Entry 13 of the above notification, Services by a person by way of-

a. conduct of any religious ceremony

b. renting of precincts of a religious place meant for general public, owned or managed by an entity registered as a charitable or religious trust under section 12AA of the Income tax Act, 1961 or a trust or an institution registered under section 10(23C)(v) of the Income tax Act or a body or an authority covered under section 10(23BBA) of the said Income tax Act

Provided that nothing contained in entry (b) of this exemption shall apply to:-

  1. renting of rooms where charges are Rs 1000 or more per day
  2. renting of premises, community halls, kalyanmandapam or open area, and the like where charges are Rs 10,000 or more per day
  3. renting of shops or other spaces for business or commerce where charges are Rs 10,000 or more per month

Whether renting of temporary residential rooms for consideration to the devotees and renting of space for shops and stalls for the purpose of religious programmers where the predominant object is not to do business but for advancement of religion was exempted vide Notification No.12/2017- Central Tax (Rate) Dated 28-06-2017?

The issue under consideration was thrown light on in the case of Acharya Shree Mahashraman Chaturmas Pravas Vyvastha Samiti Trust vs AAR Karnataka.

Facts of the case:

  1. The Appellant is a religious charitable trust registered under Section 12AA of the Income Tax Act, 1961 carrying out religious and charitable activities.
  2. The Appellant conducted a religious function from July 2019 to November 2019 at Bengaluru.
  3. In order to cater to the needs of devotees, the Appellant had erected temporary accommodation facilities for the use of devotees during the period of the religious function. The Appellant provided 5 different types of accommodation for the devotees.
  4. The charges for accommodation under Category I, II, III and IV was on per room basis and was less than Rs 1000 per room per day.
  5. The charges for accommodation under Category V i.e dormitory was on per bed basis ranging from Rs.250 per bed per day but less than Rs 1000 per bed per day.
  6. The Appellant also provided food and beverages to the devotees at subsidized rates.
  7. Appellant also provided space without consideration to other registered persons who supplied food and beverages to the devotees for consideration

Appellant sought an advance ruling in respect of the following questions:

  1. Whether the applicant is liable to pay tax on renting of temporary residential rooms for consideration to the devotees and renting of space for shops and stalls for the purpose of religious programs where the predominant object is not to do business but for advancement of religion?
  2. Whether the applicant is liable to pay tax on renting of temporary residential rooms under category I to category V, to the devotees to stay for the purpose of religious programs where charges per room is less than one thousand per day, if answer to the 1st question is yes?
  3. Whether applicant is liable to pay tax on renting of space for stalls, where the predominant object is not to do business but for advancement of religion, if answer to the 1st question is yes?
  4. Whether the applicant is liable to pay tax on supply of food and beverages at subsidized rates to the devotees, where the predominant object is not to do business but for advancement of religion?
  5. Whether the applicant is liable to pay tax on providing space for registered person without consideration for supply of food and beverages to the devotees, where consideration is received by registered person directly from devotees?
  6. Whether applicant is liable to pay tax for acting intermediary for booking hotel rooms to the pilgrims from outside?

The Karnataka Authority for Advance Ruling (AAR) held that:-

  1. The applicant is liable to pay tax in renting of temporary residential rooms for consideration to the devotees and renting of space for shops and stalls.
  2. The applicant is liable to pay tax on renting of temporary residential rooms of all categories if the declared tariff of a unit of accommodation is Rs. 1000-00 or more per day or equivalent.
  3. The applicant is liable to pay tax on renting of space for stalls.
  4. The applicant is liable to pay tax on supply of food and beverages at subsidized rates to the devotees
  5. The applicant is liable to pay tax on providing space for registered person without consideration for supply of food and beverages to the devotees, only if the applicant and such registered person are covered under the definition of “related persons” as defined in Explanation to Section 15 of the CGST Act, 2017.
  6. The applicant is liable to tax for acting as an intermediary for booking of hotel rooms to the pilgrims from outside, if he does not satisfy all the conditions prescribed for a pure agent (i.e the services must be procured from suppliers of accommodation service in addition to the service he supplies on his own account).

The Appellant was aggrieved by the ruling of the AAR in so far as the renting of 2BHK and dormitory was concerned since under these two categories the charges are per room for a 2 BHK unit and per bed for the dormitory and in both the cases, the charges were less than Rs 1000 per room/bed per day.

Grounds of Appeal

  1. The Appellant submitted that entry No 13(b) of Notification No 12/2017 CT (R) dated 28-06-2017 provides exemption to renting of room where the charges are less than Rs 1000 per day.
  2. It is generally accepted rule and normal business transaction that room shall be provided based on each contract with each person separately. In the case of dormitory, it is not on basis of room but on the basis of each bed separately.
  3. They submitted that generally dormitory contains more than one bed. Therefore, in dormitory, the contract for renting shall be on the basis of bed only.
  4. Hence the exemption should be understood on the basis of each bed separately and not the whole dormitory.
  5. With regard to the charges collected for renting of 2BHK, Appellant submitted that Notification No 12/2017 CT (R) dt 28-06-2017 provides exemption for renting of rooms.
  6. If the premises contain more than one room, the exemption shall be made applicable for each room separately.
  7. For the above reasons, the Appellant pleaded that the charges per bed needs to be considered in respect of renting of dormitory and charges per room needs to be considered in respect of premises containing more than one room and on that basis exemption should be granted if the said charges are less than Rs 1000 per bed/room.

Proceedings of Appellate Authority for Advance Ruling (AAAR)

Observations of the AAAR on the Provisions of Law

1.The issue which was in appeal was limited to the point whether exemption from GST is available to the Appellant on the renting of dormitory consisting of 12 beds and renting of 2 BHK where the charges per bed (in the case of dormitory) and per room (in the case of 2 BHK) is less than Rs 1000 per day.

2. The Appellant has claimed the benefit of exemption from GST on the accommodation provided in terms of entry No 13 of Notification No 12/2017 CT (R) dt 28-06-2017.

3. AAR held that the Appellant is liable to pay tax on renting of temporary residential rooms of all categories, if the declared tariff of a unit of accommodation is Rs 1000 or more per day.

4. The Appellant is aggrieved by this ruling in so far as the renting of 2BHK and dormitory was concerned since under these two categories the charges were per room for a 2 BHK unit and per bed for the dormitory and in both the cases, the charges were less than Rs 1000 per room/bed per day.

5. The Appellant had claimed the benefit of entry No 13 (b) where, renting of a precinct of a religious place owned or managed by a religious trust is exempted from GST.

6. It was not in dispute that the Appellant was a religious trust registered under Section 12AA of the Income Tax Act, 1961 and is carrying out religious and charitable activities. In terms of the entry No 13 of the Notification, there are two activities/services which are exempted:-

a. conduct of a religious function;

b. renting of precincts of a religious place to the general public, owned or managed by an entity registered as a charitable or religious trust under section 12AA of the Income-tax Act, 1961

7. AAAR was concerned with the activity at (b) above. The entry clause (b) of Sl.No 13 merely states ‘renting of precincts of a religious place to the general public’.

8. The exclusions given in the proviso to this clause states that the exemption shall not apply to the following:

a. renting of rooms where the charges are Rs 1000 or more per day,

b. renting of premises, community halls, kalayan mantapsor open area, and the like where charges are Rs 10,000 or more per day;

c. renting of shops or other spaces for business or commerce where charges are Rs 10,000 or more per month.

9. On a conjoint reading of the clause (b) of Sl.No 13 and the exclusions, it was evident that the exemption under clause (b) applies to renting of rooms where the charges are less than Rs 1000 per day, renting of premises, community halls, kalayana Mantaps or open area, and the like where charges are less than Rs 10,000 per day and to renting of shops or other spaces for business or commerce where charges are less than Rs 10,000 per month.

Whether the renting of temporary accommodations by Appellant will be liable for exemption?

  1. In the instant case, the Appellant had erected temporary accommodations where the religious event was conducted.
  2. AAAR found that the Appellant was not renting out ‘rooms’ but rather was renting out units of accommodation comprising of 2 bedrooms, hall, kitchen, restroom, toilet.
  3. The entire unit with facilities like water, electricity, cot, bed, pillow, bedspread and air-conditioner was given out on rent. The devotee was also given cooking facility in this unit.
  4. Therefore, a unit of accommodation of this kind which was termed by the Appellant as a 2BHK Category I type of accommodation cannot be considered as renting of rooms and will not be covered in the entry Sl.No 13 of Notification No 12/2017 CT (R) dated 28-06-2017.
  5. Similarly, the renting out of beds in a dormitory was also not akin to renting of rooms and hence it would not qualify for exemption under clause 13(b) of the said Notification.

AAAR agreed with the ruling of the AAR and held that the renting of the 2 BHK unit and the dormitory will be chargeable to GST as a single unit where the value of supply will be the charges for the full 2BHK unit / dormitory and not the charges for each room / bed and is liable to tax, in terms of entry Sl.No 7 of Notification No 11/2017 CT(R) dated 28-06-2017 as amended by Notification No 20/2019 CT (R) dated 30-09-2019.

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GST is leviable on full amount of contribution received from members when it exceeds Rs. 7500

GST is leviable on full amount of contribution received from members when it exceeds Rs. 7500

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)

Provision 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.

Are contributions received by an association from its members are liable to tax only in excess of the amount of Rs.7500 per month per member or is the entire amount of contribution taxable in case it exceeds Rs 7500 per month per member?

 A similar issue was raised before the Karnataka AAAR by M/s Vaishnavi Splendour Homeowners Welfare Associations.

Brief Facts of the case:

  1. The appellant is an association of apartment owners in the condominium known as “Vaishnavi Splendour”.
  2. The association has 88 members and each of them contribute towards the maintenance of common areas/ facilities, lightings in the common areas, water, etc. The contribution of each member is more than Rs.7500 per month.

Advance Ruling was sought for the following:-

  1. Whether the applicant is liable to pay CGST and SGST on the amount of contribution received from its members?
  2. If yes, whether it can avail the benefit of Notification No 12/2017 CT(R) dt 28.06.2017 (Sl.No 77) read with Notification No 02/2018 dt 25.01.2018 which provides exemption from tax, the value of supply upto an amount of Rs 7500 per month per member?
  3. If the answer to the above question is ‘yes’, whether it is required to restrict its claim of input tax credit?
  4. Whether the applicant is liable to pay CGST/SGST on amounts which it collects from its members for setting up a corpus fund?

Ruling passed by AAR Karnataka

  1. The applicant is liable to pay CGST and SGST on the contribution received from its members as their activities amounts to taxable supply of service.
  2. The benefit of exemption under entry No 77 of Notification No 12/2017 Central Tax (Rate) dated 28.06.2017 (as amended by Notification No 02/2018 dt 25.01.2018), is available to the applicant only if maintenance charges (contributions) do not exceed Rs 7500 per month per member. In case the charges exceed Rs 7500/-per month per member, the entire amount is Taxable.
  3. The applicant is eligible to claim ITC on the inward supplies of goods and services and this is subject to the restrictions as enumerated in Section 17(2) of the CGST Act read with Rule 42 of the CGST Rules and other restrictions applicable if any.
  4. The applicant is not liable to pay CGST/SGST on amounts which it collects from its members for setting up a corpus fund.
  5. Aggrieved by the ruling of the Authority on the issues of the first 2 points as above, the appellant has filed an appeal with the Appellate Authority of Advance Ruling (AAAR).

Issues to be addressed by the AAAR

There were 2 issues to be decided by the AAAR:

  1. Whether the activities of the association of apartment owners are liable to tax under GST as a supply?
  2. If so, whether in terms of entry No.77 of the 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, the contribution received by the association from its members are liable to tax only in excess of the amount of Rs.7500 per month per member.

Observations of AAAR regarding the taxability of the activities of the association of apartment owners

1.In a residential complex, a monthly contribution is collected from the owners of the apartment in the complex and the same is used by the association for making payments to the third parties for providing security service for the residential complex, maintenance or upkeep of common area and common facilities like lift, water sump, health and fitness centre, swimming pool, payment of electricity bill for the common area and lift, etc.

2. Association is made up of members who are homeowners in the residential complex and the activities mentioned above are performed by the Association for the maintenance and upkeep of the residential complex.

3. Under the GST regime, the taxable event which attracts the levy of GST is the ‘supply’ of goods or services.

4. Under the GST law, the word ‘supply’ has not been defined but rather the scope of what constitutes ‘supply’ is stated in Section 7 of the CGST Act.

5. According to Section 7 ” supply” includes

a. 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;

b. import of services for a consideration whether or not in the course or furtherance of business; and

c. the activities specified in Schedule I, made or agreed to be made without a consideration;

6. Therefore, for an activity to qualify as “supply” in terms of Section 7 of the CGST Act, the following ingredients must be satisfied:-

a. There must be a supply of either ‘goods’ or ‘services’ or both;

b. The activity should be undertaken for a consideration

c. The activity should be in course or furtherance of business

7. Section 2(102) of the CGST Act defines “services” to mean anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged.

8. The word ‘anything’ used in the said definition does not necessarily imply that everything other than goods, money and securities, is a service. The contextual meaning of the term ‘anything’ is to be taken.

9. The meaning of service is to be taken from the recipient’s point of view and accordingly it can be said that any transaction which gives the recipient a benefit can be considered as a service.

10. In the present context, the activities performed by the Association for ensuring the maintenance and upkeep of the residential apartment complex by procuring the services and goods from third parties, benefits every member of the Association and hence it can be said that there is a service rendered by the Association to its members.

11. To be taxable under GST law, the service must be supplied in the course or furtherance of their business. The term ‘business’ is defined under Section 2(17) of the CGST Act. “Business” includes,-

a. any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;

b. any activity or transaction in connection with or incidental or ancillary to subclause (a);

c. any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;

d. supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;

e. 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;

f. admission, for a consideration, of persons to any premises;

g. services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation;

h. services provided by a race club by way of totalisator or a licence to book maker in such club; and

i. any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities

12. For this case, clause (e) of the said definition was relevant and it was clear from the said clause that the activity of providing facilities or benefits by an association to its members for a subscription is a business under GST law.

13. Hence the transactions between the association and its members are a service.

Observations of AAAR on whether the said service were been provided for a consideration?

1.Section 2(31) of the CGST Act states that ‘Consideration’ in relation to the supply of goods or services includes:

a. 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, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;

b. the monetary value of any act or forbearance, whether or not voluntary, in respect of, in response to, or for the inducement of, the supply of goods or services, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government:

2. In the instant case, the monthly contribution made by the members to the association was in return for receiving the services of the Association in ensuring the maintenance and upkeep of the residential complex.

3. The money collected by the Appellant from its members was used to procure services and goods from a third party and provide the benefits of such procured goods and services to the members of the association.

4. In terms of Section 2(d) of the Indian Contract Act, 1872, consideration needs to necessarily flow from one person to another.

5. Under GST, the term ‘person’ has been defined in Section 2(84) of the CGST Act, 2017, to include an ‘individual’ as well as an ‘association of persons or a body of individuals, whether incorporated or not, in India or outside India’.

6. Therefore, the individual apartment owners who were members of the Association were the beneficiaries and the contribution made by them was to be considered as consideration for the service received.

Reliance of the Appellant on Supreme Court’s decision dated 03-10-2019 in the case of State of West Bengal & Ors vs Calcutta Club Ltd

  1. The Appellant had strongly relied upon the Supreme Court’s decision dated 03-10-2019 in the case of State of West Bengal & Ors vs Calcutta Club Ltd wherein it was stated that supplies made to its members by the member associations, both incorporated as well as unincorporated, are governed by the principal of mutuality and therefore they cannot be charged to tax, be it as tax on sale of goods or as a tax on supply of service.
  2. AAAR found that the decision of the Supreme Court was rendered in the context of the provisions of the Finance Act, 1994.
  3. In the Finance Act, 1994, the taxable event in terms of Section 66B was on services ‘provided or agreed to be provided by one person to another’.
  4. Under GST, the taxable event is the “supply” of goods or services or both. ‘Supply’ has been explained in Section 7 of the CGST Act, 2017 to cover the activities stated therein made in the course or furtherance of business.
  5. Under GST law, the term ‘business’ has been specifically defined in Section 2(17) of the CGST Act to include provision by a club, association, society or any such body (for a subscription or any other consideration) of facilities or benefits to its members.
  6. Thus, there is a marked difference in the concept of the levy between the Finance Act and the CGST Act.
  7. In terms of the Finance Act, it was sufficient that a service was rendered by one person to another for a consideration in the taxable territory for the levy of service tax to be attracted.
  8. However, under GST, the supply of the service should necessarily be in the course of or furtherance of business and ‘business’ has been defined to include a club, association, society or any such body which provides facilities or benefits to its members for a subscription.
  9. The doctrine of mutuality was examined by the SC in the context of the Sales Tax law and was applied on all fours to service tax.
  10. The SC after going through the various legal provisions of the Finance Act from the introduction of service tax in 1994 till the shift in the system of taxation of services in July 2012 held that, there was no levy of service tax on members clubs in the incorporated form.
  11. AAAR was of the view that the ruling laid down by the Supreme Court in the case of Calcutta Club Ltd would not influence the determination of the taxable event of ‘supply’ under GST in this case.
  12. In view of the above, AAAR held that there is a supply of service by the Appellant to its members and the same is taxable under GST.

Whether exemption will be available under Notification No.12/2017- Central Tax (Rate) Dated 28-06-2017

  1. The next question was whether, in terms of entry No.77 of the 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 the contribution received by the association from its members was liable to tax only in excess of the amount of Rs.7500 per month per member?
  2. The contention of the Appellant is that contributions upto an amount of Rs 7500 per member per month are exempted from GST by virtue of the above entry and for contributions above Rs 7500 per member per month, the difference amount alone is liable to tax.
  3. This is not a correct interpretation of the Notification. The exemption as per the entry 77 is available only when a member’s contribution per month is upto an amount of Rs 7500.
  4. A member, who contributes an amount which is more than Rs 7500, will not be eligible for the exemption under entry No 77 and the entire contribution amount will be liable to be taxed.
  5. Supreme Court of India, in the case of Commissioner of Customs (Import) Mumbai Vs. M/s Dilip Kumar and Company and Ors (Civil Appeal No. 3327 OF 2007) has held that the benefit of ambiguity in exemption notification cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue/state.
  6. Exemption notifications are subject to strict interpretation. The Circular No. 109/28/2019-GST dated 22.07.2019 issued by the CBIC only clarified this position.
  7. The Appellant had argued that this Circular will apply only prospectively since it is oppressive in nature.
  8. This argument could not be held since the said Circular did not introduce any new levy by its clarifications. The position regarding the exemption from GST was always applicable only when the individual member’s contribution per month was within Rs 7500.
  9. The Circular dated 22.07.2019 only clarified this position and did not bring in any new levy. Hence the question of applying the Circular prospectively did not arise.

AAAR upheld the order passed by the Advance Ruling Authority and appeal filed by the appellant M/s. Vaishnavi Splendour Homeowners Welfare Association was dismissed. The applicant is liable to pay CGST and SGST on the contribution received from its members as their activities amounts to taxable supply of service. The benefit of exemption is available to the applicant only if maintenance charges (contributions) do not exceed Rs 7500 per month per member. In case the charges exceed Rs 7500/-per month per member, the entire amount is Taxable.

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