Circular No.175 /01 /2014 - ST
F. No.354/237/2013-TRU
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise& Customs
Tax Research Unit
North Block, New Delhi
10
th
January, 2014
To
Chief Commissioners of Central Excise and Service Tax (All), Director General (Service Tax), Director General (Central
Excise Intelligence), Director General (Audit), Commissioners of Service Tax (All), Commissioners of Central Excise and
Service Tax (All).
Madam/Sir,
Subject : Levy of service tax on services provided by a Resident Welfare Association (RWA) to its own members -
regarding.
Service tax on 'club or association service' which covers Resident Welfare Association (RWA) was introduced with effect from
16.06.2005, vide section 65(105)(zzze) read with section 65(25a)[(25a) was later renumbered as (25aa)]. Under the positive
list approach which was followed prior to 1
st
July 2012, exemption was available under notification No. 8/2007-ST dated
01.03.2007, 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 This notification was rescinded vide notification No. 34/2012-ST dated 20
th
June 2012, with
effect from 1
st
July, 2012.
2. Under the negative list approach, with effect from 1
st
July, 2012, notification No.25/2012-ST [sl.no.28 (c)] 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.
Certain doubts have been raised regarding the scope of the present exemption extended to RWAs under the negative list
approach. These doubts have been examined and clarifications are given below:
Sl.
No.
Doubt Clarification
1.
(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?
Exemption at Sl. No. 28 (c) in notification No. 25/2012-ST 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.
2.
(i) Is threshold exemption under notification No.
33/2012-ST available to RWA?
(ii) Does 'aggregate value' for the pusrpose of
threshold exemption, include the value of
exempt service?
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.
3.
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 25/2012-ST ?
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.
4.
Is CENVAT credit available to RWA for
payment of service tax?
RWA may avail cenvat credit and use the same for payment of service tax,
in accordance with the Cenvat Credit Rules.
3. Trade Notice/ Public Notice to be issued. Hindi version to follow.
[Raj Kumar Digvijay]
Under Secretary to the Government of India
