This will reduce the maintenance outgo of residents of nearly a lakh housing societies in Mumbai and Thane, particularly the upscale ones where the charges can go over Rs 1 lakh every month.
The recent decision by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) came in a case involving Tahnee Heights, a residential housing society on Nepean Sea Road, and Mittal Tower at Nariman Point that houses several offices.
The decision means a flat-owner or owner of a commercial premise in a housing society registered under the Maharashtra Co-operative Societies Act will have to pay much less. The society will not be required to impose a service tax charge (currently 12.36%) against maintenance charges collected from its members.
Typically in any housing society in Mumbai, the resident welfare association (RWA) formed from among members of the society caters to the administrative needs of the society. Maintenance charges are collected for purposes like water charges, electricity for common areas (lifts, stairways, lobbies), security, lift maintenance or repairs, and maintenance of common areas. Most of these charges that are collected are in the nature of reimbursement.
In some cases, the RWA enters into contracts with external service providers, say for regular lift maintenance or for providing service guards. These agencies charge service tax on their fees, which is paid by the RWA.
However, service tax authorities insisted housing societies pay up on the charges collected from its members. In tony areas or in luxury housing societies with a club house, gym or swimming pool, monthly maintenance charges can be steep, even running to more than Rs 1 lakh per flat. The service tax authorities contended the RWAs are providing taxable “club or association services”.
In the case, Tahnee Heights, which collected charges for maintenance, repairs and beautification, and Mittal Tower that raised expenses from its members towards water and security charges and repairs, paid service tax on the department’s “persuasion”. Later they filed refund claims, which were rejected. Consequently appeals were filed with the CESTAT.
“The CESTAT decision is the first of its kind for the western zone. The tribunal, based on decisions of other jurisdictions, accepted the principle of mutuality — the society provided services to itself which could not be subject to service tax. However, finality will be reached only once the Supreme Court adjudges on a similar matter pending before it,” said Bakul Mody, chartered accountant, who represented Mittal Towers.