GST UPDATE ON TAXABILITY OF CHARGES COLLECTED BY HOUSING SOCIETY 158/2020-21

The determination of taxability on cooperative housing society is always a disputed point and there are many contradictory verdicts by AAR. This update seeks to discuss a recent ruling by AAAR Maharashtra in the case of M/S APSARA CO-OPERATIVE HOUSING SOCIETY LIMITED wherein the issue raised was whether the charges collected by the society amounts to supply and liable to GST and whether they are correctly discharging the GST liability for which illustrative invoices were being provided.
Appellant contended that the charges are not liable to GST in view of Supreme Court decision given in the case of Calcutta Club wherein it was held that services provided by incorporated clubs to its members is not liable to tax. The appellant contended that they are not carrying out any business in terms of section 2(17) of CGST Act, 2017, and hence their activities cannot be considered as “Supply”, as per under Section 7(1) of the CGST Act, 2017. 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. Reference has also been made to the decisions of Maharashtra Advance Ruling in the case of M/s Lions Club of Poona Kothurd and M/s Rotary Club of Mumbai Western Elite,wherein it was held thatif the society charges are meant towards meeting the administrative expenses of the society, the said society charges would not be construed as “consideration”. Accordingly, the society charges would not attract GST. The Appellant also referred the following Hon’ble High Court judgements to contend that the activities carried out by them would not amount to “Supply”, and hence the charges are not liable to GST:

Saturday Club Limited Vs. Asstt. Commissioner, Service Tax Cell, Calcutta & Ors. (2005) 180 ELT 437 (Cal HC).
Sports Club of Gujarat Limited Vs. Union of India (2010) 35 VST 375 (Gujarat HC).

The Department has argued that the Hon’ble Supreme Court in the case of State of West Bengal & Ors. Vs. Calcutta Club Limited, wherein pertains to sales tax regime and that time concept of the term “Supply” was not prevalent. Therefore, the Apex Court Judgement will not be applicable. Reference was made to the term “business” as provide under section 2(17) of CGST Act, 2017 and ‘supply’ under section 7 of the CGST Act which have wider connotation.
After considering the submissions, Maharashtra AAAR has observed that the activities carried out by appellant is to be considered as supply in terms of Section 7(1)(a) of the CGST Act, 2017, and the same would be liable for GST subject to the condition that the monthly subscription/contribution charged by the society from its members is more than Rs 7,500 per month per member and the annual aggregate turnover of the society by way of supplying of services and goods is also Rs 20 lakh or more. It was held that the definition of the term business and supply are very wide and cover all clubs, whether incorporated or not thereby nullifying the concept of mutuality as was prevalent in erstwhile regime. As regards the issue raised for correctness of GST liability discharged, the AAAR conceded with AAR that they can only comment on determination of tax liability but not on the methodology adopted for discharging tax liability. As the second issue was outside the purview of AAR, the same was not answered.

This decision seeks to distinguish the ratio laid down by various High Courts and the Apex Court in the erstwhile indirect taxation regime concluding that services provided by incorporated club to its members is not liable to tax as club and members are not to be treated as separate entities due to application of principle of mutuality. However, the said analogy seems to be fade in GST era as the definition of supply, service and business are wide enough to cover services provided by incorporated/unincorporated club to its members. Therefore, the clubs will definitely face hard time to apply the benefit of decisions rendered in erstwhile regime in the GST era. AAR rulings are not even following the ratio laid down by Apex Court and High Courts. Let us wait for another round of litigation till Apex court when the matter is finally decided.

This is solely for educational purpose.

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GST UPDATE ON TAXABILITY OF CHARGES COLLECTED BY HOUSING SOCIETY 158/2020-21

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