Debate over GST on monthly contribution to Resident Welfare Association is yet to settle even as Maharashtra AAR has held that entire payment of an amount over ₹7,500 towards the cause will be subject to GST.

This ruling has come at a time when a division bench of Madras High Court has to hear the similar matter on December 9. Earlier a single judge bench of Madras High Court ruled that only amount in excess of ₹7,500 will be taxed. However, division bench stayed this decision.

“We hold that a member contributes an amount which is more than ₹7,500 will not be eligible for the exemption under entry number 77 and the entire contribution amount is liable to be taxed, contribution may be whatever name called,” AAR said while disposing the application by Mumbai based co-operative housing society (CHS) Mahindra Splendour. It may be noted that though AAR rulings are applicable only on applicant and jurisdictional tax officer, but can be referred in similar matters all over the country. Also, tax department uses many such rulings for notification or circular for entire sector.

Also read: Grants, non-philanthropic donations received by charitable trusts to attract 18% GST: AAR

AAR says as per entry 77 of notification (12/2017) is available only when a member’s contribution per month is up to an amount of ₹7,500. Once the contribution exceeds ₹7,500, entire amount will be taxed. It relied upon a ruling by the Supreme Court’s Constitution Bench of five judges in the case of Commissioner of Customs (Import), Mumbai Vs Dilip Kumar & Company and others. The bench had said, “The benefit of ambiguity in exemption notification cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue/State.”

AAR noted that a single judge bench of Madras High Court quashed CBIC circular talking about taxability of entire amount. Since “a Division Bench has issued stay order to the said ruling. And, therefore, in our view, the matter has yet not been settled,” AAR said while ruling entire amount to be taxed in case monthly contribution exceeds ₹7,500.

It may be recalled 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 Rs 9,000 and not on (₹9,000 – ₹7,500) ₹1,500,” it explained. Since the issuance of circular, it has been facing judicial scrutiny.

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