Order on GST computation for RWA contributions stayed

Shishir Sinha New Delhi | Updated on September 14, 2021

Division Bench says the CBIC circular on the subject has ‘wider ramifications’

A division bench of Madras High Court stayed quashing of a Central Board of Indirect Taxes and Customs (CBIC) circular prescribing GST on the entire contribution to Resident Welfare Association (RWA), if the amount exceeds ₹7,500.

A division bench of Justices TS Sivagnanam and Sathi Kumar Sukumara Kurup stayed the quashing of the CBIC order till further order as “the circular has wider ramification.”

On July 1, a single Judge bench of Justice Anita Sumanth had ruled that the conclusion of the Tamil Nadu Authority for Advance Ruling (AAR) as well as the circular to the effect that any contribution above ₹7,500 would disentitle the RWA of 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,” she had said.

The Tax Department had appealed against the ruling. Appearing for the department, Advocate R Hemalatha raised four propositions of the law. She said that as per the law, it is the transaction value that is subjected to GST and transaction value would be the entire amount contributed towards maintenance charges. The transaction value cannot be bifurcated. Since no exemption is granted when the amount exceeds ₹7,500, the entire transaction value would be subjected to tax.

“The word ‘upto’ can be interpreted in both ways. It could either mean exemption is granted only when the transaction value is less than ₹7,500 or exemption is granted only for ₹7,500 when the transaction value is more than ₹7,500,” she argued while highlighting that exemption under GST is adoption of service tax regime.

She also said the exemption is intended for middle class and not for the owners of luxury apartments. The legislative intention could be seen in the Budget speech 2012-13 where the exemption for the monthly charges payable by a member to housing society was raised from ₹3,000 to ₹5,000. While discussing about Affordable Housing Scheme, it was said that the said proposal is to make the life of those who own an apartment a little easier. Therefore, “no exemption is applicable when the monthly contribution exceeds ₹7500,” she emphasised.

Appeal accepted

After hearing the arguments, the bench opined that the legal issue has to be decided in the matter and accordingly, it accepted the appeal.

It may be noted that Tamil Nadu AAR, in its order in June 21, 2019, had stated that grant of exemption was conditional upon the contribution being an amount of ₹7,500 or less. “If the contribution exceeded the sum of ₹7,500, the very entitlement of that RWA to exemption would stand defeated and the entirety of the amount collected would have to be brought to tax,” it said.

Following this, a Finance Ministry circular, dated July 22, 2019, explained that the exemption from GST on maintenance charges charged by a RWA from residents is available only if such charges do not exceed ₹7,500 per month per member. “In case the charges exceed ₹7,500 per month per member, the entire amount is taxable. For example, if the maintenance charges are ₹9,000 per month per member, GST at 18 per cent shall be payable on the entire amount of ₹9,000 and not on (₹9,000 - ₹7,500) ₹1,500,” it explained.

Published on September 14, 2021

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