GST UPDATE No. 91st ON ITC ADMISSIBILITY TO RWA HAVING COMMERCIAL SHOPS

The issue regarding taxability of contribution received by Resident Welfare Association (RWA) from its members as well as admissibility of ITC has always been a matter of dispute. Recently, the Hon’ble Madras High Court in the case of “M/S TVH LUMBINI SQUARE OWNERS ASSOCIATION, CHENNAI”, question was raised regarding taxability limit of the amount contributed by members to RWA. AAR held that in case contribution exceeds rs.7500/- per member per month then entire amount will be taxable. Moreover, circular no. 19/28/2019 has also clarified that GST will be payable only on amount exceeding Rs. 7500/- per member per month. However, a unique issue was raised before the Maharashtra AAR in the case of M/S VISHAL COOPERATIVE HOUSING SOCIETY LTD. wherein it was asked as to whether the society can surrender the GST registration as the contribution received by them is less than Rs. 7,500/- but there arecommercial shops also along with residential flats. Furthermore, question was also raised regarding the admissibility of input tax credit. The outcome of this decision is the subject matter of discussion of our present update. The AAR held that according to the circular no. 109/28/2019 GST dated 22.07.2019, RWA shall be required to pay GST on monthly subscription contribution charged from its members only if such subscription is more than Rs. 7,500/- per month per member and aggregate annual turnover of RWA by way of supplying goods and services is also Rs. 20 Lakhs or more. In the present case, though annual turnover is more than Rs. 20 Lakhs, monthly maintenance per month per member is less than Rs. 7,500/- but society has commercial shops along with residential flats and garages. The AAR held that since the question as to whether applicant is required to surrender their registration is not covered by the scope of advance ruling under section 97 of the CGST Act, 2017, the same is not answered. As regards admissibility of input tax credit on various works contract services availed by them is concerned, it was held that credit will not be available to the extent of capitalisation as mentioned in explanation to section 17(5) of the CGST Act, 2017. AAR also concluded that with respect to admissibility of input tax credit on various services such as professional fees, bank charges, insurance premium, stationery items, security services etc. the applicant is eligible for availing proportionate input tax credit in proportion to commercial flats because GST is exempted on the contribution below Rs. 7,500/- pertaining to residential flats. The above decision seeks to highlight that the provision contained in section 17(2) of the CGST Act, 2017 read with Rule 42 of the CGST Rules, 2017 pertaining to proportionate reversal will be applicable in case of projects where RWA is being set up for collecting contributions with respect to residential flats and commercial shops. However, the AAR does not clarify on the mechanism and computation aspect of such proportionate input tax credit. It is also worth mentioning that usually there are separate RWA for residential flats and commercial shops. Consequently, the common input tax credit will have to be apportioned in the ratio of commercial shops by considering the contribution received for residential flats as exempt. To illustrate- if the common credit is Rs. 10,00,000/- and the total contribution of RWA from residential flats is Rs. 25,00,000/- whereas the total contribution of RWA from commercial shops is Rs. 30,00,000/-; the computation of input tax credit admissible with respect to commercial shops would be = 10,00,000*30,00,000/55,00,000 being Rs. 5,45,455/-. Hence, the assessee will have to avail common credit to the extent of Rs. 5,45,455/- out of the total credit of Rs. 10,00,000/-. This would be definitely be a cumbersome task for the assessee and would add to the burden of compliance.

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GST UPDATE No. 91st ON ITC ADMISSIBILITY TO RWA HAVING COMMERCIAL SHOPS

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