NOVEMBER 15, 2019

By Prashant Shukla, Advocate

RECENTLY, Hon'ble Supreme Court has pronounced its judgment in State of W.B. vs. Calcutta club Ltd. and C.C.E & S.T. vs. Ranchi Club Ltd., - 2019-TIOL-449-SC-ST-LB. wherein dispute with respect to levy of sales tax and service tax on the member's club or associations akin to member's club has been decided in favour of the assesses. However, a question arises as to whether this controversy has been settled for GST regime also.

Decision in Calcutta Club & Ranchi Club

Recently, in Calcutta club Ltd. case (supra), the Hon'ble Supreme Court has held that association, housing societies and member's club where affairs of such club or association or society are being governed by their members, were not liable for payment of sales tax or service tax on the payments received from the members by applying the doctrine of mutuality as explained in CTO v. Young Men's India Assn., - 2002-TIOL-2727-SC-CT-LB. The Hon'ble Supreme Court has considered various precedents under the different enactments wherein the courts had scrutinised relationship of member's club with its members where the members of the clubs enjoy the facilities organised by the club, for which they contributed their shares to the coffers of the club. In these cases, the courts have repeatedly held that a members' club holds the property of the club in the capacity of agent or trustee for the members of the club. When the club, even though a distinct legal entity, is only acting as an agent for its members and in the matter of supply of various facilities to them, the clubs are not to be treated as something separate from its members. Accordingly, in Calcutta club Ltd. case (supra), the Hon'ble Court has held that this well-established doctrine of mutuality is applicable to incorporated clubs and registered societies, and rejected the Revenue's pleading that principle of mutuality has been done away by the 46th Constitutional Amendment or by Explanation 3(a) to Section 65B (44) of the Finance Act, 1994.

Taxability under GST Laws

Now GST has been levied in place of erstwhile service tax and sales tax. Therefore, relevance of the decision in Calcutta club Ltd. case (supra) is required to be examined in the context of GST laws. The GST is being levied and collected as per the provisions of the Central Goods and Services Tax Act, 2017 (CGST Act), respective states or union territory Goods and Services Tax Act (SGST Act or UTGST Act) and the Integrated Goods and Services Tax Act, 2017 (IGST Act). CGST and SGST are in pari materia. Under these enactments, GST is payable on supply of goods or services. Section 7 (1) of CGST Act provides the scopes of "supply" as under:

7. (1) For the purposes of this Act, the expression "supply" includes- (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;

(b) import of services for a consideration whether or not in the course or furtherance of business; and

(c) the activities specified in Schedule I, made or agreed to be made without a consideration;

For the issue in hand, only section 7(1)(a) of CGST Act is relevant. It may also be relevant to mention that section 7(1A) requires that certain activities or transactions is required to be treated as either supply of goods or supply of services as specified in Schedule II of the Act where such activities or transaction constitutes supply under section 7(1) of the Act. In other words, classification of certain activities or transaction as supply of services or supply of goods as per the Schedule II is relevant only when such activities or transaction is covered within the scope of "supply" under section 7(1) of the Act.

Department's Stand and Advance Rulings on Levy of GST on Club

The CBIC has clarified that the association, housing societies and member's club are liable to pay GST on their inter se transaction of rendering services to its members because such transaction constitutes supply as defined in section 7(1)(a) of the CGST Act by referring to definition of "consideration" and "person" as given in section 2(17)(e) and 2(84) of the said Act, respectively. Recently, in Re: Rotary Club of Mumbai Queens Necklace, 2019-TIOL-203-AAR-GST, the ld. Advance Authority has followed an unreported order of the ld. Appellate Advance Authority in which the ld. Appellate Authority has held that GST is payable by clubs by relying upon the inclusive definition of the "consideration" and "business". Therefore, the question arises as to whether the Revenue is entitled to collect GST from association, housing societies and member's club which works on the principle of mutuality under the law or it is a mere larcenous desire of the Revenue authorities to tax these entities.

Relevance of Supreme Decision in GST regime

From a plain reading of section 7(1) (a) of the Act, it can be noticed that taxable event is making supply of services or goods for a consideration in the course or furtherance of business. Supply in ordinary sense means make (something needed or wanted) available to someone; provide. It means that tax is on the transaction between the two persons. Self-consumption of goods or self-service is not be taxable under this section. In Calcutta club Ltd. case (supra), the Hon'ble Court has clearly ruled that there is no sale or service by one person to another in a case where doctrine of mutuality is applicable as held in Young Men's India Assn. case (supra.) In Young Men's India Assn. case, Hon'ble Supreme Court has held that the club even though a distinct legal entity is only acting as an agent for its members in matter of supply of various preparations to them, no sale would be involved as the element of transfer would be completely absent. Hence, there cannot be any supply of goods or services by the club to its members though the club and members are distinct persons. There is no specific provision in the GST Acts which makes the concept of mutuality redundant.

It is a futile exercise to consider the definitions of the expression "business" and "consideration" when there is no supply of goods and services in a case of association, housing societies and member's club which works on the principle of mutuality. However just for the purpose of clarification, it may be noticed that the definitions of these expressions are also not neutralising the concept of mutuality in any manner. The expressions, "consideration" and "business" are defined in the Act as under:

(17) "business" includes--

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(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;

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(31) "consideration" in relation to the supply of goods or services or both includes--

(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;

(b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government: Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;

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No doubt that the definition of "consideration" is an inclusive definition which includes payment made for supply of goods or service and monetary value of an act/ forbearance, by the recipient of supply or by any other person. It may be noticed that inclusive part of the definition of consideration is not extending the scope of ordinary meaning of consideration. Monetary consideration and monetary value of non-monetary consideration is well covered within the ordinary meaning of the consideration. Usually, inclusive part expands the scope of definition. But the word ‘includes' is susceptible to another construction; if the context of the law is sufficient to show that it was not merely employed for the purpose of adding to the natural significance of the words or expression defined. In ordinary sense also, consideration already flows from one person to another. Hence, section 2(31) also postulates that consideration is to be paid by another person. Therefore, this provision is a nonstarter in a case of club or association which works on principle of mutuality.

It is relevant to mention that 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 has been included in the definition of business under section 2(31)(e) of the Act. When the club or association is not receiving consideration, this section has no significance because of provision of facilities by a club for a consideration has been considered as business under this section.

Conclusion

In view of foregoing discussion, it may be appreciated that the member's club or associations akin to member's club are not liable to pay GST while extending their facilities or amenities to its members because none of the essential ingredients of "supply" as defined under section 7 (1) of the GST Acts are satisfied as per the ratio of the Hon'ble Supreme Court's decision in Calcutta club Ltd. case (supra).

[The views expressed are strictly personal.]