The Madras High Court has quashed a Finance Ministry circular prescribing Goods and Services Tax (GST) on the entire monthly contribution to Resident Welfare Association (RWA), if it is more than ₹7,500.
“The conclusion of the AAR (Authority for Advance Ruling) 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,” a single-judge bench of Justice Anita Sumanth said in a recent ruling.
The matter involved petitions filed by three RWAs in apartment complexes (Greenwood Owners Association, Oceanic Owners Association and TVH Lumbini Square Owners Association) located in different parts of Chennai and one individual (Sanjay Gupta).
Two issues were challenged – an order of the AAR levying tax on the entirety of the contribution to RWA and a circular dated July 22, 2018, and issued by the Finance Ministry amending the methodology to levy GST on contribution to RWA.
Grant of exemption
AAR, in its order in June 21, 2019, 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 @ 18 per cent shall be payable on the entire amount of ₹9,000 and not on (₹9,000 - ₹7,500) ₹1,500,” it said.
Representing TVH Lumbini Square Owners Association, G Natarajan, Advocate, argued that at the time of introduction of GST, the CBIC issued a flyer clarifying that GST is payable only on the amount in excess, but later they changed track and issued a circular to the contrary. Wherever the intention was to deny the exemption if the consideration exceeds a fixed sum, it was specifically provided like in the case of performing artists, where GST is exempted only if their charges for performance are less than ₹1.5 lakh, whereas in case of RWA, the exemption was up to ₹7,500, it was argued.
After hearings, the bench observed that tax slab means income up to that level and above that will 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 bench said while disposing of the matter.