GST Update on Taxability of GST on Co-operative Society and Clubs 95/2020-21.

The determination of taxability on cooperative housing society is always a disputed point and there are many contradict verdicts by High Courts and rulings by AAR. We will discuss some of the cases and points on which disputes has arisen.
As per GST Act, if the turnover of housing society is above 20 lakhs, it needs totake registration under GST in terms of Section 22 of the CGST Act, 2017. However, taking registration does not mean that the housing society has to compulsorily charge GST in the monthly maintenance bills raised on its members. Notification No.12/2017 -Central Tax (Rate) dated 28.06.2017 at sr.no.77 provides for the following exemption to housing societies:
Service by an unincorporated body or a non- profit entity registered under any law for the time being in force, to its own members by way of reimbursement of charges or share of contribution –
(a) as a trade union;
(b) for the provision of carrying out any activity which is exempt from the levy of Goods and service Tax; or
(c) up to an amount of seven thousand five hundred rupees per month per member for sourcing of goods or services from a third person for the common use of its members in a housing society or a residential complex
In view of the provision contained at (c) above, a society may be registered under GST, however if the monthly contribution received from members is less than Rs.7500and the amount is for the purpose of sourcing of goods and services from a third person for the common use of its members), no GST is to be charged by the housing society on the monthly bill raised by the society. However, GST would be applicable if the monthly contribution exceeds Rs. 7500.
However, the Supreme Court pronounced a landmark judgment under service tax laws in case of State of West Benagl&Ors. Vs. Calcutta Club Limited [Civil appeal No. 4184 of 2009]. The decision was that clubs are not entitled to charge, collect and pay service tax on any services made to members. The rationale for the decision was that principle of mutuality applies on clubs and as such, club and its members are one and same person. To charge service tax, there should be two person i.e. one is service provider and other is service recipient. If the members and club are one and same person, there is no provision of service and hence service tax cannot be charged.
The Supreme Court followed its earlier decision on the same topic in the case of CTO versus Young Men’s Indian Association, (1970) 1 SCC 462. The necessity for the Supreme Court to rule on this matter arose because of the insertion of Clause (e) in Article 366 (29-A) in the Constitution of India through the 46th Amendment. This clause stated that tax on purchase or sale of goods includes a tax on the supply of goods by any unincorporated association or body of persons to a member for cash, deferred payment or another valuable consideration.
The Revenue Authorities alleged that the doctrine of mutuality was not applicable after the amendment to Article 366(29-A), wherein a deeming fiction was created, holding that the supply of goods by clubs to its members will be treated as a sale for the purpose of levy of sales tax. It further argued that the doctrine of mutuality, as applicable to sales tax, was not applicable to service tax, after the introduction of negative list (in 2012) came into force.
The Supreme Court analysed the term “body of person” in depth and held that according to principle of “ejusdem generis” will apply and the term “body of person” used indicates reference to incorporated body of person. Therefore, incorporated body of person will not be covered underArticle 366(29-A) of Constitution of India.The same language was used in Service tax for Post-2012 era, hence service tax was not applicable on the same.
Moreover, as per Schedule-II of CGST Act, “Supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration”shall be treated as Supply of Good.
But this entry only covers supply of goods and silent on supply of services. The amount collected by cooperative housing society isfor providing service to members. Hence, it will not be covered under above entry of schedule. Furthermore, the society is incorporated. Hence, principle of mutuality will apply on Cooperative Housing Society also. Therefore, there should not be levy of GST.
However, in a setback to a Nariman Point cooperative housing society (CHS), the GST-Authority for Advance Rulings, Maharashtra, has held that its activities towards its members was “taxable supply” under the GST Act. In other words, GST must be levied and collected on maintenance charges, if they exceed the threshold limits. The CHS had relied on the ‘principle of mutuality’ to argue that it did not ‘supply’ any service to its members.
But, Maharashtra Appellate Authority for Advance Rulings in the case of Rotary Club of Mumbai Queens Necklace held that it is not liable to pay any GST on admission fee and membership fee collected by it.
The applicant submittedthat entire subscription / membership amount collected by the appellant from its members is utilized solely towards expenditure in the meetings, communication and other administrative expenses like, printers, stationeries, etc. They have categorically submitted that they do not provide any facility or benefit to any of its members against the said subscription or membership fee. They further submitted that the object of the appellant-club is to promote peace, fight diseases, provide clean water, sanitation and hygiene, support education, etc. Further, they have also furnished financial statements pertaining to the year 2016-17 & 2017-18, which reveals that the entire amount of membership subscription and admission fee collected by the appellant is almost spent towards meetings and administrative expenses of the appellant.
Accordingly, the AAAR has come to the conclusion that the appellant rotary club is not providing any facilities or benefits to its members and hence not engaged in any business. Thus one of the essential requirements to constitute supply, i.e. having been made in the course or in furtherance of business is absent and hence the admission fee and subscription fee collected by the Rotary Club from its members is not consideration for any facilities or benefits provided by the former to the later and hence not liable to GST.
There has been divergent view of different AAR operating in different states. Now, there is feeling that Authority of Advance Ruling have pro-revenue approach as there is absence of judicial members in the same. Hence, it is advised to its clients by tax consultants that one should not approach Authority of Advance Ruling. Most of time, the authority unsettles the settled things. We have seen in this update also that they are unsettling the settled principle of mutuality by Apex Court of India in case of clubs and co-operative society.
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GST Update on Taxability of GST on Co-operative Society and Clubs 95/2020-21.

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