Interpretation of Exemption Limit of 7,500/- in case of RWA

Whether Resident Welfare Associations (RWA) should charge GST on Contributions above Rs.7,500/- or on the entire amount if Contribution exceeds Rs. 7,500/-?

The same is decided in the case of Greenwood Owners Association Vs Union of India in Madras High Court. Summary thereof is as follows:-

1. Whether the applicant is liable to pay CGST and SGST on the amount of contribution received from its members?

Answer- Yes, The applicant is liable to pay CGST and SGST on the amount of contribution received from its members as their activities of amounts to the taxable supply of service.

2. Whether it can avail the benefit of Notification No.12/2017 CTR dated 28-6-2017 (Sl. No. 77) read with Notification No.2/2018 CTR dated 25-1-2018 which provide for exempting from tax, the value of supply up to an amount of Rs. 7,500 per month per member?

Answer- Yes, vide of Notification No.12/2017 CTR dated 28-6-2017 (Sl. No. 77) read with Notification No.2/2018 CTR dated 25-1-2018 states Service by an unincorporated body or a non-profit entity registered under any law for the time being in force, to its own members by way of reimbursement of charges or share of contribution-

(a) as a trade union;

(b) for the provision of carrying out any activity which is exempt from the levy of Goods and Service tax; or

(c) up to an amount of Rs.7500/- per month per member for sourcing of goods or services from a third person for the common use of its members in a housing society or a residential complex.

3. How should the RWA calculate GST payable where the maintenance charges exceed Rs.7500/- per month per member? Is the GST payable only on the amount exceeding Rs.7500/- or on the entire amount of maintenance charges?

Answer- In the case of Dilip Kumar, the Supreme Court reiterates the settled proposition that an Exemption Notification must be interpreted strictly. The plain words employed in Entry 77 being, ‘upto’ an amount of Rs.7,500/- can only be interpreted to state that any contribution in excess of the same would be liable to tax.

Thus, only contributions to RWA in excess of Rs. 7,500/- that would be taxable under GST Act.

4. When ambiguity in the interpretation of a tax exemption provision or Notification in regard to its applicability qua entitlement or rate of tax exists, to whom would the burden of proving of interpretation?

 Answer- On the basis of  judgment of the Constitutional Bench of the Supreme Court in the case of Commissioner of Customs Import, Mumbai V. Dilip Kumar & Company (361 ELT 577), wherein the Supreme Court dealing with the grant of exemption from duty under the Customs Act, 1962, holding that, in the case of ambiguity in interpretation of a tax exemption provision or Notification in regard to its applicability qua entitlement or rate of tax exists, the interpretation should be strict and the burden of proving applicability would fall on the assessee.

DISCLAIMER: This publication is merely a general guide meant for knowledge purposes only. All the references or content are for educational purposes only and do not constitute a legal advice. We do not accept any liabilities whatsoever for any losses caused directly or indirectly by the use/reliance of any information or conclusion contained in this publication. Prior to acting upon this publication, you’re suggested to seek the advice. This work is entirely in the interest of profession and to contribute into my beloved subject of GST.