2021 (3) TMI 895 - AAR - GST

Levy of GST - amounts collected from its members for setting up the 'Sinking Fund'/ Corpus Fund - supply of goods or services or both - HELD THAT - The applicant making specific reference to the bye law at Sl.No.23, which deals with sources of funds and accounting and sub entry 3 of the said entry deals with sinking fund, claims that the fund shall be utilized exclusively for replacing plant, machinery or equipment as and when such items become unserviceable; they collect the amount towards corpus / sinking fund for future supply of services meant for its members; the corpus fund or sinking fund is mandatory under the Bye-laws of the Co-operative Societies / Resident Welfare Associations and is in the nature of deposit towards unforeseen events or planned events. Further, the applicant relies upon the ruling of this authority in the case of M/s. Prestige South Ridge Apartment Owners' Association, Bengaluru. Whether the amounts collected by the applicant towards sinking fund form part of consideration towards the services being provided by them? - HELD THAT - There are certain distinguishable features of both advance and deposit and advances defer from the deposits. The amounts that are not returnable can be termed as advances. Also the bye laws of the applicant association are silent on this issue and hence the amounts collected are indubitably advances but not the deposits. Classification of the service to be provided by the applicant as the taxability of the amounts collected towards sinking fund - HELD THAT - SAC 9995 covers the services provided / to be provided by the applicant to its members under Services of Membership Association . The said services are taxable to GST @ 18% in terms of Sl.No.33 of Notification No.11/2017-Central Tax (Rate) dated 28.06.2017, as amended.

Summary

Issues:
1. Liability of Applicant to pay GST on amounts collected for 'Sinking Fund' / Corpus Fund.

Analysis:
The Applicant, a non-profit residents welfare Association, sought an advance ruling on the GST liability concerning the amounts collected from its members for the 'Sinking Fund' under the CGST Act and KGST Act. The Applicant, registered under the Karnataka Apartment Ownership Act and GST Act, collects funds for maintenance, repairs, and future planned/unplanned expenses. The Applicant's interpretation of the law emphasized that the amounts collected are not consideration for supply of goods or services but deposits for unforeseen events, as per the Bye-laws. The authority admitted the application based on Section 97(2)(g) of the CGST Act, considering the issue raised.

The Applicant contended that the 'Sinking Fund' amounts were not consideration for services provided, citing Section 2(31) of the CGST Act. The authority examined the Bye-laws and the nature of the funds collected, determining them as advances for future services, not deposits. It was highlighted that the time of supply under Section 13(2)(a) is the receipt of payment, making the amounts liable to GST. The service provided by the Applicant falls under SAC 9995, taxable at 18% GST as per Notification No.11/2017-Central Tax (Rate) dated 28/06/2017, as amended.

During the personal hearing, the Applicant's representative reiterated the application's facts. The authority considered the provisions of the CGST Act and KGST Act, noting the similarity unless specified. The ruling concluded that the amounts collected for the 'Sinking Fund' are advances for future services, falling under SAC 9995 and taxable at 18% GST. The ruling clarified the taxability based on the time of supply as per Section 13(2)(a) of the CGST Act 2017.

In summary, the judgment addressed the Applicant's liability to pay GST on amounts collected for the 'Sinking Fund,' determining them as advances for future services, taxable at 18% GST under SAC 9995. The ruling provided clarity on the tax treatment based on the provisions of the CGST Act and KGST Act, emphasizing the nature of the funds collected and the time of supply for GST applicability.