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2018 (12) TMI 1086 - AAR - GSTLevy of GST - supply of services or not - contribution made by Members towards Annual Membership Fees and registration fees to the Corpus Fund of BCSBI - recurring expenditure - Principle of Mutuality - whether the applicant is providing supply of services to their members and if so, is there any consideration received by them for such supply of services/ goods? Held that - These activities are undertaken only for and in respect of the Member Banks, who have voluntarily become their members. Hence their primary objective is to guide the public and publicise about the Codes and Standards and Commitment of their Member Banks. Hence, the applicant is firstly developing and publishing and then publicizing Banking Codes and Standards for the banks who are their members and after this, they are monitoring its compliance, undertaking further research with regard to codes and standards and are also training bank employees about these codes - the applicant is also advertising and publishing promotional literature in newspapers and are also organizing, teaching and training courses, conferences, seminars and lectures and also publishing journals, pamphlets, reports, books and booklets in this regard. The applicant are basically drafting certain codes and standards and are directly as well as indirectly ensuring that member banks adhere to these standards and codes and thus provide banking services as per these codes and standards and thus the credibility of services of member banks increases if they are able to provide services as per codes and standards as drafted for adherence by the applicant. For performing the said activities, the applicant requires funds which are collected by them in the form of Annual Membership Fees and registration fees. Even though these fees are not used by them, it is clear that the said fees which are termed by them as corpus fund are used to generate interest amounts which are further used for performing their activities. In other words if there is no fee there is no corpus fund and no interest payment which can be used to fund their activities which are in the form of supply of services to their member banks. Thus here there is no doubt that consideration is flowing from Banks to the applicant in the form of Annual Membership Fee and Registration Fee which are being utilized by the applicant for generating further income as found feasible by them. Thus the consideration is clearly in the form of Annual Membership Fee and Registration Fee. Principles of mutuality - Held that - The essence of the principle of mutuality is present only in situations where a group of persons form an association and contribute to constitute income of the associations in the nomenclature of a common fund, which so collected is used for the benefit of the members. Here the member banks have not come together contributing their resources to form the board like that of the applicant and for the benefits of the members themselves - In the present situation there is no compulsion under any enactment for the member banks to become the member of the applicant since the membership of the applicant body is voluntary. Hence the principle of mutuality is not at all applicable in present case. The applicant is supplying services to their Member Banks, against a consideration received from them in the form of Annual membership fees and registration fees and their supply is in furtherance of business as defined under Section 2 (17) (e) of the Act. Ruling - The activity of BCSBI I.e. The Applicant is falling under the definition of Supply , as per Section 7 of the CC,ST Act, 2017. The contribution made by Member Banks to Corpus Fund can be considered as Consideration , as per Section 2 (31) of the CGST Act, 2017. Supply is meant to be between 2 persons, the Applicant Association trust and Its Members are legally distinct from each other. The Principle of Mutuality is non existent in the subject case. The activity of Applicant is to be termed as Business as provided under Section 2 (17) (e) of the CGST Act, 2017.
Issues Involved:
1. Whether the activity of the applicant falls under the definition of "Supply" as per Section 7 of the CGST Act, 2017. 2. Whether the contribution made by Member Banks to the "Corpus Fund" can be considered as "Consideration" as per Section 2 (31) of the CGST Act, 2017. 3. Whether the Applicant Association and its Members are legally distinct from each other. 4. Whether the "Principle of Mutuality" holds good in GST. 5. Whether the activity of the Applicant is to be termed as "Business" as provided under Section 2 (17) (e) of the CGST Act, 2017. Detailed Analysis: 1. Definition of "Supply" under Section 7 of the CGST Act, 2017: The applicant argued that their activities do not fall under the definition of "Supply" as per Section 7 of the CGST Act, 2017, as there is no service provided to the Member Banks and the contributions are used solely for public awareness and consumer protection. However, the Authority found that the applicant is indeed providing services to its Member Banks by developing, promoting, and monitoring banking codes and standards, and ensuring their compliance. These activities enhance the credibility of the member banks, thereby indirectly benefiting them. Therefore, the activities of the applicant fall under the definition of "Supply." 2. Contribution to the "Corpus Fund" as "Consideration": The applicant contended that the contributions made by Member Banks to the Corpus Fund are not "Consideration" as defined under Section 2 (31) of the CGST Act, 2017, since these contributions are capitalized and not used directly for the applicant's activities. The Authority, however, determined that the Annual Membership Fees and registration fees collected from Member Banks constitute "Consideration" because they are used to generate interest, which funds the applicant’s activities. Thus, the contributions are indeed "Consideration" for the services provided by the applicant. 3. Legal Distinction Between Applicant Association and Its Members: The applicant claimed that they and their Member Banks are not distinct entities, invoking the "Principle of Mutuality." The Authority disagreed, stating that the applicant body was formed by the RBI and not by the Member Banks themselves. The Member Banks are separate legal entities formed under The Banking Regulation Act, 1989, and their membership in the applicant body is voluntary. Thus, the applicant and its members are legally distinct from each other. 4. Applicability of the "Principle of Mutuality" in GST: The applicant argued that the "Principle of Mutuality" should exempt their activities from GST, as it has in other tax contexts like Income Tax, VAT, and Service Tax. The Authority rejected this argument, noting that the principle of mutuality applies only when a group of persons forms an association and pools resources for mutual benefit. In this case, the applicant body was formed independently by the RBI, and the Member Banks did not come together to form it. Therefore, the principle of mutuality does not apply, and the applicant’s activities are subject to GST. 5. Definition of "Business" under Section 2 (17) (e) of the CGST Act, 2017: The applicant argued that their activities do not constitute "Business" as defined under Section 2 (17) (e) of the CGST Act, 2017. The Authority found that the applicant is providing facilities and benefits to its Member Banks for a subscription fee, which falls squarely under the definition of "Business." The activities of the applicant, including preparing and monitoring banking codes and standards, benefit the Member Banks by enhancing their service credibility, thereby promoting their business. Conclusion: The Authority ruled that the applicant's activities fall under the definition of "Supply" and the contributions made by Member Banks to the Corpus Fund are "Consideration." The applicant and its members are legally distinct entities, and the "Principle of Mutuality" does not apply in this case. The activities of the applicant are considered "Business" under Section 2 (17) (e) of the CGST Act, 2017, making them liable to GST.
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