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Pay GST on full sum if society maintenance over Rs 7,500 a month
Dec 08, 2021
In a comprehensive ruling, the GST Authority for Advance Ruling (GST-AAR), Maharashtra bench, has addressed a host of issues, typically faced by co-operative housing societies. In response to questions raised by Bhandup-based, Mahindra Splendour Co-operative Housing Society (CHS), the GST-AAR bench stated that if monthly charges collected from members (flat owners) exceeds Rs. 7,500 per month, goods and services tax (GST) will be levied and collected on the entire sum and not on the differential value which is in excess of this threshold. To illustrate, if maintenance charges are Rs 9,000 per month, GST will be applicable on this amount and not the differential of Rs 1,500. The AAR bench pointed out that the GST authorities have challenged a decision of the Madras High Court that upheld applicability of GST on the differential sum. A larger bench has issued a stay order and the matter is not yet settled. The AAR added that charges collected by the CHS on account of property tax, electricity charges and other statutory levies that form part of monthly maintenance bills would be excluded while calculating the threshold limit of Rs 7,500 per month. Rulings given by the AAR have a persuasive value and are taken into cognisance by authorities during assessments. However, it should be noted that smaller CHS’ with an annual turnover of Rs 20 lakh or less do not have to register and consequently do not have to comply with GST obligations. Mahindra Splendour CHS submitted to the AAR bench that the basic objective of collecting amounts towards sinking fund, building repair fund, education and election fund is to meet future or unplanned major expenditure. Such contributions are in the nature of a ‘deposit’ and are used for the specific purpose as prescribed in by-laws. Thus, GST should not apply at the time of collection. The AAR bench pointed out that amounts towards sinking and repair funds are collected as per percentage fixed in the CHS’s by-laws and in accordance with circulars issued by the Registrar of Co-operatives. If a sum is a deposit, it can be refunded. However, such funds are not refundable to members. Thus, GST would be triggered on collection and not in the future when it is utilised (say, for painting the building). Likewise, it held that education and election funds are also not a deposit and GST applies at the time of collection. This CHS was suppling water received from the Mumbai municipal corporation through an elaborate storage and pumping system. Further, it had a sewage treatment plant which supplied recycled water to all flats for use in toilet flushing. The AAR bench held that the notification 2/2017 which provides for a nil GST rate pertains to goods supplied and not services supplied. Mahindra Splendour is providing a ‘service of supplying water’ –members are not charged based on the quantity of water supplied. Thus, the notification is not applicable and water supply charges are subject to GST. In the absence of specific details, the AAR bench did not give a categorical reply. However, it pointed out that major repairs involving large expenditure extend the useful life of an equipment – for eg: replacement of a motor in a lift. In accounting, such major repairs are capitalised as assets and depreciation (write-off) over a period of time is available. Input tax credit will not be available against expenses that are capitalised, it explained.