MUMBAI: Monalisa Cooperative Housing Society (CHS), located in Pedder Road, has lost its GST appeal with the Maharashtra bench of the Appellate Authority for Advance Rulings (AAAR). The appellate body upheld the earlier ruling, reported by TOI on June 8, 2022, that Goods and Services Tax (GST) will be applicable on the "voluntary" contributions by an outgoing member. 

In other words, it is the outgoing member who will bear the GST cost, which the CHS will collect and deposit. Given that several CHSs collect voluntary contributions running into several lakhs, transfer of a flat can become dearer.

In Mumbai, it is not uncommon for CHSs to seek transfer fees on sale of a flat, exceeding Rs 25,000, which is stipulated in the model bylaws. While some societies seek a higher transfer fee outright, others welcome an additional payment, which is set aside for future use-such as for carrying out major repairs at a later date. The transfer fee which has a direct connection with services provided to the outgoing member, relating to transfer of a flat, is subject to GST at 18%. However, some CHSs take a stand that no GST will apply on voluntary contribution as there is no connection with any supply of services to the outgoing member.

Advance rulings do not set a judicial precedent but have a persuasive effect in assessments. Indirect tax expert and founder of a chartered accountancy firm, Sunil Gabhawalla, told TOI: "A CHS as a matter of abundant caution should collect GST at 18% on 'voluntary payment' made by an outgoing member, if it perceives some nexus to services rendered in the past or services to be carried out in the future for the betterment of the society such as repairs or renovations."

It should be noted that only those CHSs with annual turnover (including transfer fee) in excess of Rs 20 lakh are required to register under GST and comply with the tax obligations. However, given the high quantum of voluntary payments received, most Mumbai-based CHSs require GST registration and compliance. In this case, the AAR had observed that a sum of Rs 17.7 lakh had been given to Monalisa CHS by an outgoing member, which was inclusive of GST. 

The housing society, in turn, reflected a net sum of Rs 15 lakh under the head 'major repair fund' in its accounts. The balance Rs 2.7 lakh was the GST component. In its 2022 ruling, the AAR also held that it appears there is compulsion for an outgoing member to make a gratuitous/voluntary payment. The accounting entry shows that the contribution is nothing but an advance amount for services to be availed by the society's members in the future.

Before the appellate bench, composed of Rajeev Kumar Mital and D K Srinivas, Monalisa CHS rebutted these points. 

It stressed that the payment is voluntary and a member can seek transfer of his/her flat without making such payment. The transfer of the sum to a repair fund is a mere accounting entry. 

Further, repairs that are carried out in the future will not benefit the outgoing member-thus there is no supply of taxable service to him. 

However, the appellate body upheld the earlier order given by the AAR.