Whether GST is payable on the services provided by
clubs to their members
By Yogesh Verma (CS/LLB) / 2 min read / GST Advance Ruling
Introduction
The Goods and Services Tax (GST) framework in India has
consistently evolved, with numerous judicial pronouncements shaping its
application to various industries and sectors. One such issue has been the
taxability of services provided by clubs and associations to their members. The
Rajasthan Authority for Advance Ruling (AAR) in the case of M/s Umed Club,
Jodhpur, examined whether GST is applicable to the services provided by a
club to its members, in light of the Supreme Court’s ruling in State of West
Bengal vs. Calcutta Club Limited. This article provides an in-depth
analysis of the case, including the facts, legal provisions, arguments, and the
final ruling.
1. Case Details
- Applicant: M/s Umed Club, Jodhpur
- Ruling
Authority: Rajasthan Authority for
Advance Ruling (AAR)
- Ruling
No.: RAJ/AAR/2024-25/23
- Date
of Ruling: October 3, 2024
- Clause
of GST Act Invoked:
Section 97(2)(e) – Determination of tax liability on goods or services
- GSTIN
of Applicant: 08AAABUO007F1ZZ
2. Facts of the Case
M/s Umed Club is a registered society providing various
services, including:
- Short-term
accommodation
- Restaurant
and catering services
- Recreational
and club-related services
The applicant sought clarity on whether GST is applicable to
services provided by the club to its members. The primary contention was based
on the Supreme Court’s decision in State of West Bengal vs. Calcutta Club
Limited (Civil Appeal No. 4184 of 2009), which ruled that services
between a club and its members are not taxable due to the principle of
mutuality.
However, the Finance Act, 2021, introduced Section
7(1)(aa) of the CGST Act, 2017, which explicitly made such transactions
taxable, overriding the Supreme Court’s decision.
3. Questions Raised in Advance
Ruling
The applicant raised the following question before the
Rajasthan AAR:
“Whether GST is payable on the services provided by clubs to
their members?”
4. Applicant’s Submissions
The applicant contended the following:
1.
Supreme
Court Precedent: The ruling in Calcutta Club
Limited held that members and their clubs are not separate entities and
thus, services provided by the club to its members should not attract GST.
2.
Similarity
with Service Tax Regime: Since the
GST law is similar to the erstwhile Service Tax laws, the Supreme Court
ruling should apply to GST as well.
3.
Schedule
II Interpretation: Schedule II of the CGST Act, 2017,
treats supply of goods by an unincorporated association to its
members as a taxable event, but there is no such provision for services.
4.
Incorporation
Status: M/s Umed Club is a registered
society, and therefore, should be outside the purview of GST, as per the
Supreme Court’s ruling in Calcutta Club Limited.
5. Jurisdictional Officer’s Comments
The jurisdictional officer opposed the applicant’s argument,
contending that:
1.
Explicit
GST Provisions: Section 7 of the CGST Act, 2017,
defines “supply” broadly and includes all transactions for consideration
in the course of business.
2.
Retrospective
Amendment: The Finance Act, 2021,
inserted Section 7(1)(aa), making transactions between a club and its
members taxable from July 1, 2017, retrospectively.
3.
Overriding
Effect: The amendment in Section 7(1)(aa)
overrides any other law, judgment, decree, or order, thereby nullifying
the effect of the Calcutta Club Limited ruling.
4.
Club-Member
Relationship: The principle of mutuality
does not hold under GST, as the law now treats clubs and their members as distinct
persons.
6. Legal Provisions Examined
The ruling authority considered various provisions of the
GST law:
(a) Section 2(84) of the CGST Act,
2017
Defines a “person” to include an association of persons
or a body of individuals, whether incorporated or not.
(b) Section 2(102) of the CGST Act,
2017
Defines “services” as anything other than goods,
money, and securities.
(c) Section 7 of the CGST Act, 2017
Defines “supply” to include:
- All
transactions made for consideration in the course of business.
- Import
of services for consideration.
- Supply
of activities or transactions between a club and its members (as per Section 7(1)(aa)).
(d) Retrospective Amendment in
Section 7(1)(aa)
The Finance Act, 2021, amended the CGST Act to
explicitly state that:
“A person and its members or constituents shall be deemed to
be two separate persons, and transactions between them shall be deemed to be
supply.”
This amendment applies retrospectively from July 1, 2017,
effectively negating the Supreme Court’s ruling in Calcutta Club Limited.
7. Discussion and Findings of the
AAR
After reviewing the submissions, the Rajasthan AAR ruled:
1.
No
Exemption for Clubs: The Supreme Court’s decision in Calcutta
Club Limited is not applicable under GST, as the law now explicitly
deems clubs and their members as separate entities.
2.
GST
Applies to Club Services: Under
Section 7(1)(aa), all transactions between clubs and members are taxable.
3.
Retrospective
Effect: The retrospective amendment ensures
GST is applicable on club services since July 1, 2017.
4.
Legal
Overriding Clause: The amendment explicitly overrides
any previous court ruling or legislation.
8. Final Ruling and Conclusion
- Question: Whether GST is payable on the services provided by
clubs to their members?
- Answer: Yes, GST is payable on services provided by clubs
to their members.
The ruling affirms that GST law effectively nullifies the
principle of mutuality for taxation purposes, ensuring that club services
are taxable under the CGST Act, 2017.
This decision provides a clear precedent for all
clubs and associations, reaffirming their obligation to comply with GST
regulations. It also serves as a reminder that legislative amendments
can retrospectively alter the impact of judicial pronouncements, as seen in
this case with the Finance Act, 2021.
9. Implications of the Ruling
1.
Clubs Must
Register for GST: Any incorporated or
unincorporated club providing services must register under GST if
they exceed the prescribed turnover limit.
2.
Tax
Collection from Members: Clubs
must collect GST from members for services like accommodation, food, and
recreational activities.
3.
Retrospective
Liability: Clubs that have not been charging
GST since July 1, 2017, may face tax demands and penalties.
4.
Legal
Certainty: The ruling eliminates ambiguity
on taxability, aligning GST law with the legislative intent to tax club
services.
10. Conclusion
The Rajasthan AAR’s ruling in the M/s Umed Club case
reinforces the broad scope of GST and establishes a clear compliance
framework for clubs and associations. The retrospective amendment ensures
that all club services are taxable, providing legal certainty to
the GST framework. This case serves as an important reference point for similar
organizations operating across India.
Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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