Clarifications with
regard to levy of service tax on services provided by RWA to its own members
Service
tax on 'club or association service' which covers RWA, was introduced with
effect from June 16, 2005 vide Section 65(105)(zzze) read with section 65(25a) [(25a)
was later renumbered as (25aa)] of the Finance Act, 1994.
Prior to
July 1, 2012, exemption was available to a RWA under Notification No. 8/2007-ST
dated March 1, 2007, if the total consideration received from an individual
member by the RWA for the services does not exceed three thousand rupees per
month. This Notification was rescinded vide Notification No. 34/2012-ST dated June
20, 2012 with effect from July 1, 2012.
Post
negative list regime i.e. with effect from July 1, 2012, Notification
No.25/2012-ST (“Notification No. 25”)
provides for exemption to service by a RWA to its own members by way of
reimbursement of charges or share of contribution up to five thousand rupees
per month per member for sourcing of goods or services from a third person for
the common use of its members.
The
Central Board of Excise & Customs (“CBEC”)
vide Circular No. 175/01/2014-ST dated January 10, 2014 has provided
clarifications regarding certain doubts raised over the scope of the exemption provided
to RWA under the negative list approach as under:
Clarifications:
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Sl. No.
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Doubt
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Clarification
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1.
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(i) In a residential complex, monthly
contribution collected from members is used by the RWA for the purpose of
making payments to the third parties, in respect of commonly used services or
goods [Example: for providing security service for the residential complex,
maintenance or upkeep of common area and common facilities like lift, water
sump, health and fitness centre, swimming pool, payment of electricity Bill
for the common area and lift, etc.]. Is service tax leviable?
(ii) If the contribution of a
member/s of a RWA exceeds five thousand rupees per month, how should the
service tax liability be calculated?
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Exemption at Sl. No. 28 (c) in Notification
No. 25 is provided specifically with reference to service provided by an
unincorporated body or a non–profit entity registered under any law for the
time being in force such as RWAs, to its own members.
However, a monetary ceiling has been
prescribed for this exemption, calculated in the form of five thousand rupees
per month per member contribution to the RWA, for sourcing of goods or
services from third person for the common use of its members.
If per month per member contribution of any or some members of a RWA exceeds five thousand rupees, the entire contribution of such members whose per month contribution exceeds five thousand rupees would be ineligible for the exemption under the said notification. Service tax would then be leviable on the aggregate amount of monthly contribution of such members. |
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2.
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(i) Is threshold exemption under
notification No. 33/2012-ST available to RWA?
(ii) Does 'aggregate value' for the
purpose of threshold exemption, include the value of exempt service?
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Threshold exemption available under
notification No. 33/2012-ST is applicable to a RWA, subject to conditions
prescribed in the notification. Under this notification, taxable services of
aggregate value not exceeding ten lakh rupees in any financial year is
exempted from service tax. As per the definition of 'aggregate value' provided
in Explanation B of the notification, aggregate value does not include the
value of services which are exempt from service tax.
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3.
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If a RWA provides certain services
such as payment of electricity or water bill issued by third person, in the
name of its members, acting as a 'pure agent' of its members, is exclusion
from value of taxable service available for the purposes of exemptions
provided in Notification 33/2012-ST or Notification No. 25?
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In Rule 5(2) of the Service Tax
(Determination of Value) Rules, 2006, it is provided that expenditure or
costs incurred by a service provider as a pure agent of the recipient of
service shall be excluded from the value of taxable service, subject to the
conditions specified in the Rule.
For illustration, where the payment
for an electricity bill raised by an electricity transmission or distribution
utility in the name of the owner of an apartment in respect of electricity
consumed thereon, is collected and paid by the RWA to the utility, without
charging any commission or a consideration by any other name, the RWA is
acting as a pure agent and hence exclusion from the value of taxable service
would be available. However, in the case of electricity bills issued in the
name of RWA, in respect of electricity consumed for common use of lifts,
motor pumps for water supply, lights in common area, etc., since there is no
agent involved in these transactions, the exclusion from the value of taxable
service would not be available.
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4.
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Is CENVAT credit available to RWA for
payment of service tax?
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RWA may avail Cenvat credit and use the same for
payment of service tax, in accordance with the Cenvat Credit Rules.
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Hope the information will assist you in your Professional endeavors.
In case of any query/ information, please do not hesitate to write back to us.
Thanks & Best Regards.
Bimal Jain
FCA, FCS, LLB, B.Com (Hons)
Mobile: +91 9810604563
E-mail: bimaljain@hotmail.com
Bimal Jain
FCA, FCS, LLB, B.Com (Hons)
Mobile: +91 9810604563
E-mail: bimaljain@hotmail.com
Disclaimer: The contents of this document
are solely for informational purpose. It does not constitute professional
advice or recommendation of firm. Neither the authors nor firm and its
affiliates accepts any liabilities for any loss or damage of any kind arising
out of any information in this document nor for any actions taken in reliance
thereon.
Readers are advised to consult the professional for understanding
applicability of this newsletter in the respective scenarios. While due care has
been taken in preparing this document, the existence of mistakes and omissions
herein is not ruled out. No part of this document should be distributed or
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