In a major relief to resident welfare association (RWA) members, the single judge bench of Justice Anita Sumanth has held that the goods and services tax (GST) is applicable only to monthly maintenance amount exceeding ₹7,500 only and not on the complete amount charged from members. The issue, submissions of the parties and High Court judgement are hereby discussed in ensuing paragraphs.
- Entry No 77(c) of the Notification No. 12/2017- CTR dated 28.06.2017 as amended by Notification 02/2018 CTR dated 25.08.2018 provides that the services of an unincorporated body or a non- profit entity shall be exempt up to Rs 7500/- (earlier Rs 5000/-) per month per member for sourcing of goods or services for the common use of its members in a housing society or a residential complex.
- In respect of the contribution by members to the RWA, the amount of contribution shall be chargeable to tax @ 18%.
- In the reference to the abovesaid exemption, GST department issued GST flyers (issued on important topics in simple and lucid language to promote conceptual understanding of GST) in the early years of the GST which clarified that, in cases of monthly contribution of members to co-operative societies in excess to Rs 5000/- (Now Rs 7500/-), GST would be applicable only on amount excess of Rs 5000/.
- Tamil Nadu Authority of Advance Ruling (AAR) on the issue of taxability of the monthly member contribution to RWA when the amount of contribution exceeds Rs 7500/- and the held that the exemption of S. No. 77(c) of the Notification No. 12/2017- CTR dated 28.06.2017 as amended by Notification 02/2018 CTR dated 25.08.2018 shall not be eligible and appropriate rates of GST are to be paid by the members on the full amount.
- Subsequently, CBIC issued a clarificatory circular dated 22.07.2019 bearing Reference No.109/28/2019-GST which also followed the same path as of AAR and provided for taxability of the whole amount if the value of service exceeds Rs 7500/-.
- Thus, the circular issued went against the language of the notification and CBIC flyer issued by the government.
- Keeping in mind the ambiguity, the present Writ petitions were filed before the Madras High Court praying for quashing of the Circular dated 109/28/2019-GST and order passed by the Tamil Nadu AAR as illegal, arbitrary, and ultra vires the Constitution of India and the provisions of the CGST Act,2017.
Submissions of the Parties:
It was Submitted by the Petitioners:
- That the RWA’s are following the approach as provided by the flyer issued by GST Department which categorically stated that GST shall be applicable only on the amount in excess of the exemption as stated in the Notification No 12/2017 CTR.
- That Emphasis on the phrase “Upto” was placed stating that grant of exemption was for the contribution upto Rs 7500/- and shall remain constant despite the change in amount.
- That as per Article 13(3) of the Constitution of India statutory exemption cannot be withdrawn by the way of circular.
It was Submitted by the Respondents:
- That as per Section 15 the transactional value shall be taxable to tax and the transactional value in this case is the contribution made, and it should be taxable in its entirety.
- That there are no slabs prescribed, but only a range which entitles the assessee to exemption. Any variation in that amount thus leads to automatic disentitlement of the exemption.
- That reliance was placed on the judgement of the Hon’ble supreme court in the case of CCI, Mumbai Vs Dilip Kumar (361 ELT 577) wherein the Hon’ble Supreme Court held that in the case of ambiguity in interpretation of a tax exemption provision or notification in regard to its applicability qua entitlement or rate of tax, the interpretation should be strict and the burden of proving applicability would fall on the assessee.
Court’s Observation and Decision
- The court differentiated the case of Dilip Kumar and stated that there is no ambiguity with the provisions of exemption and it is only a question of interpretation.
- The court in order to interpret the entry also examined the various entries of the Notification No. 25/2012- ST dated 25th June 2012 providing exemptions and compared the language adopted by the revenue.
- The Court stated that the term “upto” connotes an upper limit and it is interchangeable with the term ‘till’ and means that any amount till the ceiling of Rs 7,500/- would be exempt for the purpose of GST and the purpose of the exemption entry in question is simply to exempt contributions till a certain specified limit.
- The court also opined that the clarification provided by the CBIC in 2017 was correct
- The Hon’ble court quashed both the circular and the AAR to the extent which would disentitle the RWA’s to take exemption on the contribution above Rs 7500/- and further clarified that only contribution to RWA’s above Rs 7500/- shall be taxable under GST Act.
Although the aforesaid ruling provides much needed relief to RWA’s, it is likely that the order of Single judge bench will be challenged at the higher forums and till then the department across the country may continue to still take the view as prescribed.