Way forward for the Clubs/associations - Amounts collected from members

[Shilpi Jain]

In the recent decision in the case of Indian Medical Association, Kerala State Branch[1], the Kerala HC held that the amendment to the GST law for taxing the contributions received by clubs, associations, etc. from its members towards supply of goods and/or services, is valid.

Outcome of decision

However, point of relief in this case is that

1. The amendment is considered to be prospectively applicable from 01-01-2022 and not from the date of commencement of the GST regime i.e. 01-07-2017, and
2. Not all contributions would be liable to GST but only those that are for supply of goods and/or services would be liable.

Refund

Thereby, the clubs/associations, etc. can apply for refund in light of this decision, for the following:

1. For the period PRIOR to 01-01-2022, if they of have paid GST on any of the contributions from the members,  
2. For the period from 01-01-2022, if they of have paid GST on any contributions which is not for supply of goods and/or services, from the members.

The question that now arises is whether the refund can be denied stating that the GST is also paid by the clubs from the contributions that they have received from members and so there is unjust enrichment if refund is given to clubs?

It would be relevant to note the decision of the Tribunal[2] in the case of Cricket Club Of India Ltd. that since no service tax was collected separately from the members, but was paid from the common funds available for utilisation, unjust enrichment does not apply and refund would be eligible. Thereby, if the clubs/associations have not collected service tax specifically from their members, refunds should not be rejected.

Also, considering the fact that until 01-01-2022 clubs and members were regarded as one and the same (mutuality concept)[3], refunds should not be rejected for claims up to 31-12-2021, since the burden of any tax paid by the clubs, etc. was not passed on to any third person.

In view of the paper writer, the cause of action to claim refund has arisen after this decision was pronounced and thereby the time limit of 2 years should apply from date of this decision.

Consequence if GST not paid

As per this decision, amounts collected from members from 01-01-2022 would be liable to GST. What would be the case if the clubs/associations have neither collected from members nor paid this to the Exchequer?

Irrespective of the fact of collection of GST from the members, these clubs/associations would be required to remit the GST on amounts collected from members towards supply of goods and/or services.

This would have to be paid along with interest. This being an interpretative issue, penalty should not be applicable. Hence, the clubs/associations should now compute and pay off the liability for such amounts.

However, before proceeding to pay, the clubs/associations can consider the below:

Is the decision final?

The next question that may arise is, whether the decision of the High Court is final? Considering that this could be appealed before the division bench (DB) of Kerala HC by both assessee and department, and the fact that similar matters are challenged before other High Courts as well, this verdict may not be final.

Assuming DB also gives a similar decision, still appeal could lie with the Supreme Court.

So, what one could do is,

1. If tax was paid for the period prior to 01-01-2022, refund application can be filed to ensure that the claim does not get time barred.
2. For the period from 01-01-2022, consider paying the tax under protest under an intimation to the department, so that in case there is any favourable decision at higher forums, refund can be applied for. This option can be chosen to avoid high interest liabilities in future on tax demand, if any.

In the meantime, the clubs/associations should also consider making a representation to the Government and the GST Council, requesting to consider this amendment to be applicable prospectively considering the industry practice in place.

Ray of hope?

Another aspect to note is that the Counsel for the petitioner had put forth the following arguments:

1. The well-recognized principles of mutuality could not have been erased by the amendment in the GST Act by inserting Section 7(1)(aa) retrospectively,
2. The amendment is ultra-vires the provision of the Constitution. Such a levy could have been only by amendment in the Constitution and not otherwise.
3. Unless Article 246A would have been amended to provide for taxing of services by the club / association to its members, the activities of club/association could not be brought within the ambit of GST Act.

The HC had commented on the first 2 aspects. Though, it has failed to note that similar deeming fictions did exist under the earlier laws (Service tax – explanation 3a to section 65B) in spite of which the SC had held that the clubs/associations are not liable to tax due to the concept of mutuality.

Thereby, even though GST has brought these deeming fictions subsequently, considering the decision of the SC[4], under GST also the transactions between clubs and members should not be liable to GST.

Further, on the aspect of requirement of amendment to the definition of services, there seems to be no discussion by the HC. In view of the paper writer as well, considering the evolution of taxation of the amounts collected by clubs/associations, etc., a Constitutional amendment to the definition of services would be specifically required to tax this transaction. This has been in detail analysed by an already published article of the paper writer which was published in the Chamber of Tax Consultant’s Tax Journal for the month of Jun 2021. A link to the text of the same is given here -à https://hnallp.com/assets/articles/2eb31-5.-mutuality-concept-and-the-retrospective-amendment_sj_may-21_ctc-1-_pu.pdf

This however, could take several decades to get a final decision from the SC if the case is admitted. Hence, if the clubs, would wish to take a conservative stand, they could consider paying GST for amounts collected from 01-01-2022 towards supply of goods and/or services under protest.

Special thanks to Adv. Venkataprasad P for his inputs. The views expressed above are strictly personal and cannot be regarded as a legal advice/opinion. For any feedback/queries please write to [email protected].

 

[1]  INDIAN MEDICAL ASSOCIATION, KERALA STATE BRANCH, VERSUS UNION OF INDIA, STATE OF KERALA, GST COUNCIL, ADDITIONAL DIRECTOR GENERAL DIRECTORATE GENERAL OF GST INTELLIGENCE, KOCHI, DEPUTY DIRECTOR, DIRECTORATE GENERAL OF GST INTELLIGENCE, KOZHIKODE. - 2024 (7) TMI 1448 - KERALA HIGH COURT

[2]  THE CRICKET CLUB OF INDIA LTD. VERSUS COMMISSIONER OF SERVICE TAX, MUMBAI - 2015 (9) TMI 1389 - CESTAT MUMBAI and pending before SC in COMMISSIONER VERSUS CRICKET CLUB OF INDIA LTD. - 2016 (7) TMI 1378 - SC ORDER

[3]  STATE OF WEST BENGAL & ORS. VERSUS CALCUTTA CLUB LIMITED AND CHIEF COMMISSIONER OF CENTRAL EXCISE AND SERVICE & ORS. VERSUS M/S. RANCHI CLUB LTD. - 2019 (10) TMI 160 - SUPREME COURT

[4] STATE OF WEST BENGAL & ORS. VERSUS CALCUTTA CLUB LIMITED AND CHIEF COMMISSIONER OF CENTRAL EXCISE AND SERVICE & ORS. VERSUS M/S. RANCHI CLUB LTD. - 2019 (10) TMI 160 - SUPREME COURT