Dear Readers,
APPLICABILITY
OF GST TO CO-OPERATIVE HOUSING SOCIETY LTD.
Section 9(1) of the CGST Act, provides that subject to the provisions of sub-section (2), there shall be levied a tax
called the central goods and services tax on all intra-State supplies of goods
or services or both, except on the supply of alcoholic liquor for human
consumption, on the value determined under section 15 and at such rates, not
exceeding twenty per cent., as may be notified by the Government on the
recommendations of the Council and collected in such manner as may be
prescribed and shall be paid by the taxable person.
[Similar provision exists in section 5(1) of IGST Act]
Thus, GST is payable by a taxable
person on all supplies (taxable
supply) of goods or services based on the transaction value of supplies as
determined under section 15 and at such rates as may be notified by the
Government.
Who
is a Person?
Section 2(84) defines
"person" includes—
(a) an
individual;
……
(i) a co-operative
society registered under any law relating to co-operative societies;
……
Who is a taxable person?
Section 2(107)
defines "taxable person" is
a one who is liable to get registered.
Who is liable to get
registered?
Every person who makes taxable supplies (outward
supply) and whose aggregate turnover exceeds Rs.20 lakhs (Rs.10 lakhs in
special States) during the financial year or who is registered under the
erstwhile law or who inter alia is
required to pay tax under reverse charge, is required to get registered.
What is Outward Supply?
Section 2(83) defines
"outward supply" to mean supply of goods or services or
both, in the course or furtherance of business
So what is a Business?
Section 2(17) defines
"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;
……
(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;
……
In the light of the above,
let us examine the applicability of GST provisions to Co-Operative Housing
Societies Ltd. (CHS Ltd)
Is CHS Ltd a “person” under GST provisions?
From the definition of
“person”, a co-operative society registered under any law relating to
co-operative societies is a “person”.
Since CHS Ltd is registered under the Co-Operative Societies Act
(for instance Co-Operative Housing Societies within the State of Maharashtra
are governed under the Maharashtra Co-Operative Societies Act, 1960), and hence
a CHS Ltd is a “person”.
Whether a CHS Ltd is required to get registration under the GST
provisions?
Requirement of registration
occurs in following cases:
(1) Every person making
taxable supplies (outward supply); AND
(2) Whose
aggregate turnover exceeds Rs.20 lakhs (Rs.10 lakhs in special States) during
the financial year; OR
(3) Who inter alia is required to pay tax under
reverse charge
Hence, if the CHS Ltd is
making outward supplies on which tax is leviable and if its aggregate turnover
[as defined in section 2(6)] exceeds the limit prescribed during the financial
year, it has to get registered.
As seen above, the
term "outward supply" is
defined to mean supply of goods or
services or both, in the course or furtherance of business.
Business is defined
to inter alia include provision by a society (for a subscription
or any other consideration) of the facilities or benefits to its members.
The word subscription means – an amount of money that you pay
regularly to receive a product or service – Cambridge Dictionary.
Consideration is
defined in section 2(31) which inter alia
includes any payment in money or otherwise for supply of goods or services,
except for deposits given in respect of supply of goods or services till the
supplier applies such deposits as consideration for the said supply.
The word facility means - something (such as a hospital) that is
built, installed, or established to serve a particular purpose. – Merriam
Webster Dictionary.
The word benefit means - something that produces good or helpful
results or effects or that promotes well-being. – Merriam Webster Dictionary.
From the above it can be concluded that CHS
Ltd is a person making taxable supplies (outward supply) and if its aggregate turnover exceeds Rs.20 lakhs (Rs.10
lakhs in special States) during the financial year, it has to get registered
under the combined reading of condition one and two above, for registration.
As a corollary, although CHS Ltd is a
person making taxable supplies (outward supply), if its aggregate turnover does not exceed Rs.20 lakhs (Rs.10 lakhs in special
States) during the financial year, it does not have to get registered under the
combined reading of condition one and two above, for registration.
Now let us see the third
condition where the CHS Ltd is required to pay tax under a reverse charge, then
it has to get registered without any threshold limit. Let’s take a classic example where most of
the CHS Ltd avail legal services for one or other reason.
If a CHS Ltd avails any legal services, whether reverse charge is
applicable to CHS Ltd?
As per Notification
No.13/2017 – Central Tax (Rate) dated 28th June, 2017, (read with
press release dated 15/07/2017 on Legal Services by Advocates), at entry no.2,
reverse charge is to be paid by the business
entity located in taxable territory on legal services provided by advocates
or firm of advocates. [Similar notification under IGST Act – Notification
No.10/2017-Integrated Tax (Rate) dated 28/06/2017 at entry no.3]
Notification No.12/2017 –
Central Tax (Rate) dated 28th June, 2017, at entry no.45 specifies
that intra-state legal services provided by advocates or firm of advocates to
(a) a non-business entity or (b) a business entity whose aggregate turnover
during the preceding financial year does not exceed Rs.20 lakhs (Rs.10
lakhs in special States), is exempt from whole of tax. (Here business entity is
defined to mean any person carrying out business). [Similar notification under IGST Act –
Notification No.9/2017-Integrated Tax (Rate) dated 28/06/2017 at entry no.47].
Thus, as we have seen above, CHS Ltd being a business entity, if
its “aggregate turnover” does not exceed the prescribed limits in the preceding
financial year, legal services delivered to it will be Exempt from GST and
accordingly no reverse charge will be payable.
Accordingly, no registration will be required under the third condition
for registration.
As a corollary, CHS Ltd being a business entity, if its
“aggregate turnover” exceeds the prescribed limits in the preceding financial
year, legal services delivered to it will not be exempt from GST and
accordingly reverse charge will be payable.
Accordingly, it will be required to get the registration.
On what amounts is GST applicable in CHS Ltd Billing?
Notification 12/2017 –
Central Tax (Rate) dated 28/06/2017, exempts at Sr.no.77 for heading 9995 (services
of membership organizations) as under:
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 Rs5,000 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.
[Similar notification under
IGST Act – Notification No.9/2017-Integrated Tax (Rate) dated 28/06/2017 at
entry no.80]
Similar provisions existed
in the erstwhile Service Tax laws vide item no.28 of Exemption Notification
No.25/2012-ST dated 20th June, 2012.
CBEC also in its press
release dated 15th July, 2017 on Services provided by RWA/Housing Society, has
clarified that there is no change made to services provided by the Housing Society (RWA)
to its members in the GST era.
The Education Guide
published by CBEC for Taxation of Services on 20th June, 2012 at para
7.11.8, stated that:
What
is the tax liability of a RWA on the charges collected from own members by way
of reimbursement of charges or share of contribution for the common use of its
members in a housing society or a residential complex?
Service
of an unincorporated body or a non- profit entity registered under any law for
the time being in force to its own members up to an amount of Rs. 5,000 per
member per month by way of reimbursement of charges or share of contribution is
exempt from service tax. Where RWA is working as a pure agent of its members
for sourcing of goods or services from a third person, amount collected by RWA
from its members may be excluded from the value of taxable service in terms of
Rule 5(2) 0f Service Tax (Determination of Value) Rules, 2006 subject to
compliance with the specified conditions.
Rule 33 of CGST Rules, 2017
prescribes certain conditions to exclude the expenditure or cost incurred by
supplier as a “pure agent”:
(i)
the supplier (CHS Ltd) acts as a pure agent
of the recipient (member) of
the supply, when he makes the payment to the third party on authorisation by such recipient;
(ii)
the
payment made by the pure agent on behalf of the recipient of supply has been
separately indicated in the invoice issued by the pure agent to the recipient
of service; and
(iii)
the
supplies procured by the pure agent from the third party as a pure agent of the
recipient of supply are in addition to the services he supplies on his own
account.
Explanation.-
For the purposes of this
rule, the expression "pure agent" means a person who‑
(a)
enters into a
contractual agreement with the recipient of supply to act as his pure agent to
incur expenditure or costs in the course of supply of goods or services or
both;
(b)
neither intends to
hold nor holds any title to the goods or services or both so procured or
supplied as pure agent of the recipient of supply;
(c)
does not use for his
own interest such goods or services so procured; and
(d)
receives only the
actual amount incurred to procure such goods or services in addition to the
amount received for supply he provides on his own account.
Thus, if ALL the above conditions are satisfied, then no
GST will be charged by CHS Ltd on reimbursement of the expenditure or costs
incurred by it as a “pure agent”, from its members.
Further “consideration” as
defined under section 2(31) of CGST Act, excludes deposits until the supplier (CHS Ltd) applies such deposit
as consideration for the said supply. Hence all
contributions towards various Funds created by the CHS Ltd shall also be
excluded from GST at the time of contribution, however will attract GST when
the CHS Ltd applies (uses) such deposits towards supply of goods or services to
the members.
Conclusion:
CHS Ltd is a
person engaged in making taxable supply in business activity under the GST
provisions. If the “aggregate turnover”
during the financial year exceeds Rs.20 lakhs (Rs. 10 lakhs in case of special
States), CHS Ltd is required to get registration under GST. If CHS Ltd inter alia is required to pay tax under reverse charge, then
it is required to get registration, without any threshold of “aggregate
turnover”.
On registration, CHS Ltd is required to levy tax on the taxable value of
all its taxable supplies of goods and services to its members, except for
deposits taken. GST is applicable on
deposits once the CHS Ltd applies the same to its supplies. Taxable value excludes expenditure or costs incurred
as a “pure agent”.
An Exemption threshold of Rs.5000 per month per member is available to
CHS Ltd. Thus, if the items invoiced by
CHS Ltd which attract GST, totals upto Rs.5000 per month per member, no GST is
leviable. Also, if the items invoiced by CHS Ltd which attract
GST, totals beyond Rs.5000 per month per member, GST is leviable on the Taxable
Value Less Rs.5000, per month per member.
On registration, CHS Ltd has to pay tax on reverse charge if it procures
goods or services from any unregistered supplier. Notification No.8/2017-Central Tax (Rate)
dated 28 June, 2017, exempts registered persons from paying such reverse charge
if aggregate value of all such intra-state supplies of goods or services received
from any or all such unregistered suppliers is upto Rs.5000 per day. [No
such exemption is available if a registered person (CHS Ltd) procures goods or
services from any inter-state unregistered supplier]
On registration, CHS Ltd is eligible to claim Input Tax Credit (ITC) for
all its inward supplies of goods and services, including the reverse charge
paid, as applicable.
A summary of various charges
collected by CHS Ltd as per the Bye laws is summarised below for applicability
of GST provisions:
No.
|
Item
|
Applicability of GST
|
Reasons for Not Applicable
|
1
|
Contribution towards Reserve
Fund
|
NO*
|
In the nature of Deposit
|
2
|
Contribution to Repairs and Maintenance Fund
|
NO*
|
In the nature of Deposit
|
3
|
Contribution to the Sinking Fund
|
NO*
|
In the nature of Deposit
|
4
|
Property Taxes
|
NO**
|
Pure Agent
|
5
|
Water Charges
|
NO**
|
Pure Agent
|
6
|
Interest on the defaulted charges
|
YES
|
-
|
7
|
Non-occupancy Charges
|
YES
|
-
|
8
|
Insurance Charges
|
YES
|
-
|
9
|
Service Charges
|
YES
|
-
|
10
|
Legal Fees
|
YES
|
-
|
11
|
Any other charges approved by
the General Body at its Meeting
(contribution for festival,
etc.)
|
YES
|
-
|
* GST will be applicable on
the amount withdrawn by CHS Ltd from any Fund (at the time of such withdrawal),
to meet the permissible expenditure of the Society.
** When all the conditions prescribed
under Rule 33 of CGST Rules, 2017 are satisfied.
Trust the above information is found useful to the
readers.
Comments, suggestions and improvements are most welcome.
Best Wishes,
Amol Mahajan
ps:
F.No.332/04/2017-TRU - Tax
Research Unit of MoF has come out with FAQ on levy of GST to Co-Operative
Society
