2021 (12) TMI 608 - AAR - GST

Nature of activity - business or not - activity of the applicant i.e. collecting contributions and spending towards meeting and administrative expenditures only - contributions from the members, recovered for expending the same for the weekly and other meetings and other petty administrative expenses incurred including the expenses for the location and light refreshments - supply or not - doctrine of mutuality - HELD THAT - In view of the amended Section 7 of the CGST Act, 2017, we find that the applicant society and its members are distinct persons and the contribution received by the applicant, from its members is nothing but consideration received for supply of goods/services as a separate entity. The principles of mutuality, which has been cited by the applicant to support its contention that GST is not leviable on the contribution collected from its members, is not applicable in view of the amended Section 7 of the CGST Act, 2017 and therefore, the applicant has to pay GST on the said amounts received from its members. According to applicant, there is no commercial consideration involved in the process, just that the funds are collected in a common pool for meeting the expenses for the weekly meetings and other petty expenses incurred in meeting the common objective of betterment of society. According to applicant, the amount being collected from the members is reimbursement of expenses or share of contribution - The common pool is being spent back on the members only. According to applicant, in the absence of two distinct persons and also in absence of consideration, as defined under the Act, contributions received from the members in the Administration Account does not qualify as a Supply within the meaning of the term, as defined under the Act. The amendment to Section 7 (mentioned above) clearly treats the applicant and its member as two different persons where there is a supply of services from the applicant to its members and thus as per the applicant s own submission that two different persons have been envisaged in the law to tax a transaction as a supply made for a consideration, in the instant case there is a supply by the applicant to its members and consideration is received in the form of fees .

Summary

Issues Involved:
1. Whether the activity of collecting contributions and spending towards meeting and administrative expenditures is considered 'business' under Section 2(17) of the CGST Act, 2017.
2. Whether contributions from members for weekly meetings and administrative expenses amount to a 'supply' within the meaning of the term under the CGST Act, 2017.

Issue-wise Detailed Analysis:

1. Business Activity under Section 2(17) of the CGST Act, 2017:

The applicant, a Rotary Club, collects contributions from its members to cover administrative expenses and meeting costs. The applicant argued that these collections are not for commercial purposes but are pooled and spent back on the members, invoking the doctrine of mutuality. The applicant cited case laws, including CIT vs. Bankimpur Club Ltd. and State of West Bengal vs. Calcutta Club Ltd., to support their claim that the contributions do not constitute a business activity as there is no commercial consideration involved.

However, the concerned officer contended that the term "business" under Section 2(17)(e) of the GST Act includes the provision of facilities or benefits to members for a subscription or any other consideration. The officer argued that the applicant's activities, including personality development and other benefits provided to members, fall under this definition and should be considered a business activity.

The judgment concluded that the applicant's activities do fall under the ambit of "business" as per Section 2(17) of the CGST Act, 2017. The fees collected from members are considered consideration for the supply of services, and thus, the applicant is engaged in business activities.

2. Contributions as 'Supply' under the CGST Act, 2017:

The applicant argued that the contributions from members are merely reimbursements for meeting and administrative expenses and do not constitute a supply as defined under the Act. They emphasized the principle of mutuality, stating that there is no commercial consideration and no distinct persons involved in the transactions.

The concerned officer countered that the term "supply" under Section 7 of the CGST Act includes all forms of supply of goods or services for consideration in the course or furtherance of business. The officer highlighted that the amendment to Section 7(1) in the Budget 2021, which added clause (aa), clarifies that activities or transactions by a person to their members for consideration are deemed to be a supply.

The judgment noted that the amendment to Section 7(1) explicitly treats the applicant and its members as distinct persons, and the contributions received are considered consideration for the supply of services. Therefore, the principle of mutuality does not apply, and the contributions amount to a supply as defined under the GST Act.

Conclusion:

The judgment affirmed that the activities of collecting contributions and spending towards meeting and administrative expenditures constitute 'business' under Section 2(17) of the CGST Act, 2017. Additionally, the contributions from members for weekly meetings and administrative expenses are considered a 'supply' within the meaning of the term under the CGST Act, 2017. Consequently, the amounts collected as membership subscriptions and admission fees from members are liable to GST as supply of services.