The Madras High Court in the case of M/s.TVH Lumbini Square Owners Association Vs UoI has ruled that only an amount in excess of ₹7,500 per month per member collected by Residential Welfare Associations is taxable under the GST Act.
The High Court set aside an order by The Tamil Nadu Authority for Advance Ruling (AAR) in 2019, that if the amount collected by a registered housing society/resident welfare association exceeds ₹7,500 per month per flat, Goods and Services Tax of 18% is payable on the entire amount and not on the difference amount.
The High Court also quashed a circular by the Central Board of Indirect Taxes and Customs (CBIC) that GST would be applicable on the entire maintenance amount if it exceeds ₹7,500 per month per person, which was issued post the AAR verdict.
The key paras of the order are as under for ready reference of our readers:
5.The Goods and Services Tax Department issued a clarification in the case of Co-operative Housing Societies, wherein they categorically stated that GST would be applicable only on the amount in excess of Rs.7,500/-
The fliers covers all Co-operative Housing Societies, in essence, RWAs, Housing Societies or Societies in residential complexes.
6. One of the petitioners, ie.,. W.P.No.27100 of 2019 approached the AAR seeking clarification in regard to this issue. The AAR, by impugned order dated 21.06.2019, held adverse to it stating that the grant of exemption was conditional upon the contribution being an amount of Rs.7,500/- or less.
If the contribution exceeded the sum of Rs.7,500/-, then the very entitlement of that RWA to exemption would stand defeated and the entirety of the amount collected would have to be brought to tax.
24. The term ‘upto’ hardly needs to be defined and connotes an upper limit. It is interchangeable with the term ‘till’ and means that any amount till the ceiling of Rs.7,500/- would exempt for the purposes of GST.
25. As regards the argument concerning slab rate, a slab is a measure of determining tax liability. The prescription of a slab connotes that income upto that slab would stand outside the purview of tax on exigible to a lower rate of tax and income above that slab would be treated differently. The intendment of the exemption Entry in question is simply to exempt contributions till a certain specified limit.
The clarification by the GST Department even as early as in 2017 has taken the correct view.
The HC has ruled that the discussion as above leaves me no doubt that the conclusion of the AAR as well as the Circular to the effect that any contribution above Rs.7,500/- would disentitle the RWA to exemption, is contrary to the express language of the Entry in question and both stand quashed. To clarify, it is only contributions to RWA in excess of Rs.7,500/- that would be taxable under GST Act.
Our views
The Madras High Court Judgment, has resolved three issues.
1. The flyer released by Govt, at the time of introducing GST has been considered as an important document.
2. AAR Decision given under GST can be challenged. Not binding on the party.
3. No tax liability on the Threshold limit is very very important. This may give impact on other goods and services which are liable over and above threshold limit under GST.
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
