Contributions to Resident Welfare Associations upto Rs. 7,500 not taxable under GST Act: Madras High Court [Read Order]

The Madras High Court recently clarified that when it comes to the taxation of contributions to Resident Welfare Associations (RWA), only those amounts in excess of Rs 7,500 per member per month are liable to be taxed under the Goods and Services Tax (GST) Act (Greenwood Owners Association and ors v. Union of India and ors)..Justice Anita Sumanth set aside a contrary ruling of the Authority for Advance Ruling (AAR), which had held that if the contribution to an RWA exceeds Rs 7,500, the entire amount contributed would be taxed and that no exemption would be available in respect of the amount up to Rs 7,500..A circular issued by the Central government, which had been passed in line with the AAR ruling, was also set aside. ."The conclusion of the AAR as well as the Circular to the effect that any contribution above Rs.7,500 would disentitle the RWA to exemption, is contrary to the express language of the Entry in question and both stand quashed. To clarify, it is only contributions to RWA in excess of Rs.7,500 that would be taxable under GST Act," Justice Sumanth held..The Court passed the ruling in petitions moved by RWAs in apartment complexes and one apartment resident. .After the introduction of the GST Act in 2017, the exemptions granted from GST were outlined in a notification issued by the Centre on June 28, 2017. By this notification, an exemption was granted to contributions made to RWAs upto an amount of Rs. 7,500 per month per member of housing complexes or residential complexes. .Since, the contributions made to the RWA on some occasions exceeded Rs 7,500, a question arose as to whether the resident in that RWA would lose his entitlement to the exemption altogether if he contributed an amount in excess of Rs 7,500 per month. Therefore, the AAR was approached to clear the air, which led to an adverse ruling being passed in 2019 against the RWAs. .Following the AAR Ruling, a circular was also passed by the Union Revenue Department in July 2019, which stated:"The exemption from GST on maintenance charges charged by a RWA from residents is available only if such charges do not exceed Rs.7500/- per month per member. In case the charges exceed Rs.7500/- per month per member, the entire amount is taxable. For example, if the maintenance charges are Rs.9000/- per month per member, GST @ 18% shall be payable on the entire amount of Rs.9000/- and not on (Rs.9000- Rs.7500) = Rs.1500.".The Court has now quashed both the circular as well as the 2019 AAR Ruling. Justice Sumath observed: - that the withdrawal of a statutory exemption by way of a circular is contrary to the provisions of the Constitution.- there is no ambiguity in the language of the exemption provision/ notification. The intention is clear i.e. that contributions up to an amount of Rs.7,500 would be exempt from GST. The plain words employed in Entry 77 of the June 2017 notification being, ‘upto’, an amount of Rs. 7,500 can only be interpreted to state that any contribution in excess of the same would be liable to tax. The term ‘upto’ hardly needs to be defined and connotes an upper limit. - The intendment of the exemption Entry in question is simply to exempt contributions till a certain specified limit. The clarification by the GST Department even as early as 2017 has taken the correct view..In view of the above, the writ petitions were allowed. Advocates Meera Moganasundan, R Vaishali and G Nataarajan appeared for the petitioners. Senior Standing Counsel R Hemalatha and Senior Panel Counsel C Kulandaivel appeared for the respondents. .[Read Judgment]