Contributions to RWA in excess of Rs.7,500/- would be taxable under GST Act: Madras HC

Greenwood Owners Association V/S Union of India(Madras High Court); W.P. Nos.5518 & 1555 of 2020 and 27100 & 30004 of 2019; 01.07.2021

Issue

Before the High Court of Madras petitioner challenged an order of the Authority for Advance Ruling (AAR) levying tax on the entirety of the contribution by him to a RWA and the petitioners in W.P.Nos.5518 and 1555 of 2020 and 30004 of 2019 challenge Circular No.109/28/2019 dated 22.07.2019, also on the same issue.

Whether the contribution exceeded the amount of Rs.7,500/-, the resident in that RWA would lose the entitlement to exemption altogether, as a result that the entire contribution would be liable to GST or whether the exemption would still continue to be available up to a sum of Rs.7,500/- and only the difference becoming liable to tax

Facts

• 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/-. The fliers cover all Co-operative Housing Societies, in essence, RWAs, Housing Societies or Societies in residential complexes. Thus, and since this clarification had been issued, this was the methodology that was followed by all RWAs consistently in the collection of contributions and levy of GST thereupon.
• While this is so and this method was being followed from 2017 till 2019, one of the petitioners, ie.,. W.P.No.27100 of 2019 approached the AAR seeking clarification in regard to this issue. The AAR, by impugned order dated 21.06.2019, held adverse to it stating that 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 RWA to exemption would stand defeated and the entirety of the amount collected would have to be brought to tax.
• Petitioner emphasis on the use of the phrase ‘up to’ in the relevant Entry stating that the grant of exemption was for contribution up to Rs.7,500/- and this entitlement remained constant notwithstanding any change in the amount of contribution.

Observations

Appellant: Emphasized on 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 through Circular is contrary to the provisions of the Constitution.

Respondent: stressed on 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. She points out that the exemption is intended for the middle class and not for luxury apartments/their owners.

Also submitted that while a contribution of Rs.7,500/- or less would entitle the concerned assessee to the grant of exemption, if the contribution exceeded Rs.7,500/-, there was an automatic disentitlement.

Judgement

High Court of Madras held that the term ‘up to’ hardly needs to be defined and indicate an upper limit. 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.

Concerning the Argument related to slab rate, a slab is a measure of determining tax liability. The prescription of a slab connotes that income up to that slab would stand outside the purview of tax on eligible to a lower rate of tax and income above that slab would 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.

Contributions to RWA in excess of Rs.7,500/- would be taxable under GST Act.

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