Kerala HC Upholds GST on supplies by Clubs, Associations to its Members [Read Order]

In a significant ruling in the case of the Indian Medical Association ( IMA ), the Kerala High Court upheld the levy of Goods And Service Tax ( GST ) on the supply of goods and services by clubs, and associations to its members. The court held that the provisions of Section 7(aa) will have prospective operation with effect from 01.01.2022. The petitioner is an association under the provisions of the Travancore-Cochin Literary Scientific & Charitable Societies Registration Act, 1955. Only qualified modern medical practitioners with a valid registration in the State of Kerala under the Travancore Cochin Medical Practitioners Act, 1953, are eligible to become members of the petitioner association. Get the Complete Handbook on Filing of GST Returns, Click here. The petitioner association runs schemes as a self-help group. The petitioner association has guest houses, and it lets out rooms to its travelling members and their guests. Many charitable activities, such as HIV awareness, End-TB campaigns, etc., have been carried out by the association. The activities of the Petitioner Society are like mutual self-help, and the petitioner association is a kind of charitable organization. It was argued that he association is only a group of individuals serving themselves, and as per the doctrine of mutuality, there is no service by one person to another. It cannot be said that there is a supply of goods and services in carrying out the activities by the petitioner association, and therefore, no GST is payable in respect of the activities of the petitioner association. After the judgment in State of West Bengal v. Calcutta Club, the parliament introduced Section 7(1)(aa) by the Finance Act, 2021, retrospectively that is with effect from the date of commencement of the GST regime ie., 01.07.2017, inserting a legal fiction and artificially deeming a club/association and its members to be two separate persons. The taxable event was also artificially enlarged to include “activities or transactions” between a club/association and its members. Get the Complete Handbook on Filing of GST Returns, Click here. It was argued that the petitioner was not collecting any GST in view of the settled position of law from its members on transactions done. By way of amendment in the GST Act by inserting Section 7(1)(aa) expression thereto, a heavy, unforeseen burden is thus cast on the petitioner, and the petitioner is not in a position to collect tax from its members. The submission is that the retrospective levy, thus violates Article 19 (1) (g) of the Constitution of India. The department argued that the Constitution does not put any limitations/restrictions on making laws to tax on the supply of goods and services; no such limitations can be read into such power and prevent parliament and legislatures from defining person(s) for the purposes of levying the tax on the supply of goods and services. There is neither a lack of legislative competence nor the impugned provisions of the GST Act offends any of the fundamental rights guaranteed under Part III of the Constitution, nor can the provisions be said manifestly arbitrary and capricious. Section 7(1)(aa) of the GST Act cannot be said to be offending any of the aforesaid tests to be declared as unconstitutional. Get the Complete Handbook on Filing of GST Returns, Click here. A single bench of Justice Dinesh Kumar Singh has observed held that once the amendment has been brought into statute by inserting Section 7(aa) by the Finance Act 2021, the petitioners have become liable to pay the GST on the supply of goods and services to their members. Section 7(aa) therefore, should not be given retrospective operation w.e.f 01.07.2017 but it should be given effect from the date when it was notified i.e., 01.01.2022. Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates