2022 (6) TMI 191 - AAR - GST

Scope of supply - charges received by the applicant towards upkeep and maintenance from its members - covered under Sec 7 of the CGST Act or not - taxability of receipt of a gratuitous payment from an outgoing member for the time he has resided in the society - no corresponding service being provided separately by the tax payer society - taxability of major repairs to be made in the future for the co-operative housing society, for which amounts are collected - whether the same is taxable at the time of its collection or whether the same would be taxable on utilization of such funds? Whether the charges received by the applicant towards upkeep and maintenance from its members are covered under Sec 7 of the CGST Act? - HELD THAT - This question raised in the application was withdrawn by the applicant during the course of the Preliminary Hearing. Whether the receipt of a gratuitous payment from an outgoing member for the time he has resided in the society be taxable under the CGST Act, 2017 as there is no corresponding service being provided separately by the tax payer society? - whether the applicant society can legally collect the so called gratuitous and voluntary donation from a transferor of a flat in the society? - HELD THAT - n the instant case, the contributions are received from the outgoing members who have been members of the society in the past and, have received services from the society as envisaged under the GST Act. Thus, it can be said that, Payment from an outgoing member to a society is a payment made for the services rendered by society to the outgoing member during his stay as a member in society. As outgoing member is satisfied with the quality of services received by him and provided by society during his stay as a member in society. Hence, it is a consideration received to the society against satisfaction of the said member on supply of services received from the society. This is akin to the service charges levied by restaurants on which GST is collected - the contributions are made by the outgoing members only because they have been a part of the said society. It is not that an outsider has given any contribution to the applicant society. The receipt of contribution by the applicant from its members whether outgoing or not, is only because of the fact that the members are or have been a part of the society. If the applicant society had received contributions from outsiders to the effect that the same was a donation then probably on case to case basis it could have been treated differently. The Applicant Society cannot take Voluntary Contributions at all from an outgoing member (transferor of a flat) in view of Bye laws No. 7 (e) and 38 (e) (ix) of the Model Bye laws for Cooperative Housing Societies in Maharashtra. It appears that the applicant is trying to give a colour of 'voluntary and gratuitous' payment for amount received from a Transferor/Outgoing member which is collected and will be used for carrying out Major Repairs in future as is seen from the Affidavit submitted by Shri Chandresh Thakker, Treasurer of the Applicant Society - Activities rendered by the applicant Society to its members are supply of services in view of the amended Section 7 of the CGST Act, 2017 and contributions/charges collected by the Applicant Society from its members are chargeable to tax under the GST Laws. Thus, it appears that each and every outgoing member makes a gratuitous payment to the applicant in gratitude thus leading to a conclusion that all sellers/Transferor of flat in the society, without a single exception are in gratitude towards the Applicant Society. Thus, it appears that the applicant society has laid down norms albeit orally it seems, that there is a compulsion for an outgoing member to show gratitude to the Applicant Society by way of making gratuitous/voluntary payments to the Society - the amounts are collected for smooth transfer of the flat from the Transferor to the Transferee. Thus, 'consideration' includes -any payment made (in the subject case payment is made by the Transferor which is termed as voluntary contribution by the applicant) in money and since the payment is made towards Major Repair Funds of the Society, it is clear that the said payment is for the inducement of, the supply of goods or services or both, either by the recipient if he continues to be a member, or by any other person (meaning, other members) - Thus though the collection of charges of society might be illegal under some other law, but since it is covered by the scope of supply and other ingredients of GST levy, it is taxable. There are no hesitation in holding that the receipt of gratuitous payment from an outgoing member is taxable under the CGST Act, 2017. Whether major repairs to be made in the future for the co-operative housing society, for which amounts are collected, be taxable at all as it is for the members only? And if taxable, whether the same is taxable at the time of its collection or whether the same would be taxable on utilization of such funds? - HELD THAT - This question raised in the application was withdrawn by the applicant during the course of the Final Hearing and therefore, both the questions are not taken up for discussion.

Summary

Issues Involved:
1. Taxability of charges received towards upkeep and maintenance from members.
2. Taxability of gratuitous payments received from outgoing members.
3. Taxability of amounts collected for future major repairs.

Issue-Wise Detailed Analysis:

1. Taxability of Charges for Upkeep and Maintenance:
This issue was withdrawn by the applicant during the preliminary hearing and thus was not addressed in the final judgment.

2. Taxability of Gratuitous Payments from Outgoing Members:
The applicant argued that gratuitous payments made by outgoing members are voluntary and not in lieu of any service provided by the society, thus not taxable under the CGST Act, 2017. The applicant cited various legal precedents and provisions to support their stance that such payments are gifts and not considerations for services.

The concerned officer contended that the term “service” under the CGST Act, 2017, has a broad definition, encompassing activities undertaken by the applicant. Payments made by outgoing members are considered as gratitude for services rendered by the society during their membership and therefore qualify as consideration for services, making them taxable.

The judgment referred to the Model Bye Laws of Cooperative Housing Societies in Maharashtra, particularly Bye Law No. 38, which prohibits societies from collecting additional amounts as donations or contributions from transferors or transferees. The court observed that the payments termed as voluntary contributions were actually for services received and future services (such as major repairs), thereby constituting consideration under Section 2(31) of the CGST Act, 2017.

The court also noted that the society enjoys a dominant position during the transfer of flats, often resulting in demands for payments under the guise of voluntary donations. The court concluded that these payments are taxable under GST as they are made in response to services rendered by the society.

3. Taxability of Amounts Collected for Future Major Repairs:
This issue was also withdrawn by the applicant during the final hearing and was not addressed in the judgment.

Final Order:
1. The question regarding the taxability of charges for upkeep and maintenance was not answered as it was withdrawn by the applicant.
2. The receipt of gratuitous payments from outgoing members was affirmed to be taxable under the CGST Act, 2017.
3. The question regarding the taxability of amounts collected for future major repairs was not answered as it was withdrawn by the applicant.