Finance Act, 2021, has introduced GST on all activities or transactions between members and respective clubs and associations. The said amendment is retrospective in nature and will be applicable from July 2017 (i.e. from the introduction of GST). The said amendment has arisen due to the judgment of the Honorable Supreme Court in the case of Calcutta Club Limited wherein it had been held that no service tax/VAT will be applicable on supplies made by club/associations to its members due to the principles of mutuality. Even under GST, there have been many Advance Rulings decisions wherein it has been held that transactions between members and clubs/associations will not be liable to GST. This amendment, therefore, nullifies all the judgments passed to date.
Is the said levy ultra vires and unsustainable as there is no provision in the Constitution to support the concept of deemed service? The legislative competence of Parliament to enact the said levy is derived from Article 246A of the Constitution of India. The substance of the said Article in respect of chargeability of goods and services tax is trade and commerce. It is also evident from the provision of Section 7(1)(a) which requires a supply of goods and services to be in the course of or in furtherance of business. However, by the impugned provision, the legislature has done away with the fundamental requirement of the supply of goods and services being in furtherance of or in the course of business. The impugned provision, therefore, appears inconsistent with the substratum of the CGST Act.
The amendment has far-reaching consequences on all associations which are formed to pool the receipts and incur common expenses. There is no element of service by such associations. Take, for example, a housing society or a club wherein members based on estimated expenditure contribute a sum periodically to incur common expenditure. Can it be said that the housing society is rendering services to members in the course of business?
These associations/clubs are not-for-profit institutions and neither do they render commercial services to their members nor do they render services to outsiders for a fee.
However, as of date–have to live with it.
Chartered Accountant in Pimpri Chinchwad.