This Topic covers Chronological Sequence on the subject matter from British Regime to Indian regime including highlights on famous case laws and the need for 46th constitutional amendment in 1982, Synopsis on the case of Calcutta Club Ltd, Discussion on Issue in Service Tax Perspective (Pre or Post Negative List),Position under GST Regime, Need for Amendment in GST and what is Amended in GST.

Chronological Sequence on the subject matter from British Regime to Indian regime including highlights on famous case laws and the need for 46th constitutional amendment in 1982

♦ View during British Rule

  • Famous Case of Graff vs Evans held as follows
  • Doctrine of Mutuality Applied – Members are Joint owners of club property, club trustees are agents. Hence, no sale by club to member.

♦ Key Indian Cases – Supported Doctrine of Mutuality

  • Madhya Pradesh High Court(1957) Bengal Nagpur Cotton Mills Club
  • Mysore High Court(1967)–Century Club

♦ Key Indian Case – Overruled Doctrine of Mutuality

  • Enfield India Limited – 1968 held that
  • Doctrine of mutuality has no application in taxing statutes
  • English cases deal with criminal liabilities and do not apply in tax matters

♦ SC in 1970 in Young Men’s India Association

  • Supported Doctrine of Mutuality and earlier cases heard on the same lines.
  • Held that Club is merely acting as an agent of the members

♦ 46th Amendment – 1982

  • Clause 29A inserted in Article 366
  •  To Tax on supply of goods & services by unincorporated association or body of persons to its members

♦ Issue Arises after 46th Amendment

  •  Tax on supplies made by incorporated person to members
  •  Whether unincorporated association or body of persons should be read disjunctively – i.e. body of persons covers incorporated entities as well?

Calcutta Club Ltd.

  • West Bengal Taxation Tribunal held that Calcutta Club Ltd. was not liable to pay West Bengal Sales Tax on supply of food and drinks to members. Affirmed by Calcutta High Court
  • Revenue appealed to SC. Division Bench of SC referred matter to Constitution Bench on the following questions:
  • Whether doctrine of mutuality is still applicable to incorporated or any club after the 46th Amendment?
  • Whether judgment of SC in Young Men’s cases till holds the field?
  • Whether 46th Amendment provides that supply of food and drink by incorporated club to members constitutes sale liable to sales tax?

♦  Findings by the court – Definition of person under General Clauses Act includes association whether incorporated or not. However, Clause 29A uses the words ‘body of persons’, without the phrase ‘whether incorporated or not’. Hence, only unincorporated clubs are covered

Service Tax Perspective

♦ Law Prior to 2012

  •  Club or Association” means any person or body of persons providing services, facilities or advantages to its members but does not include – Any body established or constituted by or under any law for the time being in force
  •  Companies and cooperative societies registered under respective acts can be said to be constituted under those acts
  •  Hence ,incorporated clubs and associations were not covered under the service tax net prior to 2012

♦ Law after 2012

  •  Section 65B(44) : means any activity carried out by person for another for consideration and includes :
  •  An unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons
  •  What has been held in the context of sales tax applies on all fours to service tax
  •  Explanation to Section 65B (44) is similar to Clause 29A discussed in the context of sales tax. Hence, ‘body of persons’ can not include incorporated bodies
  •  Legislature continued with the pre- 2012 scheme of not taxing members clubs

Position under GST Regime

♦ Schedule II specifies that supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration will be treated as supply of goods

♦ Definition of business specifically includes provision by a club, association, society, or any such body (for a subscription or any other consideration)of the facilities or benefits to its members

♦ Exemption notification exempts service by an unincorporated body or a non-profit entity registered under any law for the time being in force, to its own members by way of reimbursement of charges or share of contribution

Need for Amendment in GST

♦ Schedule II does not deem a transaction to be a supply; it merely classifies supplies into goods or services

♦ No provision similar to Explanation 3 to Section 65 B(44)

♦ Schedule II refers only to unincorporated bodies

♦ Exemption is on the flawed premise that such transactions are taxable. Exemption is irrelevant if levy itself fails

What is Amended in GST

Insertion of new clause in charging section itself i.e. Section 7 of CGST Act as follows

♦ “(aa) the activities or transactions, by a person, other than an individual, to its members or constituents or vice versa, for cash, deferred payment or other valuable consideration.

♦ Explanation.––For the purposes of this clause, it is hereby clarified that, 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 person and its members or constituents shall be deemed to be two separate persons and the supply of 77 activities or transactions inter se shall be deemed to take place from one such person to another;”

Conclusion – Now the services provided by Body of Persons whether incorporated or unincorporated shall be liable to GST.

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