In re Assistant Commissioner, Central Tax (Respondent- Lions Club of Poona, Kothrud) (GST AAAR Maharashtra)
it is opined that the members of AAR have interpreted the definition of “business” by giving a restrictive meaning of “facilities and benefits” used in the inclusive definition of “business” by comprehending the same to be the activities such as recreation, sports, food etc., which are not there in the definition of the business provided in the CGST Act. Thus, they have not followed the literal rule of construction in so far as the interpretation of the definition of “business” under the CGST Act, 2017 is concerned. It is worth mentioning that the literal rule of interpretation is the most widely accepted rule of legal construction unless the meaning conveyed by literal rule is against the intent and spirit of the legislation. Thus, in the instant case, the AAR has erred by construing the term ‘facilities and benefits’ only to the extent of recreation, sports, food etc., by going beyond the text of the legislation. The CGST Act has expressly defined the term business, which, inter-alia, includes ‘provision by club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members’. Thus, any facility or benefits extended by the Club to its members for a consideration will get covered under the business in so far as the GST law is concerned. It is also difficult for us to comprehend the observation made by AAR, wherein they have opined that such activities as the one undertaken by the Respondent, wherein they organise the Leadership and other skill Development program for their subscribed members, do not appear to be for transforming members into leaders generally but for the members to become leaders to perform towards the causes of the club, as the objectives or the purpose for the transformation of the members into the leaders is inconsequential in the context of the GST Laws, since there is no mention of term such as objective or purpose in the definition of the term “business” under the GST Act. Accordingly, it is believed that under the GST Law, the intent or objective of any club or association is immaterial in so far as the leviability of GST is concerned. Therefore, provision by club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members will surely attract GST irrespective of the fact that such club is not set up with the objective of providing any goods or service to its members. Hence, the observation of AAR does not hold any legal ground. Therefore, the ruling passed by them on such grounds is not sustainable and merits to be set aside.
We, hereby, set aside the ruling made by AAR and subsequently hold that Lions Club of Poona Kothrud, on account of the activities undertaken by them, is liable for taking registration for discharging their GST liability.
Also Read-
AAR Order 28.08.2018 –Lions clubs not required to register under GST: AAR
Revised Order Dated 14.08.2019–Membership fee collected by Lions Club Poona will not be subject to GST
FULL TEXT OF ORDER OF APPELLATE AUTHORITY OF ADVANCE RULING, MAHARASHTRA
(Under Section 101 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the MGST Act.
The present appeal has been filed under Section 100 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act”] by Assistant Commissioner, Central Tax, Division-IV, CGST, Pune-ll Commissionerate (herein after referred to as the “Appellant” or “the Department” interchangeably) against the Advance Ruling No. GST-ARA-33/2018-19/B-118 dated 28.08.2018
BRIEF FACTS OF THE CASE
A. Lions Clubs are autonomous units those collect fees from their members in order to conduct social activities and meet their administrative costs. Similarly, Lions Districts collect fees from Clubs and Cabinet Members to manage District activities.
B. It was felt by M/s Lions Club of Poona, Kothrud (hereinafter referred to as the respondent) that under the principle of mutuality and since the fees so collected are only pooled together for convenience of conducting social activities, paying meeting expenses and administrative expenses, should not be brought under the purview of GST.
C. The question raised by the respondent before the Advance Ruling Authority was “Since the amount collected by individual lions clubs and lions districts is for convenience of lions members and pooled together only for paying meeting expenses and communication expenses and the same is deposited in a single bank account, as there is no furtherance of business in this activity and neither any services are rendered nor are any goods being traded, whether registration is required by them or not.”
D. The Authority for Advance Ruling vide its order dated 28.08.2018 ruled that the GST is not applicable on the fees collected by the Lions Club and hence need No Registration under GST Act.
E. Against the said Ruling the department is in appeal vide its Appeal filed on 23.01. 2019 before the Maharashtra AAAR with a request to condone the delay in filing appeal.
Grounds of Appeal
1. The said ruling seems to be on wrong footings in as much as no proper weightage has been given to the actual field activities as stated by the Applicant(herein respondent) that Lions Club and Lions District consists of association of persons, joined together to undertake social activities without any profit motive. Funds collected as fees are pooled together to be expended for meeting expenses and forwarding to international office for administrative expenses. Surplus, if any, is used for charitable activities.
2. In this regard, the following submissions are made.
2.1 Legal position from 01-07-12 to 30-06-17:
There seemed to be a fact that the club and members were not distinct persons, levy of service tax on such clubs/ associations was not to be warranted. Principally, there should be existence of two sides/entities for having transaction as against consideration. In a member’s club, there is no question of two sides – members and club, both are the same entity. However, with effect from 1-7-2012, the word “service” has also been defined under Section 65 (44) of the Finance Act, 1904, the excerpt of the definition is as under;
“service” means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include,-
(a) ___________
(b) __________
(c) __________
Explanation 3. – For the purposes of this Chapter,
(a) an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons;
(b) _____________
Explanation 3(a) to the said Section states that for the purposes of this Chapter, an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons. Therefore, deeming provision has been introduced with effect from 1-7-2012 to the effect that the club and members are deemed to be separate persons. In view the given situation, respondent agrees that club and Its members were two distinct persons, at that time.
3. After introduction of GST w.e.f. 01-07-17, GST is levied on all types of supplies which are-
(i) made for consideration; and
(ii) are for the purpose of furtherance of business
The definition of “business” under Section 2(17)(e) of the CGST Act, 2017 states that-
“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.
‘Thus, the definition is enough comprehensive to include a service by way of a subscription to its members by a “club” in the term captioned as “business
Moreover, the “business” i.e. “furtherance of business” is duly Incorporated in the definition of “scope of supply”, as defined under Section 7 (a) of the Central Goods and Services Tax Act, 2017 which is reproduced as under-
“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.”
4. Therefore, the Ruling delivered by the Advance Ruling Authority is not legal and proper in as much as element of ‘furtherance of business” in the activity do exist even though it is stated that no goods are being traded. Consequentially, a prayer of the respondent that no registration is required, has no leverage and legal backing.
5. As the activity is more appropriately covered, as explained above, under “scope of supply”, the Ruling is not acceptable as the same is not supported by the statutory provision.
Also, the term “person” is defined in section 2(84) of the CGST Act, 2017, which is reproduced below-
person” includes,-
(a) ______________
(b) ______________
(c) ______________
(d) ______________
(e) ______________
(f) an association of persons or a body of individuals, whether incorporated or not, in India or outside India;
_____________
This definition also is sufficient enough to cover the activity of the Applicant under the GST regime.
6. From the foregoing, it is to conclude that transaction between an association or club and its members will be covered within the scope of supply under Section 7 of the CGST Act, 2017. Hence the same shall be taxable and registration and other formalities shall be followed.
7. The respondents have nowhere expressly submitted and committed that they are not engaged in the activities which may amount to “facilities” or “benefits” to its members. This is very much essential to decide whether the Applicant falls in/out of purview of the definition under “business”, as envisaged under section 2(17) of CGST Act, 2017. On the contrary, the written submission states that the Seminars and Institutes for Leadership Development and other forums are only for Lions members and non-lions are not allowed to take part. Thus, funds received from members are utilized for mutual benefit of members.
8. It is pertinent to note here that in the written submission dated 04.07.2018, the respondent himself has stated that -“Administrative and Annual convention cost of Lions Clubs international and similar District costs also programs, seminars and Institutes for Leadership Development and other forums and these programs are only for Lion members and non-lions are not allowed to take part. Thus, funds received from members are utilized for mutual benefit of members “
9. The element of – “the facilities or benefits to its members” (emphasis supplied) as envisaged under the definition of “business” in Section 2(17) of the CGST Act, 2017 gets satisfied.
10. As per Section 7 of the 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 specified in Schedule II to the CGST Act, 2017.
11. The 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.
12. It is pertinent to mention here that in an identical case of the West Bengal Authority for Advance Ruling, Kolkata in case of M/S. The Association of Inner Wheel Clubs in India, has given verdict in favour of the Department. In that order the basic question has been dealt with at length regarding “supply of services” and has rightly made clear distinction between said services and held that such services at best are “incidental and ancillary to the social welfare activity and preferred to classify the above activities under the Services Accounting Code no. 99836.
Respondent’s Submission
13. The Respondents respectfully pleaded to set aside the appeal for the reasons mentioned under-
13.1. Delay in Filing the Appeal:-
No reasons whatsoever are mentioned for the cause of delay in filing the appeal.
While deciding an application under Section 5 of Limitation Act, the Authority must adopt a liberal approach, provided there is no gross negligence, deliberate inaction or lack of bona fide imputable to the party seeking con-donation of delay. Further, while considering the application seeking con-donation of delay, the period of delay is not the criteria. A short delay may not be condoned in absence of an acceptable explanation while a large delay may be condoned if the explanation is satisfactory.
In the appeal filed by the department, it is stated that “However due to unavoidable reasons the same could not be presented within the appealable period.”(Covering page of the Application). Reason as to what prevented the Department from filing the appeal is not mentioned neither identified.
In the instant case, the appellants application for condonation of delay is highly casual in nature, it lacks material particulars and do not disclose sufficient cause for the condoning the delay. Holding thus, the High Court denied to condone the delay and dismissed the appeal. [Lifelong Media tech (P) Ltd. v. United India Insurance Co. Ltd. 2018 SCC On Line Del 9559 dated 03-05-2018].
13.2. Nature of Receipts of Clubs and District Cabinet
Major heads of Receipts are mentioned below with reasons as to why they may be considered as Non-Taxable:
