GST Charcha on Union Budget 2021: GST leviable on services provided by Club or Association to its members?

The Hon’ble Finance Minister, in Budget 2021-22, hailed as a ‘development-oriented’ and ‘visionary’ budget amid the pandemic-induced disruptions, inter alia, announced multiple changes to the Goods and Services Tax (GST) framework. The changes have been proposed vide the Finance Bill, 2021, that amends the Central Goods and Services Tax Act, 2017 (CGST Act) and the Integrated Goods and Services Tax Act, 2017 (IGST Act), in order to curb input credit frauds, safeguard Government revenues and to provide statutory backing to debated Rules.

This GST Charcha deciphers into recent changes in GST Laws made vide Clause No. 99 and 113 of the Finance Bill, 2021 on issue whether GST is leviable on services provided by Club or Association to its members?

Relevant provisions:

Sub-clause (aa) of Section 7(1) of the CGST Act proposed to be inserted:

“(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 activities or transactions inter se shall be deemed to take place from one such person to another”

Para 7 of Schedule II of the CGST Act proposed to be deleted:

“Supply of Goods:

The following shall be treated as supply of goods, namely:-

Supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration.”

Discussion and Comments:

Expanded the scope of ‘supply’ to tax supplies between the club/association and its members, to overcome the principle of mutuality:

A retrospective amendment (w.e.f. July 1, 2017) has been proposed by inserting a new clause ‘(aa)’ after clause (a), in Section 7(1) of the CGST Act to widen the scope of term ‘supply’ by including therein activities or transactions of supply of goods or services or both between any person (other than individual) to its members or constituents or vice versa for cash, deferred payment or other valuable consideration.

Further, an explanation is added to say that the person and its members or constituents shall be deemed to be two separate persons and overriding effect has been given to the said explanation over anything contained in any other law for the time being in force and even to the judgements of any Court, Tribunal or any other authority.

Consequently, Para 7 of Schedule II of the CGST Act has been proposed to be deleted retrospectively (w.e.f. July 1, 2017) which is related to ‘supply of goods by unincorporated associations or body of persons to a member thereof for cash, deferred payment or other valuable consideration’ being activity/ transaction treated as supply of goods.

There has always been dispute regarding the taxability of transactions between clubs, associations, etc. and its members. In this regard, the Hon’ble Supreme Court in State of West Bengal & Ors. v. Calcutta Club Limited [2019 (29) G.S.T.L. 545 (S.C.)] for erstwhile Service tax regime has held that there cannot be sale of goods or provision of services between the incorporated private clubs/ associations and its members owing to the principle of mutuality which treats such clubs/ associations and its members as the same person. It is to be noted here that while the Explanation 3 to Section 65B(44) of the Finance Act, 1994 created a deeming fiction to treat activities between an unincorporated association and its members as deemed supply.

Now, the amendment seems to be doing away with the principle of mutuality and has unsettled the settled jurisprudence (with specific overriding effect over judgments) with retrospective date to ensure the levy of GST on supply of goods and services by clubs or association to its members irrespective of whether or not the entity is incorporated. Though the above amendment is made applicable retrospectively, but the validity of such retrospective amendment may still be debated and subjected to litigation.

Note: Amendments carried out in the Finance Bill, 2021 will come into effect from the date when the same will be notified and when the said clause also gets concurrently notified with the corresponding amendments passed by the respective States and Union territories in respective SGST/ UTGST Act.

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DISCLAIMER: The views expressed are strictly of the author and A2Z Taxcorp LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

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