GST Applicable Only On Monthly Maintenance Amount Exceeding ₹7500 Collected By RWAs: Madras High Court

Overturning a 2019 circular issued by the Ministry of Finance, Department of Revenue (Tax Unit), the Madras High Court has held that the Goods and Services Tax (GST) applies not on the full amount but to monthly maintenance amount exceeding ₹7,500 only. It noted that any interpretation to the contrary would disentitle the Resident Welfare Association [RWA] to exemption, contrary to the express language used in the concerned entry.

The petition was filed challenging an order of the Authority for Advance Ruling (AAR) and subsequent circular by the Ministry of Finance, Department of Revenue (Tax Unit) levying tax on the entirety of the contribution made to an RWA. The impugned order lays down the exemptions from Central GST [CGST] on specified intra-state services. Entry 77 of the order grants exemption to contributions made to RWA upto an amount of Rs.7,500/- per month per member for sourcing of goods and services from a third person for common use.

The question before the Court is whether where the contribution exceeds Rs.7,500/-, the resident in that RWA would lose the entitlement to exemption altogether, resulting in the entire contribution to be liable to GST, or the exemption would continue to be available upto to a sum of Rs.7,500/- and only the difference will be taxed.

Background & Submissions

A clarification was issued by The Goods and Services Tax Department regarding the methodology to be adopted. It said that GST would be applicable only on the amount over Rs.7,500/-. The fliers cover all Co-operative Housing Societies, in essence, RWAs, Housing Societies or Societies in residential complexes. However, on seeking clarification from the Authority of Advance Ruling [AAR], it held to the contrary.

'The grant of exemption was conditional upon the contribution being an amount of Rs.7,500/- or less. If the contribution exceeded the sum of Rs.7,500/-, then the very entitlement of that six https://www.mhc.tn.gov.in/judis/ W.P. Nos.5518 & 1555 of 2020 and 27100 & 30004 of 2019 RWA to the exemption would stand defeated, and the entirety of the amount collected would have to be brought to tax.'

In pursuance, the Ministry of Finance, Department of Revenue issued a circular dated July 22, 2019. On point no. 5 of the circular, it was stated that,

"The exemption from GST on maintenance charges charged by an 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. For example, if the maintenance charges are Rs.9000/- per month per member, GST @ 18% shall be payable on the entire amount of Rs.9000/- and not on (Rs.9000- Rs.7500) = Rs.1500/."

The Petitioner argued that the interpretation resorted to in the Circular is contrary to the express language and the exemption granted. The petitioners illustrated the difference in language used and the meaning conveyed through various instances of the grant of exemption under different Indirect Tax enactments.

The Petitioner emphasized using the word 'upto' in Entry 77 while stating that the grant of exemption was for contribution upto Rs.7,500/- and this entitlement remained constant notwithstanding any change in the amount of contribution.

They further argued that under Article 13(3) of the Constitution of India, 'law' does not include circulars. Thus, the withdrawal of a statutory exemption by way of a circular is contrary to the provisions of the Constitution.

The Senior Standing Counsel, Mrs R. Hemlatha, appearing for the Revenue Department, argued that while a contribution of Rs.7,500/- or less would entitle the concerned assessee to exemption if the contribution exceeded Rs.7,500/-, there was an automatic disentitlement.

She stressed the provisions of Section 15 of the GST Act that the transaction value is liable to GST. The transaction value, in this case, is represented by the contribution made, and it should be taken into account in its entirety to levy a tax.

The Counsel argues that the exemption is intended for the middle class and not for luxury apartments/owners. By relying on Section 2 of the Tamil Nadu Additional Sales Tax Act, 1970 (TNAST), the Revenue Department states that where Legislature intended beneficial tax treatment by insisting upon a slab rate, such slab is usually indicated in the Statute itself.

Furthermore, in the instant case, there is no slab prescribed, but only a range that entitles the assessee to exemption. If there is any variation in that amount, it will lead to an automatic disentitlement. The Petitioner placed reliance on the judgment of the Constitutional Bench of the Supreme Court in the case of Commissioner of Customs Import, Mumbai V. Dilip Kumar & Company, wherein the Supreme Court dealing with the grant of exemption from duty under the Customs Act, 1962, held that,

"In the case of ambiguity in the 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. In this case, as well, she would say, the exemption provision must be construed strictly, and the petitioners are thus not entitled to seek beneficial treatment."

Findings

The Court held that there is no ambiguity in the language of the exemption provision in this case. Thus the judgment of the Supreme Court in Dilip Kumar, as relied on by the Revenue Department, would not apply to the facts and circumstances of this case.

The Court held that on a plain reading of the Entry and the intention is clear, to remove from the purview of taxation contribution upto an amount of Rs.7,500/ and no ambiguity is present.

"The intention of the Circular appears clear, that is, to grant exemption in regard to the receipts from services that answer to the description set out therein. The description of the services is also clear, that is, services to the members of an unincorporated body or non-profit by way of reimbursement of charges or share of contribution upto an amount of Rs.7,500/- in the sourcing of goods or services from a third person for the common use of its members", the Court held.

The Court compared the languages of various provisions granting exemption to conclude that there is a difference in language adopted by the revenue in the grant of exemptions. Where the intention is to grant limited exemption where the amount charged does not exceed a specified pecuniary limit, it states as much by the use of the phrase 'the exemption shall apply only where the gross amount charged for such service does not exceed Rs.5,000/- in a financial year.'

Similarly, it also studies the language employed in Entry 78 to note that,

"The intention is clear, to exempt only such consideration, which is below Rs.1.50 lakhs. If the consideration exceeds Rs.1.50 lakhs by even a rupee, the artist will stand elevated to the next slab, losing the benefit of exemption."

The Court notes that as Entry 77 & 78 are of the same Circular, thus the choice of words employed is a conscious one intended to have different applications.

It also relies on the settled proposition of law, reiterated in the Dilip Kumar Case, that an Exemption Notification must be interpreted strictly. Thus the Court held that using the words 'upto' in Entry 77 could thus only be interpreted to state that any contribution over the same would be liable to tax; it hardly needs to be defined and connotes an upper limit. It is interchangeable with the term 'till' and means that any amount till the ceiling of Rs.7,500/- would be exempt for GST, the Court added.

Title: Greenwood Owners Association & Ors v. Union of India & Ors

M/s.Meera Moganasundan, Ms.R. Vaishali, Mr.G.Nataarajan, for Petitioners

Mrs.R.Hemalatha for Respondent 

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