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TMI Blog2019 (8) TMI 819X X X X Extracts X X X X X X X X Extracts X X X X ..... ant would be a Taxable Person under the provisions of the Act? 4. If answer to question no.3 is affirmative, who shall be person responsible under GST, as office bearers keep on changing every year? 5. Whether the said collection of funds under common pool and spending back on the same said contributors, would entail 'supply' as defined in the law. 6. If answer to Question no.5 is affirmative, whether the same would be supply of goods or services? At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression 'GST Act' would mean CGST Act and MGST Act. 2. FACTS AND CONTENTION - AS PER THE APPLICANT Statement of relevant facts having a bearing on the question(s) raised 1) 'Rotary' is an International organization having clubs in 216 countries engaged in humanitarian and charitable services. 2) These services are executed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. It is in these weekly meeting that the charitable proposals are considered, discussed and approved or rejected for taking up as a likely cause for execution by the members. The projects already executed or underway are also discussed to keep a tab on the progress of a project or to ascertain the benefit that a particular project is yielding. These contributions collected are spent by the end of the year and generally there is a deficit which is then borne by the Office Bearers for the said year in question or Members from their pockets for the weekly meetings or a meagre surplus. The Admin Account is being managed as if it is purely an agent of the members and no actual service is being extended to the members. Furthermore, on perusal of the Constitution & Bye-Laws (the same shall be produced at the time of the personal hearing), it clearly indicates that the administration and working of the Association and Implementation of policies are established and are implemented on the concept of mutually. Each member is equally represented with individual Identity and status thereby, establishing the fact of complete transparency i.e. the Identity between the contributors and the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said meetings as per the Club is as under: All the meetings conducted would be to promote the Five Avenues of Service being Club Service, Vocational Service, Community Service, International Service & New Generations viz. to promote charity and overall well being of society. Further, the collection of the sums against the reimbursement of the expenses is being done as per following understanding: The budget for the forthcoming year shall be prepared by the incoming president in consultation with his team of board members and placed before the Members for approval. Based on the approval towards the budget for the following year, the annual reimbursement charges to be recovered from each member will be finalised which would then be formally communicated to each member to remit. The said reimbursement would include the reimbursement towards payment for RI per capita dues, a subscription to The Rotarian or a Rotary regional magazine, district per capita dues, towards the meetings, and any other Rotary or district per capita assessment. Advance ruling is being sought about taxability or otherwise under the Act, of contributions received from the members in the Administratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... min Account is being managed as if it is purely an agent of the members and no actual service is being extended to the members. For the purposes of the accounting of the said affairs of the Administration Account, the year is followed from 1st July to 30th June of the following year. In the context of GST, definition of persons is provided u/s.2(84) of the CGST Act, 2017. As per said definition, there is no deeming fiction to treat association and member as different persons. Hence, in our humble opinion, the key condition to tax a transaction u/s.7(1)(a), that supplier and recipient must be different, is not satisfied. Hence the transaction of providing services by an association to its members should not be taxed u/s.7(1)(a). Earlier in service tax regime, courts, in several cases held that in absence of deeming fiction, treating club/association & its member as distinct person, service tax shall not be payable. Thereafter to nullify the above decision w.e.f. 01/07/2012 clause (a) to Explanation 3 to Sec.65B provided that an unincorporated association or body of persons, as the case may be and member thereof shall be treated as distinct persons. Such deeming fiction, it is most ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the process, just that the funds are collected in a common pool for meeting the expenses for the weekly meetings and other petty expenses incurred in meeting the common objective of betterment of society. The amount being collected from the members is reimbursement of expenses or share of contribution. We do not function on commercial basis. Hence we are not recovering any taxes including GST on the contribution being recovered from them. The common pool is being spent back on the members only. In absence of two distinct persons and also in absence of consideration, as defined under the Act, in our opinion, contributions received from the members in the Administration Account would not qualify as a Supply within the meaning of the term, as defined under the Act. The applicant is of the opinion that its contributions from the members is not covered under 'supply by one to another', since the basic fact of the said transaction happening between two separate and independent persons /entities would itself be missing. Supply has been defined to include all forms of supply of goods and/or services such as sale transfer, barter, exchange, license, rental, lease or disposal made o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said principle which has been laid down in the leading decisions and emphasized in the leading English text books mentioned above, has been explained with reference to Indian decisions in "The Law and Practice of Income tax" (English edition Volume 1, 1990) by Kanga and Palkhiwala at page1113 thus: "..........The contributors to the common fund and the participators in the surplus must be an identical body. That does not mean that each number should contribute to the common fund or that each member should participate in the surplus or get back from the surplus precisely what he was paid "The Madras, Andhra Pradesh and the Karnataka High Court have held that the test of mutuality does not require that the contributors to the common fund should willy-nilly distribute the surplus amongst themselves; it is enough if they have a right of disposal over the surplus and in exercise of that right they may agree that non winding up the surplus will be transferred to a similar association or used for some charitable objects....' SUPPLY: As per Sec. 9 of the Central Goods & Services Tax ("CGST") Act, 2017, levy of tax is on an event called "supply". Scope of supply is stated u/s.7. Releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are reproduced below: Sec. 2(105) "supplier" in relation to any goods or services or both, shall mean the person supplying-the said goods or services or both and shall include an agent acting as such on behalf of such supplier in relation to the goods or services or both supplied Sec. 2(93) "recipient" of supply of goods or services or both, means: (a) Where a consideration is payable for the supply of goods or services or both, the person to who is liable to pay that consideration; (b) Where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available; and (c) Where no consideration is payable for the supply of a service, the person to whom the service is rendered, and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied. Co-joint reading of both the definitions provides that where a consideration is involved in a transaction, the recipient is the "person" who pays ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid provision. Merely because an association of person has been included as person u/s.2(84) does not imply that members of such association are different persons. b. Circular has invoked the concept of deemed sale as provided under Article 366(29A) of the Constitution. It must be noted that clause (e) of said Article only enables to tax supply of goods by an association to its members as deemed sale. It does not enable to tax supply of service as a deemed service. Even para 7 of Sch Il only covers supply of goods by any unincorporated association. It does not cover supply of services unless provision similar to that of deemed sale is made either in the Constitution or the Act, services provided by an association to its members cannot be taxed. c. Invoking the concept of "deemed sale" shall result in countless litigation. This is because Schedule - II of the CGST Act, 2017 is at any many places in direct conflict with Article 366(29A). Hence the said circular will open Pandora's Box full of litigation. Examining whether the transaction between an association and its member can be taxed u/s. 7(1)(c). said clause covers activities specified in Schedule I, made or agreed to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing. To provide a forum for the open discussion of all matters of public interest provided however that partisan politics and sectarian religion shall not be debated by club members. To encourage service minded people to serve their community without personal financial reward, and to encourage. efficiency and promote high ethical standards in commerce, industry professions, public Works and private endeavors. (Ref. page 7 of the AAR Order passed in the case of Lion Club) Pursue the object of Rotary; carry our successful service projects based on the 5 avenues of service (Club Service, Vocational Service, Community Service, International Service, Youth Service) Object is to encourage and foster the ideal of service as a basis of worthy enterprise and particularly, to encourage and foster; Development of acquaintance as an opportunity for service. High ethical standards in business and profession, recognition of worthiness of all useful occupations; dignifying each Rotarian's occupation as an opportunity to serve society: Application of the ideal of service in each Rotarian's personal, business and community life Advancement of international understanding, goodw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the poor and needy including orphans and widows. Establishing or affording all types of help for sufferings, social unhappiness, poverty, helplessness or to any institution for the alleviation of human suffering. Promoting the social and economic uplifting, welfare of the public in rural areas and more particularly covering various activities in the socio-economic, agriculture, animal husbandry, veterinary medical and education fields. Giving assistance for education and setting up of schools, colleges or other educational institutions and running them or granting donation to them. Promoting programs of upliftment o artisans, workers, technical and other personnel engaged industrial sector including activities of training and development of skills and their social economic upliftment Establishing, maintenance and support of libraries museums and reading room for advancement of education and knowledge in general. Giving financial assistance to people affected by natural calamities such as earthquakes floods and droughts or to any organisation engaged in providing such relief. Giving financial assistance to poor and needy people in the form of interest free loans for maintenance and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g extended to the members. They have stressed that the principle of mutuality exists in their case and therefore they are not liable for GST on the fees/amounts received by them. According to their submissions, they are required to maintain two separate bank accounts, one for administrative expenses and other for donations/charity. The receipts in donations/charity account are used exclusively for the purpose of donation/ charity and such amounts are not utilized for administration purposes. We find, as per their submissions that, their receipts majorly comprise of (i) Annual collection from Members, (ii) Entrance fees from new member (if any) and (iii) Bank Interest (if any). We also find that Expenses are generally in the form of: i) Meeting expenses, ii) Printing of Circulars, iii) Stationary, iv) Postage, v) Greetings, vi) Fees payable to International office and vii) Fees payable to District office. We also observe that the applicant has submitted that the meetings are conducted to promote the Five Avenues of Service being Club Service, Vocational Service, Community Service, International Service & New Generations viz. to promote charity and overall well-being of society. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in each Rotarian's personal, business and community life, exclusively for their members can clearly be considered as service being provided by the respondents to its members. Under the GST ACT consideration in relation to the supply of goods or services has been defined to include any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government and the monetary value of any act or forbearance, whether or not voluntary, in respect of, in response to, or for the inducement of, the supply of goods or services, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government. From the above inclusive definition of the term 'consideration' it can decisively be construed that the membership fee collected by the club from members is not only meant for meeting administrative expenses, but is also towards setting high ethical standards in business and profession, recognition of worthines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tral Government, a State Government or any local authority in which they are engaged as public authorities. In the context of the GST Laws the objectives or the purpose of the applicant is inconsequential, since there is no mention of term such as objective or purpose in the definition of the term "business" under the GST Act." The facts in the subject case are similar to the facts in the case of M/s Rotary Club of Queens Necklace, which has been decided by us earlier. In view of the above observations made by this Authority and also in view of the observations made in case of M/s Rotary Club of Queens Necklace, we are of the opinion that the amount collected as membership subscription and admission fees from members is liable to GST as supply of services. 06. In view of the extensive deliberations as held hereinabove, we pass an order as follows : ORDER (Under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017) NO.GST-ARA-142/2018-19/B-88 Mumbai, dt. 13/08/2019 For reasons as discussed in the body of the order, the questions are answered thus - Question 1:-Whether contributions from the members in the Administra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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