An entity or a person registered under the Societies Registration Act, 1860 or under Co-operative Societies Law or under any relevant law whether liable under the Goods & Services Tax law implemented from 1st July 2017 is an issue to be discussed and debated. The States levy SGST on the supply of goods and/or services and concurrently the Central Government levies CGST on intra-state (local/within the State) supplies. On inter-state supplies of goods and services, IGST is levied which is the sum total of SGST and CGST. The GST law and provisions are common throughout India, though CGST law is enacted by the Central Government and SGST laws are enacted separately by all the States and Union Territories. So in this article we are generally referring to the provisions under CGST Act.
The charging provisions of Section 9 of the CGST Act provide that GST shall be levied on intra-state supplies of goods and/or services subject to the provisions thereunder and in the manner as prescribed. Such tax shall be paid by the ‘taxableperson1’ who is liable to be registered or who is registered under GST law.
The definition of the term ‘person2’ includes an Association of Persons (AOP) or Body of Individuals (BOI), whether incorporated or not, in India or outside India, a Co-operative Society registered under any Co-operative Society Law or Society as defined under the Societies Registration Act, 1860. Thus, a society whether engaged in any business of manufacturing or trading of goods, engaged in rendering services by way of carrying on business or a
Co-operative Housing Society rendering services to its members or any other persons, are the persons covered under the GST law. When such persons supply goods or services they shall comply with the provisions of GST law as discussed hereunder.
The term ‘supply’ is not specifically defined under the GST law. However, the ‘scope of supply3’ is provided for u/s. 7 of the CGST Act in an inclusive manner. The dictionary meaning of ‘supply’ is to provide or furnish. As per GST law, supply includes all forms of supply, sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. The term ‘business4’ includes provision of the facilities or benefits, by a club, association, society, or any such body, to its members for a subscription or any other consideration. Thus, provision of any facility to members by the society is treated as business when any such supply is for a consideration/subscription.
Any sale of goods by the Society is a supply of goods. Any transfer of right in goods or transfer of right to use goods is a supply of services. Any lease, tenancy, easement or licence of land or building is also a supply of services as provided under Schedule II of the CGST Act. When Society charges rent for allowing use of its building/property for putting billboards/ advertisement or for permitting telecom towers or dish antenna, it is a case of supply of services. The society charging to members for providing various facilities or for use of club house or health club or for use of open ground/society hall/common premises is also the supply of services. Supply of food or any other article for human consumption or any drink (other than alcoholic liquor) for consideration, by way of or as a part of any service is treated as supply of service. Supply of goods by any unincorporated AOP or BOI to its members for consideration is also covered under said Schedule II. Different tax rates are notified for different goods/services which can be NIL or 5% or 12% or 18% or 28% on the amount of consideration charged.
GST is to be paid by the taxable person who is liable to be registered or who is registered under GST law. The supplier whose ‘aggregate turnover5’ in a financial year exceeds ₹ 20 Lakhs (for Special Category States said turnover limit is ₹ 10 Lakhs) is liable to be registered under the GST Act. The person who makes inter-state supply or who is required to pay tax under reverse charge basis or who is required to deduct TDS under the GST law is also liable to be registered under the GST law irrespective of extent of its turnover. In other words even if the aggregate turnover of such persons are not exceeding the prescribed limit, yet are liable for registration under GST law.
Under the GST law, tax is payable on outward supply i.e., on consideration received or receivable for the supply made of goods/services. Thus, generally the tax will be charged and recovered by the supplier who is registered under the GST law. The Government has power u/s. 9(3) of CGST Act to notify certain categories of goods or services, the tax on which shall be paid on Reverse Charge Basis (RCB) by the recipient instead of the supplier. Using the said power the Government has issued the Notification No. 13/2017-Central Tax (Rate)
dt. 28th June 2017 whereunder the services supplied by an advocate or a firm of advocates is liable to tax on RCB payable by recipient. Thus, when society engages an advocate for any services, then on the fees payable to advocate, GST is payable on RCB (@ 18%) by the society. Even the services received from Goods Transport Agency (GTA) is liable for RCB tax (@ 5%) payable by the recipient of services under the said notification. When the society is liable to pay tax under RCB u/s. 9(3), then it is liable for registration irrespective of its aggregate turnover on outward supply being lower than the turnover limit prescribed for registration.
The Central Government has issued Notification No. 12/2017-Central tax (Rate) dated 28th June, 2017 to grant GST exemptions for intra-state supply of certain specified services. Serial no. 77 of said notification, refers that (Service Tariff Heading 9995) services by a non-profit entity registered under any law, to its own members by way of reimbursement of charges or share of contribution up to an amount of ₹ 5,000/- 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, is wholly exempt from GST. If the society’s aggregate turnover is less than ₹ 20 lakhs in a financial year then it is not liable for registration even if the contribution per member per month exceeds ₹ 5,000/-. When the society is liable for registration due to tax payable on account of Reverse Charge basis u/s. 9(3) of CGST Act, then also the benefit of exemption of ₹ 5,000/- per member per month is available to the society.
Once the person is registered under the GST law, then section 9(4) of CGST Act provides that when the taxable goods/services are procured by a registered person from an unregistered supplier, then the tax is payable on RCB by the recipient who is a registered person. RCB is payable at the rate as applicable to the supply of said goods/services. Where the aggregate value of such supplies from any or all the suppliers, is up to ₹ 5,000/- in a day, then such intra-state supply is exempt from GST as per Notification No. 8/2017-Central Tax (Rate) dated 28th June, 2017. If such procurement in a day exceeds ₹ 5,000 /-, then GST is payable on RCB by the recipient.
The society incurs various expenses for taking services like security services, AMC for various equipments and facilities, professional fees paid to advocate/professionals, etc. on which GST is paid either to the registered supplier of such services or paid on reverse charge basis when services are obtained from unregistered suppliers. The society registered under the GST law, is eligible for Input Tax Credit (ITC) of said GST paid on procuring services. The Capital Goods (CG) purchased by society is also eligible for ITC. To be eligible for ITC the goods/services must be received and tax invoice for same must be there as prescribed. The accounts and records must be maintained and produced when asked by the concerned authorities. When the goods/services are procured to render the taxable output services, entire ITC is available. However, on output side when certain services are wholly exempt or non-taxable or nil rated and certain services are taxable, then on common inputs/input services/CG, the ITC is available proportionately in the ratio of taxable turnover to total turnover. On certain goods/services ITC is not available as per section 17 of the CGST Act. Like GST paid on passenger motor vehicles purchases, rent-a-cab, works contract services for construction of immovable property or goods/services used for construction of immovable property, is not available for ITC. Food & beverages and health care services is eligible for ITC only when such services are charged on outward side. When the procured goods are lost, stolen, destroyed, written off or disposed off by way of gift or free samples, then ITC is not available. Even where ITC is available but when the supplier does not deposit the tax collected or does not file the GST return, then the recipient is not eligible for ITC. Recipient shall pay the consideration including the tax to the supplier within 180 days else the eligible ITC is to be reversed and deferred till the payment is made. Society has to file the GST returns and comply with various provisions of the GST law.
Property tax is levied on the property/flat/unit held by members in the building of the society. It is levied directly on the individual unit/member but generally it is paid by the society collectively for all members. The said property tax is collected by the society from its members by way of reimbursement. CGST Rule 33 relating to value of supply of services in case of pure agent which provides that when the expenditure or cost (property tax in this case) is incurred by a supplier (society) as a pure agent of the recipient (members) of supply, then such charges shall be excluded from the value of supply while levying GST. Such property tax shall be collected on actual basis (exact amount of property tax for a particular flat/unit) indicating separately in the invoice raised by the society on members. In such a case GST is leviable on charges collected from members, but excluding such property tax amount. The said issue is clarified by Tax Research Unit of Department of Revenue, Ministry of Finance, Government of India vide FAQ-F No. 332/04/2017-TRU. The services rendered by the society to its members is not specified separately in the GST Tariff Notification No. 11/2017-Central Tax (Rate) dated 28th June, 2017, hence it will be covered a Residuary Entry Heading 9997 referred as ‘Other Miscellaneous Services including services nowhere else classified’ under which will be liable to tax at SGST @ 9% and CGST @ 9%, thus total GST @ 18%.
Sale of land or sale of building (except when it is under construction) is neither a supply of goods nor a supply of services as provided under Schedule III of the CGST Act, so it is not liable to GST.
When the society gives the development right to a developer/builder to demolish and reconstruct the building, then the developer gives the premises in newly constructed building, corpus fund and compensation for each member as an hardship allowance or towards cost of rent for occupying/staying at other premises till the construction is completed and possession of new unit is handed over to the member. In such case, it is arguable that the principle of mutuality applies between society and members hence, there cannot be a supply to oneself. Further, the society/members are not in business and hence the transaction is not in the course or furtherance of business, thus it is not a supply of goods or services as provided u/s. 7 of CGST Act. However, the contrary argument may be that the definition of the term ‘business4’ is inclusive in nature and covers wide range of activities. Any trade or commerce or adventure whether or not for a pecuniary benefit is a business. There is no necessity of volume, frequency, continuity or regularity of any transaction to be transaction in a business. Thus when society contracts with the developer it can be said as provision of benefit by the society to its members which is also included in the definition of the term business. Even the provisions relating to scope of supply u/s. 7 cover all forms of supply of goods or services, including barter and exchange. In such a case the society will be liable for GST on consideration for granting/permitting the developer to develop the land and construct the building over it. Here a further issue is who is liable to pay GST? Whether the society or its members? In fact the society is legal owner of the land and building whereas its members are beneficiary of the said land and building having common and undivided interest in the society. Thus society shall register under GST Act and comply with the law accordingly. By such compliance the GST can be passed on and collected by the society from the developer. The developer in turn can take its Input Tax Credit (ITC) against its GST liability on output side when he sells the units during construction phase, as per the ITC provisions under the GST law. When the society complies with the GST law, then again its members are individually not liable for same. The developer will be liable to pay GST on value of construction of flats/units to be allotted to existing members/occupants as the construction services is supplied against the development right which is received in kind. The taxable value shall be computed following valuation provisions under the GST law. If the society is not registered under the GST law and does not pay GST, then developer will have to consider paying GST on Reverse Charge Basis (RCB) as in the hands on registered recipient the supply is from unregistered person, as provided u/s. 9(4) of CGST Act. Here also the issue may arise that when a person is not in business, then it is not a supply as provided u/s. 7 of CGST Act, and hence such a supply cannot be treated as a supply from an unregistered supplier, so developer is not liable to GST on RCB, based on the clarification vide Press Release dt. 13th July, 2017 given by Ministry of Finance, Government of India in case of purchase of old jewellery/ornaments by a jeweller from an individual.
The GST law is new which is framed in bits and pieces, by authorities implementing different laws, merging various earlier levies viz., Excise, Additional Excise Duty, Service Tax, VAT, Entry Tax, Entertainment Tax, etc. The complexities of all earlier laws are now merged in a single law which may be further complex to apply to ever developing technology and varied transactions. This being an indirect tax law, where the taxes can be passed on and the input tax credit is available to the other person, then taking aggressive position while executing the transaction may result in fatal consequences in future.
The relevant important definitions/provisions are reproduced hereunder.
Definitions/Provisions under CGST Act
1. ‘taxable person’ u/s 2(107): Means a person who is registered or liable to be registered under section 22 or section 24;
2. ‘person’ u/s. 2(84): includes—
(a) an individual;
(b) a Hindu Undivided Family;
(c) a company;
(d) a firm;
(e) a Limited Liability Partnership;
(f) an association of persons or a body of individuals, whether incorporated or not, in India or outside India;
(g) any corporation established by or under any Central Act, State Act or Provincial Act or a Government company as defined in clause (45) of section 2
(h) any body corporate incorporated by or under the laws of a country outside India;
(i) a co-operative society registered under any law relating to co-operative societies;
(j) a local authority;
(k) Central Government or a State Government;
(l) society as defined under the Societies Registration Act, 1860;
(m) trust; and
(n) every artificial juridical person, not falling within any of the above;
3. ‘scope of supply’ u/s. 7(1): For the purposes of this Act, the expression “supply” includes––
(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business…….;
4. ‘business’ u/s. 2(17): includes-
(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;
(b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a);
(c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;
(d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;
(e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members; ………………………
5. ‘aggregate turnover’ u/s. 2(6): Means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes Central tax, State tax, Union territory tax, integrated tax and cess;
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