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15 May 2021

No GST on subscription fees and infrastructure development fund collected from members on the basis of principle mutuality

GST on membership fees of club and on provision of services by club to its members has always been a matter of discussion considering concept of mutuality.

The concept of mutuality as explained in the case of Ranchi Club Limited vs Chief Commissioner of Central Excise & Service Tax, Ranchi Zone and Others, 2012 (26) S.T.R. 401 (Jhar.), may be referred, to mean that the club/association of persons do not have a distinct entity from its members and any service rendered by the club/association to its members would amount to rendering the service to oneself and thus, in the absence of distinct service recipient, no service tax is chargeable on the services rendered by the club/association to its members.

This case of Ranchi Club Limited upholding applicability of principle of mutuality under the erstwhile Finance Act, 1994 was then appealed to Hon’ble Supreme Court by the department, appeal admitted by Hon’ble Supreme Court and is pending for final decision.

Recently, under West Bengal VAT, the Hon’ble Supreme Court of India in the case of State of West Bengal vs. Calcutta Club Ltd. cited in [2019] 110 taxmann.com 47 (SC), has held that

  • Doctrine of mutuality is applicable to incorporated and unincorporated members' clubs even after 46th Amendment adding article 366(29-A) to Constitution of India and thus sales tax could not have been levied on such clubs for supply of food and drinks to permanent members.

The Supreme Court of India has also held that we are also of the view that from 2005 onwards, the Finance Act of 1994 does not purport to levy service tax on members' clubs in the incorporated form, following the judgment of Jharkhand High Court and the Gujarat High Court following the view in Young Men's Indian Association (supra).

Further, after introduction of Negative List in July 2012, the definition of service is, "any activity carried out by person for another for consideration". So, the issue still remains whether a club is a different person from its members.

Now in GST, Entry 7 of Schedule II of the CGST Act, 2017 provides that Supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration.” shall be treated as supply of goods.

Also, in GST regime the term business includes-

(e) provision by a club, association, society or any such body (for a subscription or any other consideration) of the facilities or benefits to its members;

Further, an amendment has been proposed in section 7(1) of the CGST Act by way of insertion of following clause with retrospective effect from 01 July 2017:

“(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.

Explanation. – 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;”

Now, in the case of Bowring Institute, In re [2021] 127 taxmann.com 166 (AAR - KARNATAKA) the Applicant is a club and its members contribute by way of subscription fees and infrastructure development fund to be used for the provision of services. The Advance Ruling Authority of Karnataka has held Supreme Court judgment in the case of Calcutta Club Limited is fully applicable on the applicant. The amendment proposed in section 7 of the CGST Act will come into effect when Central Government and State Governments notifies the same. Thus, the applicant is not liable for payment of GST on subscription fees and infrastructure development fund collected from members till the amendment proposed in CGST Act is notified.