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15 September 2021

Maintenance charges recovered by the cooperative housing societies taxable under GST: AAR Maharashtra

The Co-operative Housing societies are like clubs as they have their own members. Therefore, service provided by a Housing Society to its members be treated as service provided by one person to another.

Further, as per Section 7(1)(aa), “the activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration.

        Explanation. —For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgment, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another”

As we all know that the Co-Operative Housing Societies charge consideration from its members in lieu of maintenance and upkeep services provided to them. Now the question arises as whether such services will constitute supply of services between members and the society?

In the light of provision laid under GST Act, 2017, the service provided by the housing societies are taxable under GST Act, 2017 as amended. A similar view has been expressed by in the case of Emerald Court Co-Operative Housing Society by Authority of Advance Rulings, Maharashtra.

Emerald Court Co-Operative Housing Society [2021] 129 taxmann.com 369 (AAR - MAHARASHTRA)

Facts of the Case:

  • Applicant (Co-operative society) was engaged in provides services to its members in the form of facilities or benefits like security, cleaning, repairs, water, common electricity,
  • For the service as mentioned above an invoice is being generated bifurcated in two parts:
    • One part containing details of property tax without GST being charged, and
    • Second part is maintenance charges on which GST is being charged.

Issues Involved:

  • Since there could be no sale by the Co-operative Housing Society to their own permanent members due to doctrine of mutuality, whether the services as mentioned can be chargeable?
  • In nutshell, applicant treats himself as the agent of the permanent members and charge no additional consideration of the services passed to the members and only reimbursement of amount was there by the members.
Contention by the applicant:
  • The activities carried out consists of upkeeping and maintenance of the society. These activities do not constitute business as envisaged under the GST Act because of the doctrine of mutuality there is no supply of goods or services by the society to its members.
  • Further the amount, which is paid by the applicant, the same amount is being reimbursed by its members.

Contention by the Jurisdictional Officer:

  • Co-operative Housing Societies are covered by the definition of business as given under the provisions of the GST Act.
  • Transaction of supply of services by a Co-operative Housing Society to its members is covered by transaction taking place between 'related persons' as provided in section 15 of GST Act. Further it has been provided in the GST Act, 2017 that any transactions between the distinct or related person shall be considered as supply irrespective of the involvement of the consideration.

Decision Held:

  • Applicant’s view that GST is not liable to be paid on the amounts received by the society from its members because of the principle of mutuality resulting which the society and its members can’t be considered as separate entities is disputable.
  • The issue mentioned above has been settled by a proposed amendment (as approved by the President) in Section 7 in the Finance Budget 2021. The said amendment specifies that:
    • applicant and its members are distinct persons
    • amounts received by the applicant against maintenance charges from its members are nothing, but consideration received for supply of goods/services as a separate entity
    • Principle of Mutuality will not be leviable on maintenance charges collected and applicant’s contention that no GST is applicable is not tenable.

Final Ruling:

The applicant is liable to pay GST on maintenance charges (by whatever name called) collected from its members, if the monthly subscription or contribution charged from the members is more than Rs. 7,500 per month.