APRIL 18, 2022

By Kishori Lal, Principal Commissioner (Retd.)

TAXABILITY of RWAs [(GOODS AND SERVICES TAX) GST on Housing Societies]

Background

Residents Welfare Associations/ Co-operative Housing Societies/ Associations of Apartment Owners are entities registered under the co-operative laws of the respective States. Simply put these are a collective body of persons, who stay in a residential society. As a collective body, they would be supplying certain services to its members, be it collecting statutory dues from its members and remitting to statutory authorities, maintenance of the building, security etc.

As per clause (e) of Section 3¹"association of apartment owners" means all the owners of the apartments therein, acting as a group in accordance with the byelaws and "apartment owner" and as per clause (d) of Section 3²"apartment owner" means the person or persons owning an apartment or the promoter or his nominee in case of unsold apartments and an undivided interest in the common areas and facilities appurtenant to such apartment in the percentage specified in the Deed of Apartment and includes the lessee of the land on which the building containing such apartment has been constructed, where the lease of such land is for a period of thirty years or more". Thus it is an association of persons owning apartments constituted for the administration of the affairs in relation to the apartments and the property appertaining thereto and for the management of common areas and facilities. ³

Taxability

A Society is akin to a club, which is composed of its members. So, can a service provided by a RWA to its members be treated as service provided by one person to another.

As per Section 9 of CGST Act, 2017, levy of GST is on supply of goods and services. Section 9(1) of CGST Act provides thus:

Section 9. Levy and collection.- (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person.

The term "supply" has been defined under Section 7 and the expression "supply", as per said section, 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. Thus it is an inclusive definition.

There have been disputes regarding the taxability of transactions between clubs, associations, etc. and its members. Hon’ble Supreme Court, in State of West Bengal v. Calcutta Club Limited⁴ in the erstwhile Service tax regime has held that there cannot be sale of goods or provision of services between the incorporated private clubs/ associations and its members owing to the principle of mutuality which treats such clubs/ associations and its members as the same person. The Apex Court held thus:

"82. We have already seen how the expression "body of persons" occurring in the explanation to Section 65 and occurring in Sections 65(25a) and (25aa) does not refer to an incorporated company or an incorporated cooperative society. As the same expression has been used in Explanation 3 post-2012 [as opposed to the wide definition of "person" contained in Section 65B(37)], it may be assumed that the Legislature has continued with the pre-2012 scheme of not taxing members’ clubs when they are in the incorporated form. The expression "body of persons" may subsume within it persons who come together for a common purpose, but cannot possibly include a company or a registered cooperative society. Thus, Explanation 3(a) to Section 65B(44) does not apply to members’ clubs which are incorporated."

Explanation 3 to Section 65B (44) of the Finance Act, 1994 created a deeming fiction to treat activities between an unincorporated association and its members as deemed supply. Similar provisions were incorporated in the GST law but after the Apex Court judgment in Calcutta Club case (supra) an amendment⁵ to section 7(1) has been made whereby a new clause ‘(aa)’ after clause (a), in Section 7(1) of the CGST Act has been inserted w.e.f. 01.07.2017, retrospectively.

The objective of this amendment is to widen the scope of the term ‘supply’ by including therein activities or transactions of supply of goods or services or both between any person (other than an individual) to its members or constituents or vice versa for cash, deferred payment or other valuable consideration. Explanation below this clause (aa) makes it further clear that the person and its members or constituents shall be deemed to be two separate persons. The inserted provision reads thus:

"(aa) the activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration.

Explanation .-For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgment, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another;"

Thus an overriding effect has been given by the said explanation over anything contained in any other law for the time being in force and even to the judgements of any Court, Tribunal or any other authority. The amended section 7(1) provides thus

Section 7. Scope of supply.-(1) For the purposes of this Act, the expression - "supply" includes-

….

(aa) the activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration.

Explanation .-For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgment, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another;

….

The definition of "person" in Section 2(84)(i) of the CGST Act, 2017 specifically includes a co-operative society registered under any law relating to co-operative societies. Thus a registered co-operative society is a person within the meaning of the term in the CGST Act. The next question which arises is whether the activity of the society can be said to be in the course or furtherance of business.

Clause (84) of section 2 defines person as:

"person" includes-

…..

(f) an association of persons or a body of individuals, whether incorporated or not, in India or outside India;

(i) a co-operative society registered under any law relating to co-operative societies;

……

The definition of business as per section 2(17) of the CGST Act, 2017 is as under

"business" includes–

…

(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;

…

Thus, as per section 2(17)(e)⁶ 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 is deemed to be a business. The activities of the RWA would thus attract the levy of GST and the RWA would be required to register and comply with the GST Law.

Compliance requirements for RWAs under GST: If the turnover of RWA is above Rs 20 lakhs, (Rs 10 lakhs in case of special category States) it needs to take registration under GST in terms of Section 22 of the CGST Act, 2017. However, taking registration does not mean that the RWA has to compulsorily charge GST in the monthly maintenance bills raised on its members. Notification No.12/2017 -Central Tax (Rate) dated 28.06.2017 at S. No.77 grants an unconditional exemption to ‘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 Seven thousand five hundred rupees 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’

In view of the provision contained at (c) above, a RWA may be registered under GST, however if the monthly contribution received from members is less than Rs. 7,500/ - (and the amount is for the purpose of sourcing of goods and services from a third person for the common use of its members), no GST is to be charged by the housing society on the monthly bills raised by the society. However, GST would be applicable if the monthly contribution from each individual member exceeds Rs. 7,500/ -.

Certain statutory dues such as property tax, electricity charges etc. form part of the monthly maintenance bill raised by the society on its members. The question would arise whether such charges should be included while computing the monthly limit of Rs. 7,500/- in terms of clause (c) of sr.no.77 of notification 12/2017 -Central Tax (Rate) dated 28.06.2017.

As per clause (b) of the above entry in the notification, exemption is available to housing societies for carrying out any activity which is exempt from the levy of Goods and Services Tax assuming that RWA is a non-profit registered entity; and property tax and electricity is exempt from the levy of GST. Thus, charges, collected by the RWA on account of property tax, electricity charges and other statutory levies would be excluded while calculating the limit of Rs. 7,500/-.

Thus RWA shall be required to pay GST on monthly subscription/contribution charged from its members if such subscription is more than Rs. 7,500 per member and the annual turnover of RWA by way of supplying of services and goods is also Rs. 20 lakhs or more (Rs 10 Lakhs in case of special category States). Under GST, the tax burden on RWAs will be lower for the reason that they would now be entitled to ITC in respect of taxes paid by them on capital goods (generators, water pumps, lawn furniture etc.), goods (taps, pipes, other sanitary/hardware fillings etc.) and input services such as repair and maintenance services. ITC of Central Excise and VAT paid on goods and capital goods was not available in the pre GST period and these were a cost to the RWA.

Further, the question would then arise if the monthly bill is say Rs. 9,000/- (and the same is on account of services for common use of its members), will GST be applicable on Rs. 9,000/- or Rs. 1,500/- which is in excess of Rs. 7500/-. The exemption from GST on maintenance charges is available only if such charges 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. For example, if the maintenance charges are Rs. 9000/- per month per member, GST @18% shall be payable on the entire amount of Rs. 9000/- and not on [Rs. 9000 - Rs. 7500] = Rs. 1500/-⁷

Thus, if the turnover of the RWA is less than Rs.20 Lakhs or if the turnover is more than Rs. 20 lakhs but the monthly contribution of all individual members towards maintenance is less than Rs. 7,500/- and the society is providing no other taxable service to its members or outsiders, then the RWA need not take registration under GST.⁸

Input Tax Credit

RWAs are entitled to take ITC of GST paid by them on capital goods (generators, water pumps, lawn furniture etc.), goods (taps, pipes, other sanitary/hardware fillings etc.) and input services such as repair and maintenance services.⁹ Further even if a person owns two or more residential apartments in a housing society or a residential complex the ceiling of Rs. 7500/- per month per member shall be applied separately for each residential apartment owned by him. For example, if a person owns two residential apartments in a residential complex and pays Rs. 15000/- per month as maintenance charges towards maintenance of each apartment to the RWA (Rs. 7500/- per month in respect of each residential apartment), the exemption from GST shall be available to each apartment.¹⁰

Tax on RCM basis

Notification No. 13/2017 has notified the list of services where the recipient of the service is liable to pay GST on reverse charge basis. It provides that where the supplier of security services is any person other than a Body Corporate, then the recipient of the services located in the taxable territory has to pay the tax on RCM basis. So if the security agency is not a body corporate, the RWA is required to deposit GST on RCM basis in terms of section 9(3) of the CGST Act, 2017. Even if the Security Agency volunteers to discharge their GST liability they cannot do so. As regards the ITC it would suffice to say that since the liability of discharging tax is on the RWA, the security agency cannot raise a tax invoice. The RWA needs to raise an invoice and can claim Input Tax Credit on the same

[The views expressed are strictly personal.] 

¹ Of Uttar Pradesh Apartment (Promotion of Construction, Ownership and Maintenance) Act, 2010

² of ibid Act

³ Section 14 of ibid Act

⁴ 2019 (29) G.S.T.L. 545 (S.C.) = 2019-TIOL-449-SC-ST-LB

⁵ Inserted w.e.f. 01st July, 2017 by s. 108 of The Finance Act, 2021 (No. 13 of 2021) - Brought into force on 01st January, 2022 vide Notification No. 39/2021-C.T., dated 21st December, 2021.

⁶ of the CGST Act, 2017

⁷ Circular No.109/28/2019- GST 1 dtd. 22-07-2019

⁸ FAQs on levy of GST on supply of services to the Co-operative society released vide F.No.332/04/2017-TRU TRU

⁹ [Circular No.109/28/2019- GST 1 dtd. 22-07-2019]

¹⁰ Circular No.109/28/2019- GST 1 dtd. 22-07-2019