Brief summary of the case
Court: IN THE HIGH COURT OF JUDICATURE AT MADRAS
Number: W.P. Nos.5518 & 1555 of 2020
Petitioner: Greenwood owners associations
Respondent: Union of India
Date of desision: 01.07.2021
Judge: Honourable Mr.thilak K Nath
- All petitioners are resident at Resident Welfare Associations (RWA) in apartment complexes.
- The petitioner was a housing society whose main objects were managing, maintaining and administering its property; raising funds for achieving the said objects etc., by way of collecting contributions/charges from members of the society, like Property taxes, Maintenance charges, Water and electricity charges etc.
- It has challenged an order of the Authority for Advance Ruling (AAR) levying tax on the entirety of the contribution per month more than Rs. 7500/- by him to an RWA.
The Authority for Advance Ruling (AAR)
- The applicant society and its members are distinct persons.
- The various charges received by the applicant from its members are nothing but consideration received for supply of goods/services as a separate entity.
- The exemption as per the entry No. 77 of the Notification No. 12/2017 CT (R) would be available only when a member’s contribution per month is up to an amount of Rs. 7,500/-.
- A member, who shall contribute an amount which is more than Rs. 7,500, would not be eligible for the exemption under entry No. 77 and the entire contribution amount would be liable to be taxed.
- The charges collected by society on account of property tax, electricity charges and other statutory levies would be excluded while calculating the exemption limit of Rs. 7,500/- since RWAs are acting as pure agent.
- Point No.5 of the Circular No.109/28/2019, dated 22.07.2019 (The exemption from GST on maintenance charges charged by a RWA from residents is available only if such charges do not exceed Rs.7500/- per month per member. In case the charges exceed Rs.7500/- per month per member, the entire amount is taxable.)
- The above provision is being ultra-vires and contrary to the provisions of S.No.77 of Notification 12/2017 Central Tax (Rate) dated 28.06.2017 since it prescribes an exemption of upto Rs. 7500 and therefore only differential will be taxed.
- Article 13(3) of the Constitution of India, as per which ‘law’ would include any Ordinance or Bye law, Rule, Regulation, Notification, custom or usage, excluding Circulars. Thus, the withdrawal of a statutory exemption by way of a Circular is contrary to the provisions of the Constitution.
- In the early years of GST, The Goods and Services Tax Department issued a clarification in the case of Co-operative Housing Societies, wherein they categorically stated that GST would be applicable only on the amount in excess of Rs.7,500/-.
- Circular No.109/28/2019-GST and its clarification would make impossible for the Associations to collect the shortfall as there would have been several changes in ownership of the property, in the interim.
- The provisions of Section 15 of the GST Act, as per which, it is the transaction value that is liable to GST. The transaction value in this case is represented by the contribution made and it should, in entirety, be taken into account for the purpose of levying tax.
- The exemption is intended for the middle class and not for luxury apartments/their owners.
- There is no slab prescribed, but only a range which entitles the assessee to exemption. Any variation in that amount thus leads to automatic disentitlement.
4. Respondent relies on the judgment of the Constitutional Bench of the Supreme Court in the case of Commissioner of Customs Import, Mumbai V. Dilip Kumar & Company, (361 ELT 577), the Supreme Court dealing with the grant of exemption from duty under the Customs Act, 1962, holding that, in the case of ambiguity in interpretation of a tax exemption provision or Notification in regard to its applicability qua entitlement or rate of tax to be applied, the interpretation should be strict and the burden of proving applicability would fall on the assessee.
- That there is no ambiguity in the language of the exemption provision in this case.
- 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 Rs.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 upperlimit. It is interchangeable with the term ‘till’ and means that any amount till the ceiling of Rs.7,500/- would exempt for the purposes of GST.
- The clarification by the GST Department even as early as in 2017 has taken the correct view.
- The AAR as well as the Circular to the effect that any contribution above Rs.7,500/- would disentitle the RWA to exemption, is contrary to the express language of the Entry in question and both stand quashed.
- The contributions to RWA in excess of Rs.7,500/- that would be taxable under GST Act, mean required to pay GST only on the differential amount collected from the member where the charges exceed Rs. 7,500/-.
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