GST on maintenance charges in housing society is valid: AAR

GST on maintenance charges in housing society is valid: AAR

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.

According to a government circular issued on July 22, 2019, a CHS has to levy GST (current rate is 18%) on the entire sum of maintenance charges if they exceed Rs 7,500 per month, per member. Smaller societies having an annual turnover of Rs 20 lakh or less do not have to register under GST. Thus, they do not have any GST obligation, irrespective of the quantum of maintenance charges.

Referring to the circular, the AAR said it makes clear the government’s intention to tax housing societies under GST laws. Advance rulings are binding on the applicant and have a persuasive value in other similar cases.

Experts on tax find fault with advance ruling on GST

The applicant can appeal against the AAR order.

Like any other housing society, the Nariman Point CHS had collected maintenance charges from its members for the current and future upkeep of the society and to pay various bills, including property taxes, common electricity charges, and water charges. To obtain clarity on its GST obligations and correctness of its GST computations, the society had sought an advance ruling.

This ruling has taken tax experts aback and has opened a Pandora’s box. Sunil Gabhawalla, an indirect tax expert, said, “The tenet set by various judicial decisions is that a CHS cannot be said to be providing any services to its members. As there is no ‘supply’ of services, the incidence of GST does not arise.”

GST authorities submitted to the AAR that the judicial decisions on which the applicant was relying related to income-tax matters. 

In this context, Yusuf Hakim, indirect tax partner at CNK & Associates, said, “It is an absurd argument to make that the principal of mutuality holds good only in the context of I-T laws. It should be noted that the GST law does not contain any specific provision which lays down that an association and its members are distinct persons.”

Both the indirect tax experts point out that the advance ruling is incorrect, especially in the light of the Supreme Court’s decision in the case of Calcutta Club, which was not considered by the AAR. Here, the principle of mutuality was upheld in the context of sales tax and service tax laws. 

The AAR, in its order, held that the term ‘supply’ under GST has very wide connotations. “The contention made by the applicant with regard to the principal of mutuality is not tenable under the GST regime,” it stated.