GST UPDATE ON DETERMINING WHETHER THE ACTIVITIES OF HOUSING SOCIETY ARE ?SUPPLY? OR NOT 89/2020-21

GST UPDATE ON DETERMINING WHETHER THE ACTIVITIES OF HOUSING SOCIETY ARE

“Principle of Mutuality” this term has been a very familiar in the Professional world of CA’s as the applicability of this principle to clubs or associations has always been a matter of discussion be it in Direct taxation or be it pre GST regime. So as we have entered the new indirect taxation system of GST similar questions are being arose even now. In this update we shall discuss a recent ruling by AAR Maharashtra in the case of M/s Apsara Co-operative Housing Society limited who has sought ruling with respect to the following questions
1.     Whether the activities carried out by the applicant for its members qualify as ‘Supply’ under the definition of Section 7 of the CGST Act 2017.
2.     If the activities of the applicant are treated as “Supply” under CGST Act 2017then whether the applicant has correctly discharged the GST as per the illustrative copy of the invoice generated by the applicant?
M/s Apsara Co-operative Housing Society Limited is registered under the Maharashtra state Co-operative Scieties Act, 1960. The main objective of the society is obtaining conveyance from the promoter (Builder), managing, maintaining and administering the property of the society, raising fund for achieving the objects of the society, undertaking and providing any social, cultural or recreation activities etc. for its members.
The applicant contends that in order to qualify as ‘Supply’ it shall satisfy two conditions.
1.     In Furtherance of business.
2.     For a consideration
Discussing the definition of business, they state that they do not provide any facilities or benefits to the members and only manage the housing society. And so concluded that it is not ‘in furtherance of business’. Further it was contended that society charges levied on the members is merely a contribution towards the collective maintenance and upkeep of the Society and cannot be considered as ‘consideration’ defined in Section 2(31) of the CGST Act, 2017 as no profit is being derived from these contributions. Moving forward reference has been made to the decisions of Hon'ble Calcutta High Court in the case of Saturday Club Ltd. Vs. Assistant Commissioner, Service Tax Cell, Calcutta & Ors. (2005) 180 ELT 437 (Cal HC) and Hon’ble Gujarat High court in the case of Sports Club of Gujarat Ltd. Vs. Union of India (2010) 35 VST 375 (Guj HC) stating that the applicant society and its members are one and the same and so they cannot be said to be doing ‘business’.

In reply to the above contentions the jurisdictional officer submitted that as per Section 2(84) of CGST Act quoting the definition of “person” specifies that in the present case there are two distinct persons, one being the applicant society and the other being its members. They cannot be said to be the same as the citations presented by the applicant belong to Income tax matters and are of no importance in the GST regime. Moreover, since the GST Law has a very wide Connotation for services they cover any activity other than those involving goods, money and securities so the membership fees collected will be treated as consideration paid for supply of services. Since both the conditions are satisfied it shall be treated as ‘Supply’.

Hearing both the sides, Authority for advance ruling has ruled that the activities carried on by the applicant fall under the definition of ‘Supply’. This has been derived upon on the basis of the following reasons.
a.     The term "Supply", defined under Section 7 of the CGST Act, 2017 is an inclusive definition and not an exhaustive one and therefore it has very wide connotations. Therefore, the activities of Applicant in as much as they are obtaining conveyance from the promoter (Builder), managing, maintaining and administering the property of the society, raising fund for achieving the objects of the society, undertaking and providing any social, cultural or recreation activities can clearly be considered as rendering of "supply" of service being provided to its members.
b.     The word "person” mentioned in Section 7 (1) (a) specifically includes a co-operative society registered under any law relating to co-operative societies'. Thus a registered co-operative society is a person within the meaning of the term in the CGST Act. Agreeing with the jurisdictional officer that there are two distinct persons, one the Applicant Society and another, the member thereof.
c.      Coming to the point of deciding whether the amount collected is to be considered as “consideration” or not, the authority has construed that membership fees collected is also meant for meeting expenses for activities undertaken to achieve the various objects of the society. Thus, membership fee collected by Applicant from its members will be treated as "consideration" paid for supply of services.
d.     With regard to applicability of principle of mutuality, AAR held that this is not tenable with respect to taxability in GST regime.
e.     Further applicant has presented reliance on a few judgements, against which the AAR said that Income tax matters shall not be applicable to the present case. Moreover, the above two cases which have been mentioned above relating to Service tax cannot be relied upon as belong to period prior to 2012.

Coming to the next question put forward before the authorities, it was said that such question is outside the scope of AAR as it does not fall under Section 97(2) and cannot be answered.

There is a matter to ponder upon on how come the landmark judgements of the pre GST regime cannot of importance. Even the Apex Court has held that club and its members are one and same person. We have also prepared a update on the same issue and even discussed the applicability of this principle in GST era also. The same is reproduced for the benefit of our netizens:-
“It is also worth noting that according to amendment made in section 7 of the CGST Act, a new sub-section (1A) has been inserted wherein certain activities or transactions which constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II. This has the effect that the transactions which are specified in Schedule II shall be treated as supply only if they are made by a person in course or furtherance of business for consideration. We submit that the definition of business includes clubs and so on harmonious reading of the entry 7 of Schedule II, it can be concluded that supply of goods by unincorporated association or body of persons to member for cash is liable to GST. However, it is also to be noted that there is no similar entry for supply of services. Moreover, now the question arises is that whether the interpretation of the term “body of persons” as taken by Supreme Court can be made applicable in GST or not? Well, in our opinion, the analogy of Supreme Court decision can be applied in GST regime too as the explicit mention of “unincorporated association or body of persons” indicates levy of GST only on unincorporated body of persons. Hence, we may say that the purport of the legislation under erstwhile indirect taxation regime is being carried forward in the GST regime also. However, doubt may be created as regards the relevance of doctrine of mutuality as definition of business expressly includes membership fees charged by every kind of club or association whether incorporated or not. Nonetheless, it appears that the litigation baggage of erstwhile indirect taxation regime will continued in the GST era also after pronouncement of decision by the Supreme Court of India.”

Thus, this controversy was also addressed by AAR also in the same fashion as we have told by relying on the definition of “business” given in GST also. But they have played safe and did not give any decision by taking shelter of Section 97(2) and told that it does not come in the purview of GST council. Even the High Court has also decided that AAR can give decisions even on place of supply as they have to decide the classification of goods or services. Following the same analogy, AAR should have decided this point also. But when the Apex Court decision is also there on the very point then it is safe to avoid it rather than giving a pro-revenue decision.

This is solely for educational purpose.
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