2024 (4) TMI 409 - AAAR - GST

Applicability of GST - Benefit of exemption - Supply of Services by Residents Welfare Association (RWA) - contributions towards the corpus fund made by the members of the RWA - whether this money is in the form of a deposit or an advance payment - CGST/ SGST on collection of common area electricity charges from the members - HELD THAT - As per the ICAI Guidance Note on Terms Used in Financial Statements , a Sinking Fund is a fund created for the repayment of a liability or for the replacement of an asset. In the case of a RWA, such sinking/corpus fund is created in order to meet future contingencies e.g., to meet the expenses for structural repairing, reconstruction work etc. RWA creates a sinking/corpus fund which serves as a backup fund for supply of specific services. A member contributes to such funds with an agreed condition that the RWA will provide some specific services in future, as and when required out of the said funds. So, it is pertinent to refer that the contributions towards the sinking/corpus fund are made by the members of the RWA with a presumption that such funds will be used for bearing the burden of expenses of future supply of services like common area maintenance and other future contingencies as may arise. This contribution is thus an acceptance of the offer of guarding future burden of expenses as made by the RWA, i.e. the appellant in this case to its members. This money is never refunded back to the members but is always in the possession of the RWA for bearing such expenses. Hence, such contribution is not of the nature of a deposit in the truest sense of the term but an advance payment made by the members of the RWA for receiving a supply of common area maintenance services to be provided to them by the RWA in future. As a result, the same would be taxable and the appellant will be liable to pay tax at the time of receipt of such amount in accordance with the provisions of sub-section (2) to section 13 of the GST Act. Tax on electricity charges received by the RWA - It is observed that the appellant has collected the electricity charges consumed for common area from its members on pro-rata basis. Further, the tax invoice issued in this case for Common Area Maintenance shows a consolidated amount under SAC 999598 where a fixed rate is levied per square feet of the area of the flat. Tax @ 18% has also been charged on the entire amount. This Common Area Maintenance Charge not only includes common area electricity charges but also charges for other services like security, scavenging, water supply, maintenance of garden etc. Any amount collected on account of consumption of electricity has not been shown separately in the said invoice. Thus, services relating to electricity charges are bundled with supply of goods and services for the common use of its members and hence form a part of composite supply where the principal supply is the supply of common area maintenance services. Therefore, the rate of the principal supply i.e., GST rate on maintenance of the premise would be applicable. The WBAAR Ruling is thus confirmed and the Appeal stands rejected.

Summary

Issues:
1. Applicability of GST on contributions towards corpus fund.
2. Tax liability on electricity charges collected by the Residents' Welfare Association (RWA).

Analysis:
1. The first issue revolves around whether contributions to the sinking/corpus fund by RWA members constitute a deposit or an advance payment. The definition of 'deposit' as per legal precedents emphasizes the temporary custody and subsequent return of the amount, which is not applicable in this case as the funds are not refunded. Contributions are deemed advance payments for future services, making them taxable under GST laws. The appellant is liable to pay tax on such contributions in accordance with GST Act provisions.

2. Regarding the tax liability on electricity charges, it is clarified that when electricity is bundled with services like maintenance, it forms a composite supply. The Circular No. 206/18/2023-GST specifies that even if electricity is billed separately, it is part of the composite supply and taxed accordingly. In this case, the RWA charged a consolidated amount for common area maintenance, including electricity charges, without showing them separately. As such, the electricity charges are bundled with other services and form part of the composite supply, making them taxable under GST laws.

3. The judgment references legal definitions and precedents to establish that contributions to sinking/corpus funds are advance payments for future services, not deposits. It also cites circulars to clarify the tax treatment of electricity charges when bundled with other services. Ultimately, the ruling of the WBAAR is upheld, confirming the tax liability on both contributions to the sinking/corpus fund and electricity charges. The appeal is rejected, and the order is to be communicated to the parties involved for information.