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TMI BlogConstitutional Limits on GST: Principle of mutuality insulates transactions between clubs/associations and their membersX X X X Extracts X X X X X X X X Extracts X X X X ..... it and welfare schemes operated by the Kerala State Branch of the Indian Medical Association (IMA) for its members. The dispute centers on whether such transactions are insulated from GST by the doctrine of mutuality, or whether statutory amendments-especially those introduced by the Finance Act, 2021-validly bring these within the GST net, including with retrospective effect from July 1, 2017. The case is significant as it tests the limits of legislative competence under Article 246A of the Constitution, the interpretative boundaries of constitutional entries regarding "supply" and "services," and the extent to which Parliament can, by statutory fiction, override long-standing common law doctrines such as mutuality. The judgment also addr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et Club of India Ltd v. Bombay Labour Union - 1968 (8) TMI 200 - Supreme Court, and, most significantly, in State of West Bengal v. Calcutta Club Ltd. 2019 (10) TMI 160 - Supreme Court. The IMA's counsel, relying on these authorities, argued that the mutuality principle precludes the existence of two separate entities for the purposes of GST-there can be no "supply" by the association to its members, as the association and its members are the same. The argument is further bolstered by the Supreme Court's holding in Calcutta Club that the 46th Constitutional Amendment, even with its deeming fiction for sales tax, did not extend to services and did not abrogate the mutuality doctrine for clubs and associations. The High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that when a constitutional phrase has acquired a settled judicial meaning, legislative competence cannot be exercised to give it a contrary meaning by ordinary statute. The proper route, as history demonstrates, is by constitutional amendment-not by statutory deeming fictions. The Court also distinguished the present issue from cases like Navnit Lal C. Javeri v. K.K. Sen - 1964 (10) TMI 16 - Supreme Court and Skill Lotto Solutions Pvt. Ltd. v. Union of India - 2020 (12) TMI 140 - Supreme Court, where statutory definitions were upheld because the corresponding constitutional entries were broad and had not acquired a restrictive judicial meaning. In contrast, "supply" and "service" in the context of GST had been judicially ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) TMI 2 - Supreme Court, which caution against retrospective laws that are unreasonable, confiscatory, or impose new, substantive burdens on past transactions. The Court further noted that the legislative assertion that the amendment was merely "clarificatory" was unconvincing, given the profound change in the law and the express use of deeming fictions. The principle of fairness, the Court emphasized, requires that taxpayers not be ambushed by retroactive changes that disrupt their financial planning and settled rights. 4. Fundamental Rights and the Rule of Law The IMA also invoked violations of Articles 14 (equality), Article 19(1)(g) (freedom to practice any profession or to carry on any occupation, trade or business), Article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns signaled a change in the law, not a clarification. * The conduct of other assessees does not determine the constitutional validity of a statute. * The mutuality doctrine applies regardless of incorporation, as affirmed by the Supreme Court. Key Holdings and Reasoning * Unconstitutionality of the Impugned Provisions: The Court declared Section 2(17)(e), Section 7(1)(aa), and the Explanation thereto of the CGST Act, 2017 (and corresponding provisions of the Kerala GST Act) as unconstitutional and void, being ultra vires Article 246A, Article 366(12A), and Article 265 of the Constitution. * Legislative Competence and Constitutional Interpretation: The Court held that when a constitutional phrase such as "supply" or "service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. ... The concepts of 'supply' and 'service' having been judicially interpreted as requiring at least two persons ... so long as the said judgment holds sway as a binding precedent and/or the Constitution is not amended suitably to remove the concept of mutuality ... the impugned amendment to the CGST/SGST Acts must necessarily fail the test of constitutionality." Conclusion The Kerala High Court's decision is a robust reaffirmation of constitutional supremacy and the limits of legislative power, especially in the sensitive area of taxation. The judgment underscores that where constitutional phrases have acquired settled judicial interpretations, Parliament and State Legislatures cannot, by ordinary statute, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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