It is submitted that Section 7(1)(aa) is sought to be inserted retrospectively with effect from the 1’st July, 2017, vide Clause 99 of Finance Bill, 2021, so as to ensure levy of tax on ‘activities or transactions involving the supply of goods or services by any person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration’. Consequent to the proposed amendment in section 7 of the Central Goods and Services Tax Act, 2017 (“CGST Act, 2017”), paragraph 7 of Schedule II to the CGST Act, 2017 is proposed to be omitted retrospectively, with effect from the 1st July, 2017.

Please note that these proposals will come into effect from a date to be notified later. It is stated that Sections 2 to 79 of Finance Act, 2021 shall come into force on the 1st day of April, 2021 and Sections 99 to 114 of Finance Act, 2021 shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.

It is stated that to expand the scope of supply, the proposed amendment is brought to include activities or transactions of supply of goods or services or both by any person, other than an individual, to its members or constituents or vice-versa. Consequent to the proposed amendment, paragraph 7 of Schedule II to the CGST Act is proposed to be omitted. It is submitted that before the proposed amendment ‘supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration’ is treated as supply of goods. But after the aforesaid amendment, the same shall be treated as supply of goods or services as required.

According to Section 7 of CGST Act, 2017  the expression “supply” includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business, and includes activities or transactions specified in Schedule II to the CGST Act, 2017. According to Section 2(17) of CGST Act, 2017, definition of business 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’. 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’.

For erstwhile service tax regime, it was contended that there could be no sale by the respondent Club to its own permanent members, for doctrine of mutuality would come into play and Hon’ble Supreme Court in State of West Bengal & Ors. v Calcutta Club Limited dated 3rd October, 2019 dismissed the appeal of the Revenue and consequently show-cause notices, demand notices and other action taken to levy and collect service tax from incorporated members’ clubs are declared to be void and of no effect in law.

It is stated that to neutralise the effect of the aforesaid judgment of Hon’ble Supreme Court, the aforesaid amendment has been proposed. 

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Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes only.           

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