2022 (2) TMI 82 - AAR - GST

Levy of GST - membership fee collected from members at the time of giving membership - annual subscription and annual games fee collected from members of club - principles of mutuality - HELD THAT - In view of the amended Section 7 of the CGST Act, 2017, it is found that the applicant club 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 it is not rendering any supply to its members and 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 words 'the activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration' cover all types of activities/transactions of the present applicant. There is no list or limit or any restriction prescribed in this respect in this amendment. The fees, collected by the applicant, is nothing but the consideration for supply of services/goods and is covered by the scope of the term business . The club and the member are two distinct persons. The principle of mutuality has no application after this amendment. All the other case laws relied upon, also do not provide any guidance on the legal situation, particularly after the amendment - undertaking of a commercial activity, whether or not the same is for pecuniary benefit (used in clause (a) above), implies that whether or not such activity yields the benefit which can be quantifiable in monetary terms or not. Hence the intent behind the said clause (a) is to even cover the commercial transactions which are in the nature of barter or exchange wherein the benefit is in non-monetary terms. Thus, the interpretation of the applicant that 'pecuniary benefit' means 'profit' is not correct. Further, Sub-clause (e) is a specific clause made for associations, clubs and societies and the same does not talk about any profit motive to be attributed to any club for the activities to be considered as 'business'. The said clause only speaks of Provision by a club, association, society, or any such body of the facilities or benefits to its members for a subscription or any other consideration. Therefore the question whether profit motive is ousted or not, does not arise in this case at all. Notification No. 39/2021-Central Tax dated 21st December, 2021 has been issued whereby the Central Government has appointed the 1st day of January, 2022, as the date on which the provisions of sections 108, 109 and 113 to 122 of the said Act shall come into force - the relevant amendment has been notified by the Central Government.

Summary

Issues Involved:
1. Taxability of membership fees collected from members at the time of giving membership under CGST/SGST Act.
2. Taxability of annual subscription and annual games fees collected from members of the club under CGST/SGST Act.

Detailed Analysis:

1. Taxability of Membership Fees:

The applicant, M/s. The Poona Club Limited, sought an advance ruling on whether the membership fee collected from members at the time of giving membership is liable to tax under the CGST/SGST Act. The applicant contended that the principle of mutuality applies since the club and its members have the same identity, and thus, there is no supply of goods or services. The applicant cited the Supreme Court decision in State of West Bengal v Calcutta Club [(2019) 19 SCC 107], arguing that the membership fees are collected to meet administrative and maintenance expenses and do not constitute a supply as defined under the Act.

The Authority for Advance Ruling (AAR) examined the definition of "supply" under Section 7 of the CGST Act, which was amended in the Budget 2021 to include activities or transactions by a person, other than an individual, to their members for cash, deferred payment, or other valuable consideration. The amendment clarified that the person and their members or constituents are deemed to be two separate persons, thus nullifying the principle of mutuality in such cases.

The AAR concluded that the membership fees collected by the applicant are indeed consideration for the supply of goods/services and fall within the scope of "business" as defined under Section 2(17) of the CGST Act. Consequently, the membership fees are liable to tax under the CGST/SGST Act.

2. Taxability of Annual Subscription and Annual Games Fees:

The applicant also sought a ruling on whether the annual subscription and annual games fees collected from members are taxable under the CGST/SGST Act. Similar to the membership fees, the applicant argued that these fees are collected for administrative and maintenance purposes and do not constitute a supply. The applicant relied on the principle of mutuality and cited the case of Lions Club of Pune Kothrud, where it was held that membership fees collected for administrative purposes are not taxable.

The AAR reiterated that the amendment to Section 7 of the CGST Act, which came into force on January 1, 2022, explicitly states that transactions between a club and its members are considered supplies. The fees collected for annual subscriptions and games are thus deemed to be consideration for the provision of services or facilities to the members.

The AAR clarified that the principle of mutuality is no longer applicable post-amendment, and the fees collected by the applicant are subject to GST. The AAR also noted that the order in the case of Lions Club of Pune Kothrud was passed before the amendment and is not applicable in the current context.

Conclusion:

The AAR ruled that both the membership fees collected at the time of giving membership and the annual subscription and annual games fees collected from members are liable to tax under the CGST/SGST Act. The amendments to Section 7 of the CGST Act have clarified that transactions between clubs and their members are considered supplies, and the principle of mutuality does not apply. The applicant must therefore pay GST on these amounts received from its members.