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Notification No.12/2017- Central Tax (Rate) Dated 28-06-2017

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Service provided by Lawyers are Exempted from Paying GST and Service Tax Orissa High Court directs department to not harass them by Issuing Demand Notices

Service provided by Lawyers are Exempted from Paying GST and Service Tax Orissa High Court directs department to not harass them by Issuing Demand Notices

Facts of the case

The taxpayer is a practising lawyer in high court. As per entry no 45 of notification no 12/2017 the legal service provided by lawyer are exempt from paying GST. Even after receiving information from Devi Prasad Tripathy having PAN as being an individual advocate practicing in the Hon’ble High Court  of Odisha the GST department further asked for documentary evidence to prove his claim that he is a practicing individual lawyer and does not come under the provision of GST or service tax.

Issue of the case

The issue raised by the taxpayer is whether service provided by Lawyers are Exempted from Paying GST and Service Tax

Observation of the court

With reference to Notification dated 20th June 2012, in terms of which service tax liability of an individual advocate is Nil for legal services rendered to any of business entities located in the taxable territory. However, even  for this, the Department appears to insist that the burden to prove it lies on the Petitioner. The counter affidavit filed acknowledges that a similar notice was issued to the Petitioner in 2017 to which he replied, pointing out how he was not  liable to pay any service tax.

The Court expresses its concern that practising advocates should not have to face harassment on account of the Department issuing notices calling upon them to pay service tax/GST when they are exempted from doing so, and in the process also having to prove they are practising  advocates.

Conclusion

The High Court hereby directs the Commissioner of GST to issue clear instructions to all the officers in the GST Commissionerates in Odisha that no notice demanding payment of service tax/GST will be issued to lawyers rendering legal services and falling in the negative list, as far as GST regime is concerned. Copies of such instructions be placed before the Court at the earliest.

Read the full order of Orissa high court from below Link

Devi-Prasad-Tripathy-Vs.-Principal-Commissioner-CGST-and-Central-Excise-Orissa-High-Court

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

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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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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