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TMI Blog2020 (6) TMI 627X X X X Extracts X X X X X X X X Extracts X X X X ..... s are liable to GST, can the club claim input tax credit of the tax paid on banquet and catering services for holding members meetings and various events? - HELD THAT:- The Appellant is not providing any specific facility or benefits to its members against the membership subscription charged by it, as the entire subscription amount is spent towards meetings and administrative expenditures only. Thus, we conclude that the Appellant is not doing any business as envisaged under section 2(17) of the CGST Act, 2017. Once it has been established that the Appellant is not doing any business in terms of section 2(17) of the CGST Act, 2017, it can be deduced that activities carried out by the Appellant would not come under the scope of supply as envisaged under section 7(1) of the CGST Act, 2017 - Since, it has been held herein above that impugned activities of the Appellant will not be construed as supply, question regarding the availment of ITC on the input services like catering services, banquet services, etc. does not arise. The amount collected as membership subscription and admission fees from members is not liable to GST as supply of services. - MAH/AAAR/SS-RJ/15/2019-20 - - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lish policies. The RI president, who is elected annually, develops a theme and emphases for the year. (iv) The Secretariat: Rotary International is headquartered in the Chicago suburb of Evanston, Illinois, USA, with seven inter-national offices in Argentina, Australia, Brazil, India, Japan, Korea, and Switzerland. The office for RI in India, serves clubs and districts in that region. 4. The normal functioning of the Rotary as a whole is summarized as under: (i) Rotary clubs bring together dedicated individuals to exchange ideas, build relationships, and take action. (ii) Rotary International supports Rotary clubs worldwide by coordinating global programs, campaigns, and initiatives. (iii) The Rotary Foundation uses generous donations to fund projects by Rotarians and other partners in communities around the world. As a nonprofit, all of the Foundation s funding comes from voluntary contributions made by Rotarians and friends who share our vision of a better world. Together, Rotary clubs, Rotary International, and The Rotary Foundation work to make lasting improvements in our communities and around the world. 5. Appellant work with Rotary F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing registration number as 27AAABRO64311ZJ and is currently charging GST on the membership subscription and admission fees collected by it. 15. The Club organizes events for the purpose of enabling members to meet and interact with each other. For such events the Club incurs various expenditure like banquet charges, catering services, etc. Club also incurs expenditure on banquet and catering services for its weekly/monthly meeting. GST amount paid to vendors on such expenses is substantial. 16. The membership / subscription fees are collected from members only to cover meeting expenses, banquet expenses, catering expenses, printing and stationery expenses, etc. Collections pooled from members is not intended to accumulate any surplus fund / profit. Appellant, being a non-profit entity, aims only at furtherance of object of Rotary. Membership / Subscription fees is only to cover up the expenses of appellant. 17. In view of the above, the appellant filed an application before the advance ruling authority (Maharashtra) seeking a ruling on the questions as to whether: (i) The amount collected as membership subscription and admission fees from members is liable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f contribution received by club from its members: a) Section 9 of the CGST Act, 2017 stipulates the taxable event for levying GST as supply of goods or services. b) Section 7 of the CGST Act, 2017 reads as under: 7. (1) For the purposes of this Act, the expression supply includes- (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; (b) import of services for a consideration whether or not in the course or furtherance of business; (c) the activities specified in Schedule 1, made or agreed to be made without a consideration; and (d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II. c) Therefore, in order to tax the transaction between an association or club and its members, said transaction must either fit clause (a) or (c) above. d) Explanation for transaction to be outside the purview of Clause (a) of section 7(1): i. Clause (a) of section 7 (1) covers all forms of supply of goods or services or both suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nious reading of both the above definitions provides that where a consideration is involved in a transaction, the recipient is the person who pays the consideration to the supplier. Hence, two different persons have been envisaged in the law to tax a transaction as a supply made for a consideration. The term person is defined in section 2 (84) of the CGST Act, 2017 to include an association of persons or a body of individuals, whether incorporated or not, in India or outside India. Further, Schedule II of CGST Act, 2017 enumerates activities which are to be treated as supply of goods or as supply of services. It states in para 7 that supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration shall be treated as supply of goods. Recent circular implies that supply of services by an unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration shall be treated as supply of services . Above entry in Schedule II is analogous to and draws strength from the provision in Article 366 (29A)(e) of the Constitution accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in case of Ranchi Club Ltd. v. Chief Commissioner [2012] 26 S.T.R. 401(Jhar.) = 2012 (6) TMI 636 - JHARKHAND HIGH COURT examined the concept of mutuality. Main contention before the court was that considering the concept of mutuality, a club/association cannot provide services to itself. Only service provided to another person is taxable. In absence of deeming fiction treating club/association and its member as distinct person, service tax shall not be payable. ■ High Court accepted the contention of petitioner and held that the levy is ultra vires to the extent of money collected from members. Relevant extract is reproduced below: It is true that sale and service are two different and distinct transaction. The sale entails transfer of property whereas in service, there is no transfer of property. However, the basic feature common in both transactions requires existence of the two parties; in the matter of sale, the seller and buyer, and in the matter of service, service provider and service receiver. Since the issue whether there are two persons or two legal entity in the activities of the members club has been already considered and decided by the Hon ble Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of schedule I provides that supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business shall be taxable. iii. Members are not covered under section 25 as distinct person. iv. Explanation to section 15 of the act explains the term related person as follows: For the purposes of this Act, - (a) persons shall be deemed to be related persons if- (i) such persons are officers or directors of one another s businesses; (ii) such persons are legally recognized partners in business; (iii) such persons are employer and employee; (iv) any person directly or indirectly owns, controls or holds twenty-five per cent or more of the outstanding voting stock or shares or both of them; (v) one of them directly or indirectly controls the other; (vi) both of them are directly or indirectly controlled by a third person; (vii) together they directly or indirectly control a third person; or (viii) they are members of the same family; (b) the term person also includes legal persons; (c) persons who are associated in the business of on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply; 28. All the expenses of appellant are recovered well in advance from members in name of membership fees. To determine natural bundling, Education Guide issued by CBEC in 2012 provides that whether services are bundled in the ordinary course of business would depend upon the normal or frequent practices followed in the area of business. Such normal and frequent practices adopted in a business can be ascertained from several indicators some of which are listed below- a) The perception of the consumer or the service receiver (In appellant s case it would be the perception of members) b) Majority of service providers in a particular area of business provide similar bundle of services. For example, bundle of catering on board and transport by air is a bundle offered by a majority of airlines. c) If the nature of services is such that one of the services is the main service and the other services combined with such service are in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply; 35. Appellant procures various supplies such as services of professionals, auditors, banquet hall services, outdoor catering services, etc. in order to provide benefits / facilities to its members and to achieve the objects of Rotary. All such expenses are recovered from members in form of membership / subscription fees on which appropriate GST liability is being discharged by the appellant. 36. Appellant is availing banquet and catering services, professional s services, auditor s services, etc. for providing outward composite supply in nature of club membership / subscription fees. Club membership / subscription fees is a taxable composite supply liable to GST. 37. Further the invoice raised by the appellant on its member clearly mentions that the membership contribution is towards Meetings, Banquet, Catering and other expenses. Sample copy of invoice raised by the appellant on its member is attached herewith. 38. While going through the above provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of persons (the club or association of persons having corporate status) to its members is taxable, sales by an unincorporated club or association of persons to its members is not taxable. This is because such club or association, in law, has no separate existence from that of its members. The Statement of Objects and Reasons for the forty sixth amendment to the Constitution observed that while sales by a registered club to its members is taxable, sales by an unincorporated club to its members is not taxable. Therefore, as the club or association has no separate existence from its members, the forty sixth amendment to the Constitution did not overcome the decision in the Young Men s Indian Association and the doctrine of mutuality remains applicable even after the amendment. For the supply of goods by incorporated and unincorporated associations or body of persons to its members, the requirement of consideration is not fulfilled, as in case of supply of goods to self, there exists no consideration as per the provisions of the Contract Act, 1872. The club is acting as an agent of its members, with no element of transfer in the supply of food by it to the members. Hence, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the GST Law. No such deeming fiction has been created under Schedule II with respect to supply of services. Hence following the ratio of the judgement, it can be strongly held that: - Supply of goods and services by incorporated entities to its members would not be taxable under GST Supply of services by an unincorporated entity to its members would not be taxable under GST J) Further even the provisions of Indian Contract Act, 1872 require consideration to be paid by one person to the other. However, in this case, applying the doctrine of mutuality, it follows that supply made to self and consideration made to self would not qualify as consideration. k) The GST Act, defines Person under Section 2(84) to include: (a) . (b) . . (f) an association of persons or a body of individuals, whether incorporated or not, In India or otherwise; . However, as per the said definition, there is no deeming fiction to treat association and its members as different persons. Hence the key condition to tax a transaction U/s 7 (1) (a) and to treat it as a Supply, the supplier and recipient must be different, is not satisfi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, namely: - (b) the following supply of goods or services or both- (i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause(a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance: Provided that the input tax credit in respect of such goods and services or both shall be available where an inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply; e) Appellant is availing banquet and catering services, professional s services, auditor s services, etc. for providing outward composite supply in nature of club membership / subscription fees. Club membership /subscription fees is a taxable composite supply liable to GST. f) Advance ruling authority in the case of All Rajasthan Corrugated Board And Box Manufacturers Association has held that ITC of tax paid on food and beverages will be avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard, RID 2015-1 T from which it can be understood that members are benefitted by these meetings with eminent personalities and their guidance while at the same time such privileges are not available to a non-member. It is also said that Rotary Club Membership allows members to sit next to people with whom he/she may have to pay $250 an hour to meet This clearly shows that there is furtherance of business involved. b. It further appears that in Rotary Global Rewards, wherein the members get several benefits by the way of offers and discounts on various products and services. Rotary Global Rewards offers discounts on vehicle rentals, hotels, dining, and more. Products and services from companies around the world are being added every week. c. It also facilitates gathering of professional and experts locally and globally to enhance their contacts for furtherance of their business. This activity cannot be categorized as community service rather it indicates towards furtherance of one s own cause. It also appears that Rotary clubs charges fees to admit a person as their member which is not used for any social cause. The same can be seen from the Balance sheet submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x credit in respect of such goods or services or both shall be available where it is obligatory for an employer to provide the same to its employees under any law for the time being in force. In view of the above, it is to state that the Ciub or association cannot claim input tax credit on the tax paid on catering and other such services. Discussions and Findings 44. Heard both the parties. We have also gone through the entire case records including the facts of the case, rulings pronounced by AAR, and the written submissions made by the Appellant as well as by the Respondent. On perusal of the entire case records, the moot issue in the present case is whether the membership/subscription fees, admission fees collected by the Appellant from its members will be subject to GST or not. In other words, whether the transaction between the Appellant and its members can be construed as supply as envisaged under section 7 of the CGST Act, 2017, or otherwise. 45. At the outset, we would like to discuss the scope of term supply as envisaged under Section 7 of the CGST Act, 2017, the relevant portion of which has been reproduced herein under: (1) For the purposes of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ished that the Appellant is not doing any business in terms of section 2(17) of the CGST Act, 2017, it can be deduced that activities carried out by the Appellant would not come under the scope of supply as envisaged under section 7(1) of the CGST Act, 2017. 48. On the contrary, if we hold the impugned activities of the Appellant to be supply, then the membership fee collected by the Appellant, which is purely in the nature of a reimbursement for the meetings and administrative expenditures incurred by the Appellant to sustain and propagate their inherent programs, would be subject to the double taxation as the amount spent towards the meetings and administrative expenditures is already subjected to GST at the hands of the suppliers of these input services or goods used in the meetings, events and other administrative functions of the Appellant. Thus, doing so would clearly be against the legislature s intention of the formulation of GST, which certainly does not embrace the idea of double taxation. 49. Since, it has been held herein above that impugned activities of the Appellant will not be construed as supply, question regarding the availment of ITC on the input servic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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