Retrospective effect of new Sec 7(1)(aa), Goods and Services Tax - GST

[g srikanth]

The newly inserted Sec 7(1)(aa) of the CGST Act comes into force from 1 Jan 2022, but has retrospective effect from 1 July 2017. This requires clubs and associations to pay GST on contributions from Members which was hitherto held to be NOT a service by the Supreme Court in the Calcutta Club Judgement based on the principle of mutuality. The amendment has created unique problems for Clubs and Associations as well as for members. Such of the clubs or associations who are unable to collect from members who are no longer members have to fork out the GST from their own pockets. Further, members who have contributed to Associations towards various building funds etc will now have to pay against debit notes for a period of 4 years and 6 months. This affect the members in two ways - one is the difficulty in finding cash to pay the GST for 4 1/2 years; and the other is to have enough output liability to adjust the payments. Thus, the retrospective amendment that was carried out to overcome Calcutta Club has been passed with no regard for difficulties faced by tax payers. Members may share their views on these mindless amendments.

Posts / Replies

[Rajagopalan Ranganathan]

Sir,

Section 7 (1) (aa) has been brought into effect from 01.01.2022. Though this section has been inserted with retrospective effect from 1.7.2017 if demands had already been raised and kept pending the same can be enforced. Now the department cannot invoke extended period since the issue is already known to the taxpayers and the department there cannot be any allegation of suppression of fact with the intention to evade payment of proper tax . Hence the demand for the past period cannot survive.

[KASTURI SETHI]

The issue is worth raising before the GST Council by the Trade and Industry Association in order to avoid unnecessary litigation. There is no justification for levying tax retrospectively.

[Shilpi Jain]

Agree. Retrospective amendments always cause inconvenience.

There is a view that even now there is no liability for the clubs, etc. though this may take around 20 years to settle in GST.

Also many clubs have started paying for the present period and that too under protest.

[Ganeshan Kalyani]

It is easy for taxpayer to know upfront the intend of the Govt. Now after these many years if Govt. want the taxpayer to pay tax then it is pain for tax payer. Govt. should have made this amendment prospectively. Maximum representation from various club association should reach GST Council. Things may turn favour if collective effort is made. There is strength in unity. GST Council is responsive. It will hear voice of taxpayer and amend law accordingly.

[Amit Agrawal]

I feel that entire controversy started only after Supreme Court's ruling of year 2019 in case of M/s Calcutta Club - 2019 (10) TMI 160 - SUPREME COURT.

And Govt's intention to tax these activities was always there - since beginning of GST - as can be seen from the definition of 'business' (i.e. clause (e) of sub-section 17 of Section 2 of the CGST Act, 2017) as well as from the definition of 'person' (i.e. clause (f) of sub-section 84 of Section 2 of the CGST Act, 2017)

So, in this case, in my personal view, Govt. is justified for bringing retrospective amendment to overrule the Supreme Court's ruling in case of M/s Calcutta Club - 2019 (10) TMI 160 - SUPREME COURT.

However, this retrospective amendment actually helps assessee/s to contest any demand for period till Dec, 2021 on the ground of time-limitation (i.e. Dept. cannot use extended period to issue SCN) as well as to avoid / minimise penalty etc.

Furthermore, it should also be noted that Govt. has not given one-time option to clear past dues. And, one can also look into possibility to avoid even interest liability, as retrospective amendment is also silent on this aspect.

All above are strictly my personal views and same should not be taken as professional advice or suggestion.