2021 (11) TMI 933 - AAR - GST

Supply or not - activity of the applicant i.e. collecting contributions and spending towards meeting and administrative expenditures only - contributions from the members in the Administration Account, 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 - doctrine of mutuality - HELD THAT - In view of the amended Section 7 of the CGST Act, 2017, it is found that the applicant society and its members are distinct persons and the fees received by the applicant, from its members are 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 fees 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. The entire dispute raised by the applicant in respect of fees received from its members is settled by the above mentioned amendment made to Section 7 of the CGST Act, 2017 and therefore, fees received by the applicant from its members 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, amounts to 'supply' as defined under the GST Act. In the instant case, the monthly contribution made by the members to the association is in return for receiving the services of the Applicant Club. The money collected by the Appellant from its members is used to procure services and goods from a third party and provide the benefits of such procured goods and services to the members of the association. Under GST, the term 'person' has been defined in Section 2(84) of the CGST Act, 2017, to include an 'individual' as well as an association of persons or a body of individuals, whether incorporated or not. Therefore, the individual members who are members of the Applicant Club are beneficiaries and the contribution made by them is to be considered as consideration for the services received. It is clear that the member and the club are two distinct persons and hence, any activities and transactions between them will be supply between separate/distinct persons. After the retrospective amendment as mentioned above, there remains no doubt that the activities involved in present case are nothing but 'supply', 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, it is found that 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 constitutes 'business' under Section 2(17) of the CGST Act, 2017.
2. Whether contributions from members for weekly meetings and petty administrative expenses qualify as a 'supply' under the CGST Act, 2017.

Issue-Wise Detailed Analysis:

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

The applicant, a Rotary Club, collects fees from its members for administrative purposes and meetings. The applicant argued that these activities are not 'business' as defined under Section 2(17) of the CGST Act, 2017, since they operate on the principle of mutuality and do not provide any commercial benefits or facilities to members. The applicant cited previous rulings and judicial precedents, such as the case of CIT vs. Bankinipur Club Ltd. and the State of West Bengal vs. Calcutta Club Ltd., to support their claim that the principle of mutuality exempts them from GST.

However, the judgment clarified that the definition of 'business' under Section 2(17) includes the provision by a club, association, or society of facilities or benefits to its members for a subscription or other consideration. The recent amendment to Section 7 of the CGST Act, 2017, which includes activities or transactions by a person to their members for consideration, further supports this interpretation. Therefore, the activities of the applicant fall under the definition of 'business' as per the CGST Act, 2017.

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

The applicant contended that the contributions collected from members are merely reimbursements for expenses incurred for meetings and administrative purposes, and do not constitute a 'supply' under the CGST Act, 2017. They argued that there is no consideration involved, and the principle of mutuality applies, meaning there are no distinct persons involved in the transaction.

The judgment referred to the amended Section 7 of the CGST Act, 2017, which explicitly states that activities or transactions by a person to their members for consideration are deemed to be a supply. The amendment also clarifies that the person and their members are considered distinct persons for the purposes of GST. Consequently, the fees collected from members for meetings and administrative expenses are considered as consideration for the supply of services.

The judgment further explained that the definition of 'services' under Section 2(102) of the CGST Act includes activities relating to the use of money for which a separate consideration is charged. The contributions made by members are in return for services provided by the club, such as meeting arrangements, refreshments, and other administrative activities. Therefore, these contributions qualify as a 'supply' under the CGST Act, 2017.

Conclusion:

The judgment concluded 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 petty administrative expenses qualify as a 'supply' under the CGST Act, 2017. The principle of mutuality does not exempt the applicant from GST liability, and the fees collected from members are subject to GST as they are considered consideration for the supply of services.