GST payable upon receipt of free payment from outgoing member: AAR
The Maharashtra Advance Ruling Authority (AAR) composed of TR Ramnani and Rajiv Magoo ruled that GST is payable upon receipt of free payment from outgoing members.
The applicant is a Cooperative Housing Society registered under the Cooperative Housing Society of Maharashtra Act (MCHS Act) having 48 flats which charges its members a maintenance fee according to the flat for upkeep and maintenance. maintenance of its premises.
When there is a transfer of an apartment, the outgoing member makes a free and voluntary payment to the company. This does not affect any departure formalities to be completed under the MCHS Act. The applicant has stated that the contribution made is completely voluntary and is not at all consideration received in lieu of the services provided by the applicant.
The applicant raised funds from its members for future major repairs and renovation of the premises. The funds will not be used immediately. The amount will only be used once the applicant has finalized the offers received for the repairs to be carried out.
The claimant requested an advance ruling on whether receiving a free payment from an outgoing member for the time they resided in the company is taxable under the CGST Act 2017.
The applicant maintained that each time there is a transfer of an apartment, the leaving member makes a free payment to the applicant company, which has no bearing on the exit formalities to be completed. The free contribution is paid voluntarily by the outgoing member and is not at all consideration received in lieu of services provided by the applicant, therefore the amount received is not subject to GST.
The AAR ruled that “consideration” includes any payment made in cash, since the payment was made toward the company’s main reparations funds. It was clear that the payment was for the inducement of the provision of goods or services or both, either by the recipient if he continues to be a member, or by any other person.
The AAR relied on the High Court’s decision in the case M/s MP Finance Group CC (in liquidation) c. C SARS, in which an important legal proposition was explained. It was decided that income derived by a taxpayer from illegal gains would be taxable in the hands of the taxpayer. So, while the collection of charges by the company may be illegal under another law, since it is covered by the scope of supply and other elements of the GST levy, it is taxable.
Applicant Name: Monalisa Co-Operative Housing Society Limited
Reference: Advance Decision No. GST-ARA-30/2020-21/B-71
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