the essay of 16 April 2025 · the untouched capture
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<p align="left"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">APRIL16, 2025</font></strong></p>
<p align="center"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>No GST on services by Clubs and Associations to Members?</strong></font></p>
<p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><u>By Vijay Kumar</u></font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>EVER</strong> wonder whether the hefty maintenance charge you pay to your Residents Welfare Association is liable to GST? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In <a href="https://taxindiaonline.com/news/details?id=3592&view=column">TIOL-DDT 343 - 18 04 2006</a>, nineteen years ago, I wrote, </font></p>
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<p align="justify"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#DFF3CB" span="span">FICCI, CII, ASSOCHAM and several trade associations liable to Service Tax as club or association? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#DFF3CB" span="span">Yes! According to the Hyderabad Chief Commissioner. He clarified this in a recent RAC meeting. FAPCCI - Federation of Andhra Pradesh Chambers of Commerce and Industry - the apex body for traders and industries in Andhra Pradesh is a Service Tax assessee in Hyderabad. FAPCCI guides and advises the industry and trade but FAPCCI itself was in doubt whether they were liable to pay Service Tax and they asked this question in the RAC meeting. The Chief Commissioner clarified that FAPCCI was liable to pay service tax under sub-clause (zzzc) of Section 65(105) of the Act. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#DFF3CB" span="span">It was also clarified that the service tax is payable on the subscription fee paid by the members of the association whether or not they have availed the services of the association. </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Service Tax has become GST, but the taxing issue remains. The question is whether a club or association is liable to pay GST on the charges collected from its own members? Is it not self-service? Doesn't service by definition require at least two parties, a service provider and a service receiver? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In <em>Ranchi Club vs Chief Commissioner of C. Ex & Service Tax</em>, the Jharkhand High Court held <strong><a href="https://taxindiaonline.com/searchcaselaw/details?id=86266&type=caselaw&keyword=null" target="_blank">2012-TIOL-1031-HC-JHARKHAND-ST</a></strong> </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#DFF3CB" span="span">Sale entails transfer of property whereas in service, there is no transfer of property. However, the basic feature, common in both transactions, requires existence of the two parties; in the matter of sale, the seller and buyer, and in the matter of service, service provider and service receiver. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#DFF3CB" span="span">It can be held that in view of the mutuality and in view of the activities of the club, if club provides any service to its members may be in any form, then it is not a service by one to another as foundational facts of existence of two legal entities in such transaction is missing. </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This was upheld by the Larger Bench of the Supreme Court in <em>Chief Commissioner of Central Excise and Service Tax vs Ranchi Club Ltd and State of West Bengal vs Calcutta Club Ltd <strong>- <a href="https://taxindiaonline.com/searchcaselaw/details?id=152856&type=caselaw&keyword=null" target="_blank">2019-TIOL-449-SC-ST-LB</a></strong></em>. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This issue was discussed in the 39th GST Council Meeting held on 14th March 2020. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The agenda mentioned: </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Hon'ble Supreme Court of India laid down the following ratio: </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">From 2005 onwards, the Finance Act of 1994 does not purport to levy Service Tax on member clubs in the incorporated form. (Para 84) </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The doctrine of mutuality continues to be applicable and that </font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#FFFF00" span="span">there cannot be a sale transaction between a club and its members. </font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Clubs or associations in law have no separate existence from that of the members. (para 49) </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The judgment covers two aspects: </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">a) leviability of sales tax on supply of food and drinks by a member club to its members; and </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">b) leviability of service tax on the services provided by a member club to its members. </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Government told the Council, </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">Judgment of the Supreme Court in <em>Calcutta Club</em> case, clearly shows that in order to tax any supply by an Association-of-persons (AoP) to its members, the doctrine of mutuality needs to be overcome by express provisions to that effect in the taxing statute. </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Council was informed: </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">GST on supplies of goods or services by an unincorporated or incorporated entity to its members may become subject matter of litigation. There is no provision in the CGST Act, 2017 which stipulates that an unincorporated or incorporated entity and its members shall be distinct persons. In the absence of a provision to this effect, the subject judgment of the Hon'ble Supreme Court becomes squarely applicable. The doctrine of mutuality applies and thus supplies by unincorporated or incorporated entity to its members is a supply to self and not leviable to GST. </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Council was further informed: </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">Therefore, it is imperative to amend the CGST Act, 2017 so as to safeguard the levy of GST on supplies by an association or body of persons (whether incorporated or not) to its members. </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Council approved and promptly the Government started the legislative process. The Finance Act 2021 inserted a new clause to bring in the proposed changes with retrospective effect from 01.07.2017. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">Section 7(1) of the CGST Act states: </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">(1) For the purposes of this Act, the expression - <em>"supply"</em> includes- </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now, a new clause <em>"aa"</em> has been added which reads as: </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">(aa) the activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF"><strong>Explanation</strong>.- For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgment, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another; </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So, the law as it stands today is that services by Clubs/Associations to their members are taxable - and right from 2017. </font></p>
<p align="justify"><strong><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif">But is it? </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Kerala State Branch of the Indian Medical Association filed a writ petition in the Kerala High Court pleading that: </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">the provisions of Section 7(1) (aa) and the Explanation thereto, of the Central Goods and Services Tax Act, 2017 are unconstitutional and void being ultra vires the provisions of Article 246A read with Article 366(12A), and violative of Articles 14, 19(1)(g), 265 and 300A, of the Constitution of India; </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The High Court had no doubt that the legislature has the power to enact validating laws that remove the basis of invalidity pointed out by the courts. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But the question here was slightly different; </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">Can the legislature levy tax on a transaction when the taxable event in relation to the subject of taxation has not been recognised as such by the Constitution? </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">When the Constitution has understood a taxable transaction as necessarily involving two persons, can a legislature deem a transaction that does not involve two persons as a taxable transaction? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Counsel for the petitioner submitted that: </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. On account of the principle of mutuality the mere fact that statutory amendments have been made to the concept of <em>"supply"</em> under the GST Acts will not suffice to make their activities liable to the levy of GST; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. The concept of service under the GST law itself contemplates the existence of two entities - a service provider and a service recipient and excludes the concept of self service for the purposes of the levy. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. GST is envisaged as a levy of tax on the <em>"supply"</em> of<em> "goods or services or both"</em>. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. The words <em>"goods", "supply" </em>and<em> "services" </em>are understood in a particular sense under the Constitution. When the words used in the Constitutional text have acquired a meaning through judicial interpretation over the years, one must assume that that is the same sense in which the word is used when inserted into the Constitution through a later amendment. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5. While <em>"goods"</em> is a standalone concept, meaning thereby that it is not something that requires a plurality of persons to infer its existence, the concepts of <em>"supply"</em> and <em>"service"</em> do require a plurality of persons to infer their existence. This aspect was recognised in <em>Ranchi Club</em> - where it was laid down that the basic feature common in sale and services was that both required the existence of two parties. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6. The decision in <em>Ranchi Club</em> was quoted with approval by the Supreme Court in <em>Calcutta Club</em>. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">7. Scheme of GST under the Constitution also contemplates the existence of at least two persons - a provider and a recipient before one can infer either a <em>"supply"</em> or a <em>"service"</em> for the purposes of the levy. </font></p>
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The High Court [<strong><a href="https://taxindiaonline.com/searchcaselaw/details?id=186676&type=caselaw&keyword=null">2025-TIOL-598-HC-KERALA-GST</a></strong>] observed, </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. What we are confronted with in these proceedings is a situation where the statutory exercise undertaken by the legislative body has given a meaning to a word/concept therein that differs from the accepted meaning of the same word/concept under the Constitution. </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. When a word/concept in the Constitution has been interpreted by the Supreme Court in a particular manner, a legislative body, that derives its legislative competence to enact a Statute from the Constitution, cannot give to the word/concept a meaning that goes against the meaning assigned to the same word/concept by the Supreme Court in the context of its setting under the Constitution. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. This is especially so because, when used in the Constitution in a particular sense, it is that sense of the word/concept that determines the very competence of the legislature to enact a law in relation to the subject represented by that word/concept. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. That the Constitution has not been amended to deem a supply of service by a club or association to its members as a taxable service for the purposes of GST. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5. That a phrase as understood under the Constitution cannot be statutorily expanded by any legislature since the power to legislate is itself one that is conferred by the Constitution. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6. When similar situations arose in the past where various State legislatures attempted to broaden the tax net by statutorily expanding the definition of <em>"sale"</em>, the Supreme Court struck down such amendments as being beyond the meaning of the word <em>'sale'</em>, the Constitution had to be amended. </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The High Court declared the provisions of Section 7(1)(aa) and the Explanation thereto of the CGST Act, 2017 as unconstitutional and void being ultra vires the provisions of Article 246A read with Article 366 (12A) and Article 265 of the Constitution of India. </font></p>
<p align="justify"><strong><font color="#009900" size="2" face="Verdana, Arial, Helvetica, sans-serif">What now? </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Is there no GST on maintenance charges collected by Residents Welfare Associations and services provided by clubs and associations to their members? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Wait - don't rush to celebrate - there is still the Supreme Court and a possible amendment to the constitution - with retrospective effect of course. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But we need at least two persons - the provider and the recipient. Elementary? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The urge to tax remains eternal. And yet, despite the persistence, the mutuality principle remains, whispering to future legislators, <em>E pur si muove</em>-good luck trying again! </font></p>
<p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until next week </font></p>
<p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Comments/feedback welcome at<a href="mailto:vijaywrite@tiol.in"> <u>vijaywrite@tiol.in</u></a> or 9848111243 (WhatsApp) </font></strong></p>
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