State of West Bengal v. Calcutta Club [1] was nothing but more than a milestone judgment achieved by the GST council. For interpreting this case we have used several tools like referring to the Golden rule, literal rule, internal & external aids of construction like referring the Preamble of the constitution, definitions, reading of the code, title, foreign judgments, set precedents, statements of objects & reasons, Purpose Test, comparison between similar structures and other literal ideas for the true construction.
The Doctrine of mutuality[2] shall apply to all clubs irrespective of it being an incorporated club or an unincorporated club or a society, making them eligible and mandatory to collect and remit GST from their members, guests, or subscribers. The Principle has been set and hence the courts have been correct in application of this doctrine, looking at the case from a wider perspective was that even though the club has been formed for non-profit basis or the sole aim of the club is to serve as a property for members and a fee levy is generally demanded from all participating members, which is utilized for the payment of the property tax and other construction/renovation work. A plain reading of Article 279A lays down these rules for collection of GST for any goods or services supplied, hence as per the Golden Rule shall be liable for tax as it is providing services like food, drinks, sports, spa activities then they are indirectly manufacturing and providing services. Even if we look at the current structure of any club in the country and we compare the same with our case that the club has its own regulating body which even if comprised of members but these members hold a position in the adjudicating body which eventually leads to a governing body, the club is liable to pay property tax to the local government, it also needs to follow rules as per the Industrial Relations Code, Amnesty ESIC scheme & POSH guidelines, then exemption based on Indirect Taxes may not seem to be fair on given the nature of business and activity clubs carry out. [3]
With the implementation of the GST Service tax, VAT and other levies were considered to be bodily transposed to it[4]. GST was the single tax which had to be levied by every business post-2017 included in the activity of supplying or manufacturing of goods & services, the confusion that seems to have been created by the exception which had not included charity clubs like the Rotary Clubs, Lion Club, etc [5]under the ambit of GST as their scope of work was restricted to charitable events and work around the country. Clubs which have been there even before the early 20thcentury shall also be liable for the payment of GST as whether they’re incorporated as a society, they are still housing members and supplying them services which makes them directly liable for paying taxes. Any restaurant or food, water or anything, and as laid down in the historical judgment it has been laid down that irrespective of everything these clubs are liable to collect tax at hand from the consumer. If one were to consider the definition of ‘sale’ according to the Literal Rule of Interpretation [6]as laid down by the act, it would include the activity of preparing and supplying food in restaurants, as laid down in the case of Associated Hotels [7]where hoteliers had to collect and pay service tax If the principle of Ejusdem Generis, was used for construction[8]– it would be found that clubs and restaurants were found to be in the same class serving the public (members+ Guests) food and drinks. Moreover, the funds are being collected to pay other direct taxes, giving an exception over Indirect taxes would create uncertainty under the taxing umbrella.
Further for this issue if one were to look at the Title of the act, it is named as the Central Goods and Services Tax, it extends to the whole of India and the act has been formed to make a provision for levy and collection of tax intra-state for both goods and services. To cite Lord Moulton [9]quoted that the Title of Act may just be the phrase which is a statutory nickname to obviate necessity and purpose. A Long title is not just a statutory aid to construction but as laid down by J. Ayyanger[10], the title serves the main purpose of the act and the description under construction shall also be taken into account clearly so that to avoid confusion.
Reading the statute in its entirety is another important tool for construction to prevent any sort of omission, as laid down by the Shree Krishna Metal Manufacturing case[11], where the Supreme court had referred to the definitions and explanation of the act.
Moving on to the Preamble, it is a statutory tool of interpretation where even the SC court agrees the crux of the entire application of the act lies and judges may tend to look at the preamble in case of any ambiguity or difficulty while deciding upon a case, several lawmakers take the recourse of the Preamble which opens minds of makers for clarification of the scope and the mischiefs which they plan to redress. However, it is not easy to rely upon these few lines for the justification of the scope of the act, and the preamble may not just be enough hence in this case we know that the club is supposed to charge tax for the foods, activities, and drinks with (no liquor) as the act suggests that any transaction involving services and goods transfer shall be liable under GST.
With the recent amendment concerning the finance bill of 2021, amendment 108 has amended S.7 of the CGST Act by insertion of the “aa” clause that the activities or transactions by a person other than an individual, to its members, constituents, or vice-versa, for cash, deferred payment or other valuable consideration. Referring to the explanation to this clause further clarified that the doctrine of mutuality has been done away with, now if a transaction is between persons and their member body then it shall a transaction between two separate people irrespective of their incorporation status.
While there has been no GST levy on any membership fees [12]or entry to the club, however in case of work contracts, a service when being provided then such shall be liable for GST. [13]If the club wouldn’t levy GST from its members then it would lead to evasion of taxes from the central government or the liability would arise on the club. Although it has been clarified that ‘If there are no members, then there’s no club and vice versa and later in a six judge bench judgment in the case of Young Man Association laid down the fact that since there’s no transfer of property amongst trustees hence there was no transaction that can be taxed. Moreover, there was also a need to distinguish Proprietary clubs from member clubs, as relying upon the Companies Act [14]for the veil of separate legal entity and hence liable for the collection of indirect taxes under the definition of ‘Business’ as an incorporated firm running social activity clubs. [15]
If we were to compare clubs like Club Mahindra and any private or public ltd. Company the nature of business would not change and would be major to Supply services, similarly if the clubs which claim to be bodies and societies are to be compared by the nature of the scope of work they carry or whether they supply[16] food or services to members shouldn’t subside in the overlapping of laws and set precedents. The case of Ranchi Club & Gujrat sports club[17] where the legal status of the club was set by the Jharkhand High Court & Gujrat in the case of as kicked outside the scope of taxability, it laid down the fact that whether it is a club or a society, if the purpose of the club is to provide services to its members then shall be a ‘members only’ club and hence not liable for tax. Clubs incorporated outside India has known to be the largest contributors of tax even during the pandemic.[18]
As laid in the case of Vanguard Fire V. M/s. Fraser & Bros [19]it was Justice Wanchoo who laid down the importance of the definition clauses for the correct interpretation of statutes and how it is a must and a well-settled principle of law which should not be gambled away just by not allocating adequate attention to the definitions in the statute or the proviso or explanation to it. The earlier definition of Section 65(25a) and 65(25aa) [20]housed these clubs under its ambit while excluding incorporated clubs as they had a separate legal entity, however, if the nature of ‘goods’ was being classified then all classified as ‘deemed sale’[21] was shifted to goods awaiting claiming Input Tax Credit post-2016. If we were to assume that interpreting this issue where it is a tussle between revenue authorities and member clubs, as under article 279A it has been laid down like the in the case of Teesta Distributors 2018 [22]that the matters associated with indirect taxes are under the purview of GST Council which shall from time to time make or amend laws for the better implementation of the act and regularly/routinely collection of GST. Hence it’s a set precedent that as per article 366, under 29A it is clear for clauses (d), (e), (f) that tax on supply has been clearly defined, it has to be deducted and non-compliance shall lead to evasion.
Taxation is the right of the Sovereign as per the Preamble of the Indian Constitution, hence even if the amendments introduced by the parliament may directly affect the items constituting in List I and III of the seventh schedule to Article 246 majorly, collection of service tax/ sales tax felt outside the purview of the List I and was inherited right of the State government to plan something similar. With GST, the parliament has created a harmonized tax model exclusively[23] to make laws for the collection of taxes for both state and centre and that would inculcate a sense of fraternity amongst the classes. The power to Tax retrospectively [24] is another cream that the legislature and the Ruling authorities enjoy where it is clear implication to tax and is also applicable in cases where without the removal of the bias created due to the existing legislation is the only possible solution with being harsh but reasonable.
As laid down in the case of Chowgule & Co V. Union of India[25], any argument based on the contrary text cannot be accepted as it would increase confusion for future associations or even for Revenue Authorities hence selection of arguments based on the old act and old definitions would not be of a greater use even while referring to the landmark cases that had been referred in the Young man Association’s [26]judgment like Graff v Evans [27]and Terbang Working Men’s Club V. Macdonald [28]where the general rule was accepted but however these cases were based on criminal trial, were excluded as we had no relevance of the same for deciding upon tax laws for GST origin countries rather than countries still following the old system.
While comparing the statements of Objects and Reasons to the Amendment Bill it can be interpreted very clearly that GST was introduced to give the centre, concurrent powers to make laws related to taxation for both centre and the state. The single tax is supposed to constitute all sorts of taxes which had been created in the realm of multiple businesses, (Taxes like service tax, entertainment tax, sales tax, VAT, etc have been accumulated under the umbrella of GST hence it is important to look into every detail of the act to avoid any sort of confusion that would later lead to any excess or no levy. As laid down by Justice S.R. Das in Subhodh Gopal’s case[29] that the statement of objects and reasons are the tools that shall be used for judging and assessing the reasonableness or classification with Article 19(1) of the Indian constitution.
Clause – 2(i) [30]lays down that it would be the GST council that shall decide whether a business shall be liable for exclusion or even suggest changes to Rates applicable for such services on mutual consultation with the parliament and state legislatures. The Financial memorandum also lays down the fact that the reason for the Integration of such multiple levies would not only boom the centralized tax collection but it would also help the country to serve better worldwide. It defines the purpose for the amendment of the act as the ratio held in Jones v. Tower Boots[31]if the nature of an act has been set, then such action shall not be construed or interpreted narrowly, Hence looking at this parliamentary history for the aids of construction as per Pepper’s Case[32]it is clear that the entire role is that of the GST council for notifying and demanding for taxes it may add or remove any business or services of ‘supply’ nature as may seem fit. Further, Calcutta Club shall not enjoy any exemption or freedom from levying GST, It is mandatory and cannot be done away it so directing the club to clear the pending tax liability which had been under Lis pendens with interest u/s.50 of the CGST Act.
Refrences
[1] State of West Bengal and Ors. vs. Calcutta Club Limited, MANU/SC/1367/2019
[2] ‘No man shall trade with himself, or make taxable profits out of himself’ Doctrine of Mutuality
[3] Delhi Gymkhana v. ESI Corporation 2015 1SCC 142
[4] Reference to Other Statutes- tool of interpretation (External Aid)
[5] In re Rotary Club of Bombay Hanging Garden (GST AAR Maharashtra) Advance Ruling No. NO.GST-ARA- 05/2020-21/B-22
[6] State of West Bengal v. Wasi Ahmed
[7] State Of Punjab vs M/S. Associated Hotels Of India 1972 AIR 1131, 1972 SCR (2) 937 As Service tax was an additional levy to the income of the Management, njused to increase the cost of food which further reduced the demand, hence was dreading for the Hotel business.
[8] Siddeshwari Cotton Mills v. UOI
[9] Vacher & Sons V. London Society of Compositors All ER Rep 241, 1913 AC 107 (HL)
[10] Manoharlal v. State of Punjab, AIR 1961 SC 418
[11] The Regional Provident vs Shree Krishna Metal1962 AIR 1536, 1962 SCR Supl. (3) 815
[12] M./s Bow-ring Institute v. AAR Bangalore KAR ADRG 27/2021
[13] e.g.: If the Calcutta club has hosted a program for which they have requested a band to performs, now the band has provided a service and will charge a GST bill which can later be collected by the club through its members
[15] Dwarkadas Khetan & Co. v. CIT (1956) 29 ITR 903 (Bom) (HC)
[16] S. 7 CGST Act, 2017.
[17] Ranchi Club Ltd. vs. Commissioner of Customs (MANU/JH/0270/2012), Gujarat Ltd. vs. UOI (MANU/GJ/0387/2013)
[18] Soho Club, The US- largest contributor during the COVID-19 Pandemic- https://www.bloomberg.com/news/articles/2020-04-30/how-soho-house-private-member-social-clubs-are-handling-virus . Comparative analysis with International Club. (Foreign Jurisdiction and similar functions & reasons of incorporation plus levying GST)
[19] The Vanguard Fire And vs M/S. Fraser And Ross And Another 1960 AIR 971
[20] “Any person or Body of persons” Finance Act, 1994.
[21] Paramjit Singh Patheja v. ICDS Ltd. AIR 2007 SC 168
[22] Teesta Distributors V. UOI
[23] Rule of Harmonious Construction- Calcutta Gas Co. v. State of West Bengal, AIR 1962 SC 1044
[24] Pyare Lal Sharma v. Managing Director, J&K Industries Ltd.
[25] Chowgule & Co V. Union of India, 1981 AIR 1014, 1981 SCR (2) 271
[26] Young Men’s Indian Association vs Jt. Commercial Tax Officer AIR 1964 Mad 63, 1963 14 STC 1030 Mad
[27] Graff v. Evans ([1882) 8 Q.B.D. 373)
[28] Terbang Working Men’s Club V. Macdonald (1940) 1 KB 576, MP Elizabeth v. Harwan Investment & Trading Pvt. Ltd
[29] The State Of West Bengal vs Subodh Gopal Bose And Others, 1954 AIR 92, 1954 SCR 587
[30] Was members were Joint owners of the property and that the trustees were merely agents with respect to general property, the fact that there was no actual sale and was simply a trustee-trustee relationship.
[31] Jones v Tower Boot Co Ltd [1997] IRLR 168, CA
[32] Pepper v. Hart
Author Bio
