Maharashtra: Voluntary payment by outgoing society member subject to GST, says AAR
MUMBAI: It is not uncommon for co-operative housing societies (CHS) in Mumbai to seek transfer fees on sale of a flat, exceeding the stipulated Rs 25,000. While some societies outright seek a higher transfer fee, others ‘welcome’ an additional payment, which is set aside for future use, such as for carrying out major repairs later.
The issue of applicability of goods and services tax (GST) on both the transfer fee and additional payment arises. GST applies on transfer fees at 18% if the CHS not otherwise exempt from GST registration. Recently, the Authority for Advance Rulings (AAR), Maharashtra, in the case of a south Mumbai housing society had to determine whether gratuitous payment from an outgoing member, would be subject to GST. Based on the facts of the case, the AAR held that the gratuitous payment, which ran into several lakhs, would be subject to GST.
It should be noted that only societies whose annual turnover (including transfer fee) is in excess of Rs 20 lakh are required to register under GST and have to comply with the tax related obligations.The AAR bench, comprising members Rajiv Magoo and R R Ramnani, noted that in the case of Monalisa CHS, each and every outgoing member made a gratuitous payment to the society. In other words, there was a ‘compulsion’ for making such payments. “We have already mentioned that such voluntary payments cannot be accepted by the applicant CHS from the transferor or transferee (ie: outgoing member who is selling the flat or the incoming buyer) as per the Model Bylaws. We are of the opinion that the amounts are collected for the smooth transfer of the flats from the transferor to the transferee.”
In this instance, in addition to the transfer fee of Rs 25,000, the outgoing member had paid Rs. 17.7 lakh towards a ‘Building Betterment Fund’. Interestingly, the affidavit given by the outgoing member to prove that the payment was voluntary mentioned that the sum is inclusive of GST. Typically, the society collects the GST component from their members.Monalisa CHS submitted that contribution made by the outgoing member was solely out of his own discretion, it was not in lieu of the ‘no objection certificate’ provided to such member or any other service provided by the housing society. Hence it cannot be considered as a taxable consideration.
Indirect tax expert and founder of a CA firm, Sunil Gabhawalla explained, “GST is payable only if the payment made by the recipient has a nexus with the supply made by the supplier and the same is enforceable. In the instant case, while the CHS argued that the payment is made by the outgoing member voluntarily and as a gratitude, the AAR disputed these factual statements and affidavits by the outgoing member and established an enforceable nexus with a future supply. This approach and interpretation are not free from doubt.”
“It should be noted that rulings of the AAR do not set a judicial precedent, but do have persuasive value in assessments. The issue, when tested in higher forums may provide an element of finality,” he added.
