Contribution Which is in Excess of Rs 7500 Received by RWA from Members is Only Taxable. The AAR and Circular is Contrary to the Entry in the Exemption Notification: Madras High Court

JUDGEMENT

In the case of GREENWOOD OWNERS ASSOCIATION Vs THE UNION OF INDIA. 2021 (7) TMI 591 – MADRAS HIGH COURT, it was held as under:

Interpretation of statute – threshold limit of contribution to RWA to claim exemption from payment of tax – validity of Circular No.109/28/2019 dated 22.07.2019 – applicability of N/N. 12/17CT dated 28.06.2017 – submission is that while a contribution of ₹ 7,500/- or less would entitle the concerned assessee to the grant of exemption, if the contribution exceeded ₹ 7,500/-, there was an automatic disentitlement – HELD THAT:- There is no ambiguity in the language of the exemption provision in this case and thus the judgment of the Supreme Court in COMMISSIONER OF CUSTOMS (IMPORT) , MUMBAI VERSUS M/S. DILIP KUMAR AND COMPANY & ORS. would not be applicable to the facts and circumstances of this case. The ratio of that decision would apply only in a case where the provisions granting exemptions are ambiguous, whereas, in the present case, the Entry, is clear and hence it is only a question of interpreting the same.

The intention of the Circular appears clear, that is, to grant exemption in regard to the receipts from services that answer to the description set out therein. The description of the services is also clear, that is, services to the members of an unincorporated body or non-profit by way of reimbursement of charges or share of contribution upto an amount of ₹ 7,500/- in the sourcing of goods or services from a third person for the common use of its members. No ambiguity presents itself on a plain reading of the Entry and the intention is clear, so as to remove from the purview of taxation contribution upto an amount of ₹ 7,500/-.

In the case of Dilip Kumar, the Supreme Court reiterates the settled proposition that an Exemption Notification must be interpreted strictly. The plain words employed in Entry 77 being, ‘upto’ an amount of ₹ 7,500/- can thus 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. It is interchangeable with the term ‘till’ and means that any amount till the ceiling of ₹ 7,500/- would exempt for the purposes of GST.

Slab Rate – HELD THAT:- A slab is a measure of determining tax liability. The prescription of a slab connotes that income upto that slab would stand outside the purview of tax on exigible to a lower rate of tax and income above that slab would be treated differently. 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 in 2017 has taken the correct view.

The discussion leaves no doubt that the conclusion of the AAR as well as the Circular to the effect that any contribution above ₹ 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 ₹ 7,500/- that would be taxable under GST Act.

The Article is compiled by CA Nikhil Jhanwar. He can be reached at nmjhanwar@gmail.com

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