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2019 (11) TMI 155 - AAR - GSTLevy of CGST and SGST on the amount of contribution received from its members - applicability of benefit of Notification No. 12/2017 dated 28-6-2017 (SI No. 77) read with Notification No.2/2018 dated 25-1-2018 - restriction to claim input tax credit - levy of CGST/ SGST on amounts which it collects from its members for setting up a corpus fund - Scope of supply. Liability of GST on maintenance charges collected by the applicant from its members - HELD THAT - The applicant is a registered entity and is an Association of Persons and is distinct from its members. The Association is receiving consideration for the supply of services. There is no dispute that the applicant is performing certain operations / services for which consideration is received. There is no such thing in the law that services provided as statutory obligations are not supplies under the definition of the Act. Section 7(1) of the CGST Act 2017. GST is levied on intra-State and inter-State supply of goods and services. According to section 7 of CGST Act, 2017, the expression supply 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, and includes activities specified in Schedule II to the CGST Act, 2017. The definition of business in section 2(17) of CGST Act states that business includes 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. The term person is defined in section 2(84) of the CGST Act, 2017 to include an association of persons or a body of individuals, whether incorporated or not, in India or outside India. The activity of the applicant is a provision of services to its members, and it is in the form of reimbursement of charges or share of contribution and the applicant is a non-profit entity. Taxability of the transaction - HELD THAT - The service is covered under the Heading 9995. As per the Annexure to Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017, the services provided by the Home Owners Associations are covered under the Heading 9995 and specifically under Service Code of 9995 98 - Hence it is clear that what is supplied by the applicant is a service by the Home Owner's Association to its members and not a composite supply or mixed supply, which is actually a combination of more than one supply for a common consideration. Even if the same is considered as a composite supply, then the principal supply would be the Supply of services by the Home Owner's Association and hence the entire supply would be treated as a composite supply of such service. Regarding the services, the supply of services is made in common to all the members and it is only reimbursement of charges or share of contribution. Applicability of exemption under entry No. 77 of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017 as amended by the Notification No. 2/2018 - dated 25-01-2018 - HELD THAT - The activity is covered under clause (c) of the entry 77 and reading together Services by 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 upto an amount of seven thousand five hundred 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 is exempted from the levy of CGST. The exemption of ₹ 7,500/- is not available when the maintenance charges exceed ₹ 7,500/- per month per member. Therefore the members are required to discharge GST on the entire maintenance charges and not on just the amount in excess of ₹ 7500/-. The same ratio applies to the earlier period when the exemption was available on maintenance charges upto ₹ 5000/-. Whether the applicant is required to restrict the claim of input tax credit? - HELD THAT - The applicant is involved in supply of taxable service, if the contribution exceeds ₹ 7,500/- per month per member and also involved in exempted supply of service when the contribution is upto ₹ 7,500/-. Therefore the applicant is providing partly taxable as well as partly exempted supply of service. Therefore, the applicant is liable to restrict the claim of input tax credit to the extent of exempt turnover as per Rule 42 of the CGST Rules 2017, which is related to common input tax credits. For the unrestricted amount of input tax credit, the applicant can avail the benefit of input tax credit. However, this is again subject to the restriction and ineligibilities as enumerated in the Act and rules made thereunder. Liability of GST on the amounts collected for corpus fund from members - HELD THAT - It is seen that this amount is collected as a deposit and is utilised by the applicant as when required. The contributions are made by the members to the applicant as contributions to the corpus fund and not in relation to any service in particular. The proviso to the above clause states that the deposit given in respect of a future supply shall not be considered as payment made for such supply until the supplier applies such deposit as consideration. In the instant case the corpus / sinking fund so collected is the amount collected towards the future supply of service and accordingly gets applied as consideration towards supply of services only at the time of actual supply of services. Therefore the amounts collected towards Corpus / Sinking Fund do not form part of consideration towards supply of services at the time of collection and hence is not liable to GST, at the time of collection. However the amounts so utilized for provision of service are liable to tax at the time of actual supply of service and the time of supply has to be determined in terms of Section 13 of the CGST Act 2017.
Issues Involved:
1. Liability to pay CGST and SGST on contributions received from members. 2. Applicability of exemption under Notification No. 12/2017 and Notification No. 2/2018. 3. Requirement to restrict the claim of input tax credit. 4. Liability to pay CGST/SGST on amounts collected for setting up a corpus fund. Detailed Analysis: 1. Liability to Pay CGST and SGST on Contributions Received from Members: The applicant, a Homeowners' Association, argued that their activities, mandated by the Karnataka Apartment Ownership Act, 1972, do not constitute a "supply" under Section 7 of the CGST Act, 2017, and hence should not attract GST. They contended that the contributions received are mere reimbursements and not consideration for services. However, the Authority for Advance Ruling (AAR) determined that the applicant is an Association of Persons (AOP) distinct from its members and is providing services in exchange for consideration. The term "supply" under Section 7(1) of the CGST Act includes all forms of supply of goods or services made for consideration in the course of business. The definition of "business" under Section 2(17) includes the provision of facilities or benefits by an association to its members. Therefore, the maintenance services provided by the applicant are considered taxable supplies of services. 2. Applicability of Exemption Under Notification No. 12/2017 and Notification No. 2/2018: The applicant sought an exemption under entry No. 77 of Notification No. 12/2017-CT (R) dated 28.06.2017, as amended by Notification No. 2/2018-CT (R) dated 25.01.2018, which exempts contributions up to ?7,500 per month per member. The applicant argued that even if contributions exceed ?7,500, they should be exempted up to ?7,500, and GST should be levied only on the excess amount. The AAR clarified that the exemption is available only if the maintenance charges do not exceed ?7,500 per month per member. If the charges exceed this amount, the entire contribution is taxable. This interpretation aligns with Circular No. 109/28/2019-GST dated 22.07.2019, which states that if maintenance charges exceed ?7,500 per month per member, GST is payable on the entire amount. 3. Requirement to Restrict the Claim of Input Tax Credit: The applicant contended that the exemption of ?7,500 per month per member is merely a reduction in the value of supply and does not convert the supply into an exempt supply. Therefore, they argued that they should be entitled to the full amount of input tax credit. The AAR concluded that the applicant is involved in both taxable and exempt supplies. As per Section 17(2) of the CGST Act, if goods or services are used partly for taxable supplies and partly for exempt supplies, the input tax credit should be restricted to the extent attributable to taxable supplies. Therefore, the applicant must restrict the claim of input tax credit as per Rule 42 of the CGST Rules, 2017. 4. Liability to Pay CGST/SGST on Amounts Collected for Setting Up a Corpus Fund: The applicant argued that contributions towards the corpus fund are deposits and are refundable to members if not spent. They contended that such amounts are not consideration for any supply of goods or services and hence should not attract GST. The AAR agreed with the applicant, stating that the corpus fund contributions are deposits and do not form part of the consideration for supply of services at the time of collection. However, these amounts become taxable when utilized for the actual supply of services, and the time of supply must be determined as per Section 13 of the CGST Act, 2017. Ruling: 1. The applicant is liable to pay CGST and SGST on contributions received from its members as these constitute taxable supplies of services. 2. The exemption under entry No. 77 of Notification No. 12/2017-CT (R) is available only if maintenance charges do not exceed ?7,500 per month per member. If the charges exceed ?7,500, the entire amount is taxable. 3. The applicant must restrict the claim of input tax credit as per Section 17(2) of the CGST Act and Rule 42 of the CGST Rules. 4. The applicant is not liable to pay CGST/SGST on amounts collected for setting up a corpus fund at the time of collection, but these amounts become taxable when utilized for the actual supply of services.
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