The Maharashtra Authority of Advance Ruling (AAR) has in its recent ruling in the case of Vishal Cooperative Housing Society Limited has ruled that work contract services received by housing society will not be available to the extent of capitalization. Further, it has been held that the Society claiming GST Exemption of Rs.7500 can avail only proportionate Input Tax Credit (ITC).
Facts of the Case:
- The applicant society, Vishal Cooperative Housing Society Limited does not charge contribution towards maintenance more than Rs 7500 per member per month (previous limit of Rs 5,000 till 25th January 2018) to any commercial shop or residential unit or Garage.
- In case of residential flat, the society does not charge GST on amount collected towards government dues (such as property tax, education fund, etc.), claims exemption towards reimbursement (such as maintenance charges, central service charges, etc.) and charges GST on flat specific contributions (such as repair and maintenance fund, contribution towards sinking fund, interest on arrears, parking charges, etc.).
- In the case of commercial shops and garages, society does not charge GST on the amount collected towards government dues (such as properly lax, education fund, etc.). Society charges GST on reimbursements as well as flat specific contributions without claiming exemption of INR 7,500 per member per month as this expectation is applicable to residential units only.
- Further, society also collects GST contributions toward major repair funds. The Society does not claim input tax credit on regular expenses such as professional fees, bank charges, insurance premium, stationery items purchased, repair and maintenance, security charges, etc.
- The society has claimed proportionate ITC once only pertaining to GST charges on major repair bills received from the contractor.
Issue on which ruling was sought:
- The applicant has sought the advance ruling on whether the society can claim ITC on repairs both major (in respect of immovable property) as well as minor, as per Circular number 109/28/2019 GST dated 22 July 2019 which is contradicting Section 17(5)(c) of the CGST Act, 2017.
- Further ruling was also sought on issue whether the society can claim ITC on various services either fully or proportionately despite the availing exemption of Rs 7500 available to residential units.
Ruling of Maharashtra AAR:
The coram of Rajiv Magoo and T.R. Ramnani ruled that ITC on work contract services received by applicant will not be available to the extent of capitalization as mentioned in Explanation of Section 17(5) of the CGST Act, 2017. Further, it was also adjudged that the provisions of Section 17 (2) will be applicable in the present case in as much as when goods or services or both are used by the applicant partly for effecting taxable supplies under the GST Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies.
Relevant Statutory Provisions:
Section 17(2) of the CGST Act, 2017
Apportionment of credit and blocked credits
(2) Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.
(3) The value of exempt supply under sub-section (2) shall be such as may be prescribed, and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
Explanation.— For the purposes of this sub-section, the expression ‘value of exempt supply‘‘ shall not include the value of activities or transactions specified in Schedule III, except those specified in paragraph 5 of the said Schedule.
Section 17(5)(c) of the CGST Act,2017
(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub- section (1) of section 18, input tax credit shall not be available in respect of the following, namely:—
(c) works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;
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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.
