24-Feb-2022 Retrospective levy of GST on societies, clubs, an association of persons

Introduction:

The activities or transactions by a person, other than an individual, to its members, or vice versa for a consideration shall be treated as a supply retrospectively with effect from 1st July 2017. As per the Explanation provided in clause (aa), the person and its members shall be deemed to be two separate persons, and the supply of activities or transactions inter shall be deemed to take place from one such person to another. 

By virtue of this retrospective amendment, the government has clarified that it intended to levy GST on societies, clubs, an association of persons, etc. The provisions of clause (aa) have been made applicable notwithstanding anything contained in any other law for the time being in force or any judgment, decree, or order of any Court, tribunal, or authority.

The amendment overrides the Supreme Court Judgement in the case of Calcutta Club Limited 2019-29 GSTL 545 wherein it was held that doctrine of mutuality continues to be applicable to incorporated and unincorporated members’ clubs even after the 46th Amendment to the Constitution The Court had held that the very essence of mutuality is that a man cannot trade with himself. The club acts as an agent of its members and there is no exchange or flow of consideration. The Apex Court had held that Service Tax and VAT cannot be levied based on the doctrine of mutuality. 

In his context, views were being expressed that the rationale would hold good for GST also. Moreover, paragraph 7 of Schedule II read with section 7(1A) of the CGST Act applied to unincorporated associations or bodies of persons, and nothing was mentioned about the applicability to incorporated associations. A retrospective amendment has also been made in paragraph 7 of Schedule II wherein, the clause in relation to the supply of goods by any unincorporated association or body of persons to a member thereof for consideration is removed. Thereby distinction between unincorporated and incorporated associations is also done away with. 

An argument that could still be tried, in appropriate cases, is whether there is any supply between the club/association and its members especially when the members are only reimbursing the expenses incurred by the club/association on behalf of all the members.   However, the Maharashtra Authority of Advance Ruling (AAR) has ruled that the amount collected as membership subscription, admission fees from members by Rotary Club of Nagpur to meet expenses to be considered as supply of services under GST.

APMH Analysis:

The implications of the amendment are that the Government’s intention to levy GST on supplies made by societies, clubs, an association of persons, and a body of individuals since July’17 has been made very clear and clarified in the law. Such persons who had not taken registration or were not discharging their liability under GST will become liable to pay GST since 01-07-2017. The next question is whether interest can be levied on such liability when the amendment in law has been brought into force from 01-01-2022 effective retrospectively from 01-07-2017? In my opinion, the Government has clarified its intention along with an explanation that the levy was applicable since 01-07-2017. No concession in interest payment liability has been provided in law for such a case. This implies that interest will be payable on the tax liability retrospectively from 01-07-2017. 

Moreover, as the law stands currently, such persons will not be eligible to claim an Input Tax credit if they were unregistered and have not availed the credit for the earlier periods. This would be a huge hardship to such persons, especially when most such clubs/associations are providing services to their members on a no-profit no-loss basis. There could also be a change in the members of that club/AOP over the period and the current member would have to bear the burden of the tax and interest liability in such cases. Appropriate representations would be required to be made to the Government to administratively allow input tax credit and waive off interest in such cases.