The Karnataka Authority for Advance Ruling (AAR) has in its recent ruling on applicability of GST on RWA (housing societies) has inter-alia adjudged that water charges collected separately on monthly basis is exempt from the levy of GST. It was further ruled that mere collection and deposit of money does not qualify as supply of goods / services and taxability arises only at the time of supply of goods or services.
Facts of the case:
- The applicant M/s Gnanaganga Gruha Nirmana Shakara Sangha Niyanatha, is a Housing Society registered under the Karnataka Co-operative Societies Act, engaged in the development and sale of sites for its members.
- After the complete allotment of sites to its members in a layout, society has to handover the layout to the local municipal administration for maintenance in a period of 5 years to 25 years depending upon the time taken for allotment of sites to its members by the society.
- Though Society not responsible for maintenance of sites till the local municipal administration takes over layout but it is expected that Society has to maintain the layout.
- The maintenance of layout involves cleaning of vacant sites by removing the unwanted vegetation, upkeep and maintain the roads and parks in the layout, ensuring uninterrupted supply of power and water by up-keeping the electrical and water installations with regular and proper maintenance, and providing proper civic amenities to the residents of the layout.
- Society is collecting the amount from its members for maintenance of sites in the layout till the local municipal administration takes over the sites formally.
Issues relating to GST on RWA (housing society) on which Ruling was sought:
1. Is the activity of maintaining the facilities at the layout from the funds collected from the members of the Society a service attracting GST?
2. If answer to question no.(1) above is yes then, does the Society’s collection of sum towards maintenance charges calculated on yearly basis in one lump- sum for certain length of time say 10 years, should the GST be paid even for the amount pertaining to the un-expired period?
3. The Society is collecting Water charges from the residents for recovery of charges for water. The entire cost of the water is recovered from the members on monthly basis, does it attract GST?
4. Does the society have to pay GST for collecting lump-sum amount as endowment fund, the proceeds of which would be utilized for maintenance charges in terms of the maintenance, of the layout with an express condition that the amount would be returned to the Site owners upon the taking over of the layout by the local body as the Society would be utilizing only accretions to the endowment fund from year to year.
5. In the event that any or all of the items from (1) to (4) is rendered taxable whether the same is exempt under Notification No 12/2017 entry no 77 respect of the value of the maintenance amount collected from the members of the society to the extent of Rs 7,500/-per month?
Gujarat AAR: Deliberations and Ruling
- The applicant , being the Housing Building Cooperative Society engaged in the development and sale of sites it its members for housing, is covered under the term ‘housing society’ for the purposes of Notification No. 12/2017-Central Tax dated 28.06.2017.
- Mere collection and deposit of money does not qualify as supply of goods / services and taxability arises only at the time of supply of goods or services. Thus the extent of amount utilized by the applicant towards the payment at the time of supply of service by the third person, such amount is liable for GST as per Section 9(1) of the CGST Act,2017.
- Applicant is not collecting the reimbursement of charges or share of contribution from its members every month, instead they are collecting the charges either annually or once in ten years and is keeping it as a deposit, such being the situation, when the applicant utilised the amount from the deposit for sourcing goods or service from the third person for the common use of its member in the housing society, amount utilised in that particular tax period must be divided into number of members in the society and said amount per member, if it does not exceed Rs 7500/- in that tax period, such amount is exempted from tax as per entry No.77 of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017 as amended. Suppose if that amount per member in that tax period exceeds Rs 7500/-, then entire amount is taxable.
- Further, the applicant is collecting water charges from the residents of the layout towards the cost of pumping water from bore wells to overhead tank and also for management and maintenance of water distribution systems to each individual houses. The applicant is collecting water charges on monthly basis. The supply of water is exempted from the GST as per entry no. 99 of the Notification No. 2/2017 -Central Tax (Rate) dated 28th June, 2017. Therefore the supply of water is exempt from GST and the applicant is not liable to pay GST on water charges.
- However, it is not clear from the submission of the applicant that whether the applicant is collecting water charges separately from its members or it is included in total contribution. If water charges are collected separately, then it falls in entry 99 of the Notification No. 2/2017 -Central Tax (Rate) dated 28th June, 2017 which is exempt from the levy of GST. In case water charges is included in the total contribution of each individual member in each month then it is covered under the entry No. 77 of the Notification No. 12/2017 -Central Tax (Rate) dated 28th June, 2017 (as amended) and the exemption or taxability is determined supra.
- The contributions of the members who are selling the sites and obtaining clearances from the applicant for such sale, are liable to tax under GST Acts as such contribution is not for providing any maintenance services but for providing NOC and other clearances.
In view of above deliberations bench comprising of Dr. M.P Ravi Prasad and Mashhood ur Rehman Farooqui held as under:
- The activity of maintaining the facilities at the layout from the funds collected from the members of the Society is a service attracting GST.
2. The contribution collected from members either annually or once in ten years, if such amount when utilized for sourcing goods or service from the third person for the common use of its member in the housing society, amount utilized in that particular tax period, from both individual contributions and from the endowment fund, must be divided into number of members in the society and said amount per member, if it does not exceed Rs 7500/- in that tax period, such amount is exempted from tax as per entry No.77 of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017 as amended. Suppose if that amount per member in that tax period exceeds Rs 7500/-, then entire amount is taxable.
3. The water charges collected separately is exempted from the GST as per entry no. 99 of the Notification No. 2/2017 -Central Tax (Rate) dated 28th June, 2017. If the applicant collects water charges as art of service provided without being shown separately on the basis of usage and sourcing it from both contributions and endowment fund, the the same should be added to the total consideration and apportioned while determining the threshold for the purpose of taxing or exemption as per entry No. 77 of the Notification No. 12/2017 -Central Tax (Rate) dated 28th June, 2017 (as amended).
4. The amount collected from the member who is selling the site and ceases to be a member, is liable to tax under GST.
5. GST exemption is applicable only to extent of Rs 7500/- per month per member collected by way of reimbursement of charges or share of contribution for sourcing of goods or services from a third person for the common use of its members.
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