This is to apprise you regarding levy of GST on transactions between clubs and co-operative societies vis-à-vis their members.

Background

The exigibility of tax on services rendered by clubs and co-operative societies to its members has grappled the taxpayers for decades. The issue which started in Income Tax laws, transgressed to Service Tax regime. The Finance Act, 1994 (‘Finance Act’) contained clear provisions (effective July 2012) deeming unincorporated association or body of persons as distinct from its members. Surprisingly, this distinction is absent under GST laws.

GST law and jurisprudence under erstwhile laws

Section 7 of the Central Goods and Services Tax Act, 2017 (‘CGST Act’) includes all forms of supply of goods and services like sale, transfer, barter, exchange etc. made for a consideration within its purview. Schedule I of CGST Act treats certain transactions as supply even if made without consideration. Pertinently, transactions between related persons and distinct persons are deemed as supply even if made without consideration.

As stated above, GST law does not deem association of persons and its members as distinct persons. Hence, presence of consideration is sine qua non for levying GST on services rendered by clubs and co-operative societies.

Here, it is pertinent to refer to ‘principle of mutuality’ as per which no one can profit out of himself. In the context of clubs and co-operative societies, members pool in funds for mutual benefit and surplus (if any) is distributed amongst members. This surplus can never be deemed as ‘income’. Thus, the principle that a club and co-operative societies can never earn profit till mutuality exists. This principle has often been applied to hold that services rendered by clubs and co-operative societies to its members is not taxable. The Larger Bench of Supreme Court in the case of State of West Bengal v. Calcutta Club Limited, 2019-TIOL-449-SC-ST-LB held that an association and its members are not different persons and their transactions will not attract sales tax or service tax. Please refer NITYA Insight | Judgement update | Issue 58 | Tax on clubs and associations dated November 4, 2019 for our detailed update on the issue.

Jurisprudence under GST law

The Authority for Advance Ruling (‘AAR’) and Appellate Authority for Advance Ruling (‘AAAR’) examined this issue on multiple instances. In some cases, the Authorities held that membership fee collected by clubs from its members would be considered as consideration towards services. Consequently, such transactions would be exigible to GST.[1]  In certain other cases, the Authorities held that membership fees collected by clubs from its members is not towards any facilities or benefits provided and there shall be no supply between them. Consequently, these transactions shall not be taxed under GST.[2]

In the case of Apsara Co-operative Housing Society Limited 2020-VIL-184-AAR; the AAR recently held that activities carried out by the applicant housing society for its members constitutes to be supply and exigible to GST. The applicant duly highlighted the principle of mutuality, however, the AAR held that principle of mutuality is a doctrine under Income Tax laws and not applicable under GST law.

NITYA Comments: 

The negative rulings under GST law are incorrect as they did not understand principle of mutuality which assumes equal relevance under GST law. Despite different legislations, nature of activities between clubs and co-operative societies vis-à-vis its members remains same. Hence, GST should not be levied on both clubs and co-operative societies while they render services to their members. Consequently, members of such clubs and co-operative societies can refuse payment of GST. In case clubs and co-operative societies have charged GST in past, such clubs and co-operative societies or their members can seek refund of such tax.   

[1] Lions Club of Poona Kothrud, 2019-VIL-80-AAAR ,Rotary Club of Mumbai Western Elite, 2019-VIL-299-AAR

 [2] Rotary Club of Mumbai Queens Necklace 2020-VIL-38-AAAR, Rotary Club of Mumbai Nariman Point 2020-VIL-11-AAAR