Do housing societies lose benefit of GST exemption if they charge more than Rs. 7500 per month from residents?

April 1, 2018

Service tax was imposed on group housing societies in 2012 but societies which collected less than Rs 5000 from a member were not taxed. GST maintained similar norms but raised the floor level to Rs 7500 on 25.1.18. GST does not require societies whose receipt is less than Rs 20 lakhs to register themselves or pay GST. A public debate has begun if housing societies can claim the exemption given for receipt upto Rs. 7500 and pay tax on excess. This article examines the issue.

 

Resident Welfare Association is an exemplary model of grass root democracy where there is very little distance between the administration and the residents. The elected executives of RWA provide voluntary service. Typically pensioners opt to take such responsibilities.  The Registrar of Co-operative Societies makes a minimal intervention in housing society matters. Societies are exempt from income tax and their interaction with different agencies is limited to their role as a consumer of public services. The imposition of service tax on them in 20.6.2012 was not a good move: public policy demands minimal government and service tax from RWAs forced tax regimes on homes even though quantum of tax collectible was negligible. The imposition of tax was also questionable on the legal ground that such entities render service to themselves and are not business entities.

In GST law definitions of taxable supplies have cast the tax net very wide and even farther than the Government’s intention to collect taxes; a housing society has been specifically defined as a taxable entity, though a liberal exemption has been granted. A view is being expressed in different fora that this exemption to societies is not available if their monthly subscription exceeds Rs. 7500. This view, if correct, would create unnecessary complications for many of the societies that have more than 267 members and which are generally cash-strapped and run by amateurish volunteers. This paper makes an interpretation of the GST exemption notification 12/2017 (Central Tax) and finds that no housing society, notwithstanding quantum of monthly charges, can be denied the benefit of the limited exemption granted to them under the notification.

 

The problem

The Government has exempted housing societies from GST under exemption notfn. no. 12/2017 dated 28.6.2017 which was amended by paragraph (p) of Not 2/2018 dated 25.1.2018 The amended notification reads as follows:-

“In exercise of the powers conferred by sub-section (1) of section 11 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on being satisfied that it is necessary in the public interest so to do, on the recommendations of the Council, hereby exempts the intra-State supply of services of description as specified in column (3) of the Table below from so much of the central tax leviable thereon under sub-section (1) of section 9 of the said Act, as is in excess of the said tax calculated at the rate as specified in the corresponding entry in column (4) of the said Table, unless specified otherwise, subject to the relevant conditions as specified in the corresponding entry in column (5) of the said Table, namely:-

 

TABLE

 

Sl. No.

Chapter, Section, Heading, Group or Service Code (Tariff)

Description of Services

Rate (per cent.)

Condition

77

Heading 9995

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 five thousand 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.

Nil

Nil

 

The exemption notification clearly states that exemption is in excess of a floor level of tax, and up to that level tax is not chargeable. Yet a view is being expressed that in case a society charges an amount more than Rs 7500 they would need to pay GST on the entire sum collected as subscription amount and not just on the amount that exceeds Rs 7500. The background to this is that in the Service Tax regime there was a similar exemption scheme and the Central Government, through Circular No.175 /01 /2014 - ST dated 10.01.2014 had taken the view that in case a society charges more than Rs 5000 from its members on monthly basis, the exemption would not be available and service tax would be chargeable on the entire amount. This circular gave the impression that GST made the running of housing societies more expensive. To allay fears the government brought out a Press Note which stated as follows:-

‘PRESS RELEASE

‘On Services provided by RWA (Resident Welfare Association) / Housing Society

There are some press reports that services provided by a Housing Society [Resident Welfare Association (RWA)] will become expensive under GST. These are completely unsubstantiated.

2. It may be mentioned that supply of service by RWA (unincorporated body or a registered non- profit entity) to its own members by way of reimbursement of charges or share of contribution up to an amount of five thousand rupees per month per member for providing services and goods for the common use of its members in a housing society or a residential complex are exempt from GST.

3. Further, if the aggregate turnover of such RWA is up to Rs.20 Lakh in a financial year, then such supplies would be exempted from GST even if charges per member are more than Rs. five thousand.

4. RWA shall be required to pay GST on monthly subscription/contribution charged from its members if such subscription is more than Rs. 5000 per member and the annual turnover of RWA by way of supplying of services and goods is also Rs. 20 lakhs or more. 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.

5. Thus, there is no change made to services provided by the Housing Society (RWA) to its members in the GST era.’

The view that societies that charge more than Rs 7500 will lose entitlement to claim exemption is based on a reading of the above Press Note, especially the last sentence which says that no change has been made from the old service tax regime. This articles interprets the notification and finds nothing in the press note that supports the view that exemption can be denied to any housing society.

Opinion

It is important to start the examination from the exemption notification from service tax as people are using it as basis of interpreting the later exemption notification under GST laws. They read the now expired notification and apply the sentence in the Press Note that says there has not been any change without reading the new notification. The exemption notification number 25/2012 for housing societies under service tax regime was worded in this manner:-

New Delhi, the 20th June, 2012

‘In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) …… being satisfied that it is necessary in the public interest so to do, hereby exempts the following taxable services leviable thereon under section 66B of the said Act, namely:-

………..

…………

28. 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 service tax; or

    (c)   up to an amount of five thousand 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;’

 

The exemption not 25/2012 under the Finance Act 1994 is not identical to notification 12/2017 dated 28.6.17 as amended by not 2/2018 dated 25.1.2018. The terms of exemption in the two exemptions are different. In the service tax notification exemption is granted to a certain category of service, a service that is charged at less than Rs. 5000. In the GST notification exemption has been granted to a portion of tax liability which is in excess of certain other amount. The language suggests that the GST notification visualises that the taxable value can be more than Rs. 7500 per month and that tax is exempt up to a value of Rs. 7500 but not above that. This implies that if the amount exceeds that certain amount then the tax would be collected on that extra amount in excess of Rs. 7500.

The Press Note has wrongly been interpreted to mean that there is an expressed denial of exemption under notification no. 12/2017 if societies charge more than Rs 7500 per month. The Press Note was meant to allay fears and did not attempt a textual interpretation of notifications. Such notes do not have statutory value nor are they equivalent of circulars that are meant for legal purposed and are always couched in legal language.

GST law has situations where the benefit of exemption is denied to entities in certain circumstances but the manner of conveying such conditions are direct and unambiguous.  In exemption notification 8/2017-Central Tax (Rate) dated 28.06.2017, for instance, the exemption has been granted to supplies from unregistered persons but the notification number 8/2017 puts a rider in a proviso which states as follows:-

“Provided that the said  exemption shall not be applicable where the aggregate value of such supplies  of goods  or service or both  received by a registered person  from any or all the  suppliers, who is or are not registered, exceeds five thousand rupees in a day.”

The language used in the notification number 8/2017 leaves no room for doubt that the exemption would be inapplicable in cases where the value exceeds Rs.5000/- .  Thus if Rs.6,000/- worth of supplies is received from unregistered persons, the entire 6000/- would be chargeable to tax, because the proviso takes away the exemption. There is no such rider in notification 12/2017 to the effect that the exemption would not be applicable if the aggregate value exceeds Rs.7500/-.  The text of this notification has two implications:-

  1. Exemption has been granted to housing societies for GST up to a value of Rs 7500

  2. There is no denial of this benefit to societies that charge more than Rs 7500.

The notification leaves no room to doubt that in case the  contribution of members exceeds Rs.7,500/- then the society can claim exemption from  GST on tax relating to monthly charges of Rs.7,500/- and pay taxes on the excess.

 

The law on the scope of interpretation of exemption notifications is fairly well settled. Whether or not a person would come within the purview of the exemption notification, would depend on the manner in which the exemption notification is couched and at this stage strict rules of interpretation would apply. But once it is found that a person is entitled to the benefit of the exemption notification, the interpretation of the clauses containing the procedural aspects may be liberal [Maheshwari Industries v Comm 2017(352) ELT 338 (AP)].

 

Applying the law explained by the Hon’ble High Court it must be concluded deduced that since the housing societies come within the purview of the wording of the exemption notification 12/2017, they should be allowed to avail its benefit and the exemption should not be denied to them on the ground that exemption from service tax, a precursor law of GST, was not allowed to them under the Finance Act 1994. Housing societies that collect more than Rs 7500 as monthly maintenance charges are not excluded from the benefit of GST exemption.

 

By

Sujit Kumar Sinha

Chief Commissioner Customs and Excise {Rtd}

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