Query 1

GST on Co-operative Housing Societies

Please explain about taxation of Co-operative Housing Societies under GST

Under GST, tax base is widened. Vide certain provisions it is believed that the Co-operative Housing Societies are liable to GST when they collect contribution from the Members. At the first sight the above belief appears to be illogical. Co-operative Housing Societies are based on doctrine of mutual co-operation. They are formed for managing the property and administration of the building on behalf of members as there are several separate members. It is based on doctrine of mutuality. Recently Hon. Supreme Court had an occasion to decide doctrine of mutuality in case of incorporated club vis-à-vis levy of tax i.e., in case of State of West Bengal vs. Calcutta Club Limited (Civil Appeal No. 4184 of 2009 & others dated 3.10.2019). While dealing with the issue of levy of tax on charges made on members, Hon. Supreme Court has held that there is no commercial transactions between club and members as the club is working under doctrine of mutuality. There cannot be commercial transactions between club and members.

The working of co-operative society is also based on doctrine of mutuality. There is no element of profit motive. It is working as agent of the members for managing common property.

However, the applicability of above judgment to the co-operative society under GST requires conscious decision. In other words there should be clear legal precedent on above issue. Till such precedent comes, the current position, as coming out of provisions under GST Act will remain applicable.

The said provisions can briefly be noted as under:-

Under GST, the tax is levied on taxable person.

The definition of ‘person’ in section 2(84) of CGST Act is as under:

“(84) “person” 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 of the Companies Act, 2013;

(h) anybody 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.”

The Co-operative Society is specifically included in definition of person.

The ‘Taxable person’ is defined in section 2(107) of CGST Act as under:

“(107) “taxable person” means a person who is registered or liable to be registered under section 22 or section 24.”

Section 22(1) of CGST Act about registration reads as under:

“22. (1) Every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees:

Provided that where such person makes taxable supplies of goods or services or both from any of the special category States, he shall be liable to be registered if his aggregate turnover in a financial year exceeds ten lakh rupees.”

Thus, if there is taxable supply and aggregate turnover exceeds the specified limit i.e. ₹ 20 lakh, he is liable to be registered.

For knowing whether ‘supply’ is taxable or not, reference is required to be made to meaning of ‘supply’ given in section 7 of CGST Act. The said section is as under:

“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;

(b) import of services for a consideration whether or not in the course or furtherance of business;

(c) the activities specified in Schedule I, made or agreed to be made without a consideration; and

(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II….”

As per this section the supply will be covered by CGST, if such supply is in course or furtherance of business.

Therefore, it is necessary to see the definition of ‘business’.

The meaning of ‘business’ is given in section 2(17) of CGST Act, which reads as under:

“(17) “business” 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;

(f) admission, for a consideration, of persons to any premises;

(g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation;

(h) services provided by a race club by way of totalisator or a licence to book maker in such club; and

(i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities.”

As per sub-clause (e) in above definition, a Society providing facilities or benefits to members is considered as business.

Though there is strong position to argue that Society is working on principle of mutuality and no element of business in activities of Society, so far as position and understanding of GST department stands today, it will be considered to be in business.

As per above discussion, at present the Cooperative Society is to be considered in business and hence to the extent of supplying services against collection, it will be liable to pay GST.

Being liable to pay on supply side, Society can claim ITC on inward supply. Say for an example, when Society is liable to pay GST on outward services of repair, it is entitled to get ITC on inward supply of repair services or good used for same. Reference can be made to recent Circular No. 109/28/2019- GST dated 22.7.2019 issued by Central Board of Indirect Taxes & Customs wherein, amongst others, it is clarified as under:-

“Sl. No.	Issue	Clarification
3.	Is the RWA entitled to take input tax credit of GST paid on input and services used by it for making supplies to its members and use such ITC for discharge of GST liability on such supplies where the amount charged for such supplies is more than ₹ 7,500/- per month per member?	RWAs are entitled to take ITC of GST paid by them on capital goods (generators, water pumps, lawn furniture etc.), goods (taps, pipes, other sanitary/hardware fillings etc.) and input services such as repair and maintenance services.

Thus, it is recognized that against outward services, ITC is available for inward supply.

It is possible that the repair activity is considered as resulting in immovable property.

Normally, when inward supply results in immovable property, ITC is not allowed.

However, in present case, Society will be eligible as per exception provided in section 17(5)(c) which reads as under:-

“(5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely:—

(a) …

(b) …

(c) works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;”

Thus, if the inward service for construction of immovable property is for outward supply, then ITC is eligible. Similarly, for goods also ITC will be eligible. In present case, even if it is assumed that Society is procuring inward services for construction till ITC is eligible as it is for further supply to members. Therefore the ITC will be eligible.

In case of society, the GST is applicable when the charges to be collected are exceeding ₹ 7,500/- per month per member. In particular month, if it does not exceed ₹ 7,500/- no GST. In other words, the liability is to be seen per month, per member.

The further issue can be that if the charges exceed ₹ 7,500/- per month whether GST is to be levied on whole amount or only on amount which is in excess of ₹ 7,500?

This has become dicey issue. There is Advance Ruling by Tamil Nadu Advance Ruling Authority in case of TVH Lumbini Square Owners Association (TN/25/AAR/2019 Dt. 21.6.2019), wherein it is held that once the collection crosses ₹ 7500, then the GST is payable on full amount and deduction of ₹ 7500/- is not permissible. No doubt prior to above A.R., there were CBIC – E-Filers (which is also referred to in the AR) stating that if the contribution exceeds ₹ 7,500/- then GST is payable on excess collection i.e. on amount which is in excess of ₹ 7,500/- and ₹ 7,500/- remains exempt.

However, after above A.R., the position has become debatable and unless any contrary Advance Ruling comes in Maharashtra by Maharashtra Advance Ruling Authority, the department authority will follow above Advance Ruling.

Further, the CBIC in circular referred to above dt. 22.7.2019 has also towed the same view of Tamil Nadu Advance Ruling. In para 5, it is stated as under:

“5.

How should the RWA calculate GST payable where the maintenance charges exceed ₹ 7,500/- per month per member? Is the GST payable only on the amount exceeding ₹ 7,500/- or on the entire amount of maintenance charges?

The exemption from GST on maintenance charges charged by a RWA from residents is available only if such charges do not exceed ₹ 7,500/- per month per member. In case the charges exceed ₹ 7,500/- per month per member, the entire amount is taxable. For example, if the maintenance charges are ₹ 9,000 per month per member, GST @18% shall be payable on the entire amount of ₹ 9,000 and not on [₹ 9,000 ₹ 7,500] = ₹ 1,500.

Though there is arguable case that the tax should be levied on contribution exceeding ₹ 7,500/-, till due to above AR and circular, the department will charge from Re. 1 and will not give any exemption. The more difficult part is that the above position will apply from 1st July, 2017 and even though the societies may have been misled by earlier E-flyer still no relief till the date of circular and the tax will remain applicable from 1.7.2017. There should be relief till date of new circular, where no tax is collected on ₹ 7,500 by the societies. However, this is matter of representation and fair appreciation by the authorities.

The above is outline for liability of Co-operative Housing Societies under GST. The society is required to consider various provisions minutely including tax position of various supplies under GST for discharging tax liability and compliance etc.