Madras HC quashes AAR ruling: Resident welfare association not to pay GST on the total value

The Madras High Court (HC) has recently quashed a ruling passed by the Tamil Nadu Authority of Advance Rulings (AAR). As per the order given in TVH Lumbini Square Owners Association, Purasawalkam, housing societies may pay GST only on the maintenance charges collected, which is more than Rs.7,500 per person per month and not on the entire amount.

With this judgement, the ruling earlier passed by the TN AAR is set aside. The advance ruling and the fifth point in the CBIC CGST circular 109/2019 dated 22nd July 2019 stands repealed. GST is charged at 18% on the monthly contribution or subscription collected by any resident welfare association from its members, subject to an upper limit. Such charges are collected towards the provision of goods and services for common use in the housing society or the residential complex.

The original CGST notification for exemption of services was made vide the CGST (Rate) notification number 12/2017 on 28th June 2017 and later amended vide the CGST (Rate) notification number 02/2018 dated 25th January 2018. With the amendment, the upper limit for exemption was fixed at Rs.7,500 per month per resident from 25th January 2018 onwards instead of the earlier limit of Rs.5,000.

In June 2019, Tamil Nadu AAR passed a ruling for the TVH Lumbini Square Owners Association. As per the ruling, the TN AAR took a stand that the original and amended notifications mention give an exemption on an exact basis of the amount of contribution. The service either falls within the scope when the amount is less than Rs.7,500 (then Rs.5,000), or it does not get covered for exemption if it exceeds that limit.

In other words, it maintained that if the total monthly contribution per member or resident is more than Rs.7,500, then the whole amount gets charged under GST. Backing the AAR’s ruling, the CBIC also issued the circular clarifying that GST must be levied on the entire contribution and not over Rs.7,500.

Aggrieved by the ruling, the TVH Lumbini Square Owners Association approached the HC in late 2019. The court requested the Centre’s answer on the matter. Until further instructions, it also authorised the petitioner to pay GST only on the contribution collected over and above the sum of Rs.7,500. Therefore, it had issued a stay order on the matter.

A few days ago, the HC ruled that the amount considered a base for the GST levy shall be the differential amount over Rs.7,500 and not the entire collection. One must wait and see how the Finance Ministry would take this matter forward with the Apex court.

For any clarifications/feedback on the topic, please contact the writer at annapoorna.m@cleartax.in