2021 (7) TMI 591 - HC - GST

Threshold limit of contribution to RWA to claim exemption from payment of GST - validity of Circular No.109/28/2019 dated 22.07.2019 - applicability of N/N. 12/17CT dated 28.06.2017 - submission is that while a contribution of ₹ 7,500/- or less would entitle the concerned assessee to the grant of exemption, if the contribution exceeded ₹ 7,500/-, there was an automatic disentitlement - HELD THAT - There is no ambiguity in the language of the exemption provision in this case and thus the judgment of the Supreme Court in COMMISSIONER OF CUSTOMS (IMPORT) , MUMBAI VERSUS M/S. DILIP KUMAR AND COMPANY ORS. 2018 (7) TMI 1826 - SUPREME COURT would not be applicable to the facts and circumstances of this case. The ratio of that decision would apply only in a case where the provisions granting exemptions are ambiguous, whereas, in the present case, the Entry, is clear and hence it is only a question of interpreting the same. The intention of the Circular appears clear, that is, to grant exemption in regard to the receipts from services that answer to the description set out therein. The description of the services is also clear, that is, services to the members of an unincorporated body or non-profit by way of reimbursement of charges or share of contribution upto an amount of ₹ 7,500/- in the sourcing of goods or services from a third person for the common use of its members. No ambiguity presents itself on a plain reading of the Entry and the intention is clear, so as to remove from the purview of taxation contribution upto an amount of ₹ 7,500/-. In the case of Dilip Kumar, the Supreme Court reiterates the settled proposition that an Exemption Notification must be interpreted strictly. The plain words employed in Entry 77 being, upto an amount of ₹ 7,500/- can thus only be interpreted to state that any contribution in excess of the same would be liable to tax - the term upto hardly needs to be defined and connotes an upper limit. It is interchangeable with the term till and means that any amount till the ceiling of ₹ 7,500/- would exempt for the purposes of GST. Slab Rate - HELD THAT - A slab is a measure of determining tax liability. The prescription of a slab connotes that income upto that slab would stand outside the purview of tax on exigible to a lower rate of tax and income above that slab would be treated differently. The intendment of the exemption Entry in question is simply to exempt contributions till a certain specified limit. The clarification by the GST Department even as early as in 2017 has taken the correct view. The discussion leaves no doubt that the conclusion of the AAR as well as the Circular to the effect that any contribution above ₹ 7,500/- would disentitle the RWA to exemption, is contrary to the express language of the Entry in question and both stand quashed. To clarify, it is only contributions to RWA in excess of ₹ 7,500/- that would be taxable under GST Act. Petition allowed.

Summary

Issues Involved:
1. Validity of the Authority for Advance Ruling (AAR) order levying tax on the entirety of contributions exceeding ?7,500 to a Resident Welfare Association (RWA).
2. Validity of Circular No.109/28/2019 dated 22.07.2019 regarding GST on RWA contributions.

Issue-wise Detailed Analysis:

1. Validity of the AAR Order:
The petitioner in W.P.No.27100 of 2019 challenged the AAR's order which levied tax on the entire contribution exceeding ?7,500 to a RWA. The issue arose post-GST implementation on 01.07.2017, where Notification 12/17-CT dated 28.06.2017 granted exemptions for contributions up to ?7,500 per month per member. The AAR ruled that if the contribution exceeded ?7,500, the entire amount would be taxable, not just the excess. This ruling contradicted the earlier clarification by the GST Department, which stated that GST would apply only on the amount exceeding ?7,500.

2. Validity of Circular No.109/28/2019:
Petitioners in W.P.Nos.5518 and 1555 of 2020 and 30004 of 2019 challenged Circular No.109/28/2019, which followed the AAR’s interpretation. The circular clarified that if maintenance charges exceeded ?7,500 per month per member, GST would be payable on the entire amount, not just the excess. Petitioners argued that this interpretation was contrary to the language and intent of the exemption provision, which aimed to exempt contributions up to ?7,500 irrespective of the total contribution amount.

Judgment Analysis:

Interpretation of Exemption Provision:
The court examined the language of the exemption provision, emphasizing the phrase "up to an amount of ?7,500/-." It concluded that the exemption was intended for contributions up to ?7,500, and any amount exceeding this should only be taxable on the excess. The court found no ambiguity in the language of the exemption provision, thus the judgment of the Supreme Court in Dilip Kumar (361 ELT 577) regarding strict interpretation of ambiguous exemption provisions did not apply.

Comparison with Other Exemptions:
The court compared the language of the exemption in question with other exemptions under different indirect tax enactments. It noted that where the legislature intended to limit the exemption to a specific pecuniary limit, it explicitly stated so. For example, in Notification No.25/2012-Service Tax, the exemption applied only where the gross amount charged did not exceed ?5,000. The court found that the language used in the exemption for RWAs was clear and intended to exempt contributions up to ?7,500, with only the excess being taxable.

Conclusion:
The court concluded that the AAR's order and the impugned Circular were contrary to the express language of the exemption provision. It held that only contributions exceeding ?7,500 would be taxable under the GST Act, and the exemption up to ?7,500 would remain intact. Consequently, the AAR's order and the Circular were quashed.

Final Order:
The writ petitions were allowed, and it was clarified that only contributions to RWAs in excess of ?7,500 would be taxable under the GST Act. No costs were imposed, and connected miscellaneous petitions were closed.