TaxTMI 
TaxTMI 
TaxTMI 
1. The High Court of Kerala on 11/04/2025 in the case ofINDIAN MEDICAL ASSOCIATION, KERALA VERSUS UNION OF INDIA, STATE OF KERALA, GST COUNCIL, ADDITIONAL DIRECTOR GENERAL, DIRECTORATE GENERAL OF GST INTELLIGENCE, KOCHI, DEPUTY DIRECTOR, DIRECTORATE GENERAL OF GST INTELLIGENCE, KOZHIKODE (VICE VERSA). - 2025 (4) TMI 872 - KERALA HIGH COURT has held that Section 2(17) (e) as well as 7(1)(aa) and explanation thereto of the CGST Act 2017 are unconstitutional. This decision shall have far reaching consequences and many Resident Welfare Associations may take advantage of this case for any DEMAND pertaining to the past.
2. Section 2 (17) (e) which is in force since inception of GST is only to establish that services of RWA are in the nature of supply of services. This requirement alone is not sufficient to attract GST on services rendered by RWA. There must be two distinct persons as Supplier as well as Receiver. So far as the RWA is concerned, suppler and receiver are not two distinct persons.
3. Section 7 (1) (aa) was inserted on 01/01/2022 with retrospective effect from 01/07/2017 itself without any constitutional background and accordingly, The Kerala High Court is of the view that Section 7(1) (aa) as well as the explanation thereto are invalid.
4. The High Court has concluded as above after thoroughly analysing all the provisions contained in Article 366 (29A) of the Constitution of India which are briefly furnished hereunder.
5. Clauses under Article 366 (29A) from a to f were added on six different occasions to either increase the scope of supply or to make certain transactions as taxable which were not taxable earlier.
6. Clause a was inserted to nullify the decision of the Supreme Court in the case of New India Sugar Mills Ltd. Versus Commissioner of Sales Tax Bihar - 1962 (11) TMI 21 - Supreme Court wherein it was held that a compulsory sale through control orders was not a sale.
7. Clause b was inserted to nullify the decision of the Supreme Court in the case of The State of Madras Versus Gannon Dunkerley & Co. (Madras) Ltd. - 1958 (4) TMI 42 - Supreme Court wherein it was held that work contract is not a sale
8. Clause c was inserted to get over the decision of the Supreme Court in the case of KL. Johar and Co. Versus Deputy Commercial Tax Officer, Coimbatore III and Others - 1964 (11) TMI 58 - Supreme Court wherein it was held that hire-purchase was not a sale.
9. Clause d was inserted to get over the decision of AV Meiyappan Versus Commissioner of Commercial Taxes, Board of Revenue, Madras and Another - 1967 (3) TMI 93 - MADRAS HIGH COURT wherein it was held that transfer of right to use goods was not a sale
10. Clause e was inserted to get over the decision of The Joint Commercial Tax Officer, Harbour Division II, Madras Versus Young Men´s Indian Association, Madras and Others - 1970 (2) TMI 87 - Supreme Court wherein it was held that there could be no sale between a club/association and its members.
11. Clause f was inserted to get over the decision of the Supreme Court in the case of Northern India Caterers (India) Ltd. Versus LT. Governor of Delhi - 1978 (12) TMI 157 - Supreme Court wherein it was held that supply of food and beverages in restaurants was not a sale.
12. Having analysed the entire background elaborately in the above cases, the High Court has concluded that the insertion of a statutory provision that alters the basis of indirect taxation with retrospective effect, so as to tax persons for a prior period when they had not anticipated such a levy and, consequently, had not obtained an opportunity to collect the tax from the recipient of their services, militates against the concept of Rule of Law. (Para 24 of the order dated 11/04/2025.
13. It is to be noted that the above view of the Keral High Court is likely to be challenged in the Supreme Court by the Union of India. Nevertheless, as the Kerala High Court has concluded as in para 24 above only after looking in to various connected aspects, this order of the Kerala High Court may be accepted by the Supreme Court. However, there are equal chances that the Supreme Court may set aside this order as well depending on how the case is presented by the Union of India before the Supreme Court.
14. So far as RWA and GST is concerned, there are conflicting views on applicability of GST when the monthly charges exceeds 7500 per member. Those RWA who pay on entire monthly fees have opportunity to utilize optimum ITC. However, those RWA which pay GST on amount collected over and above 7500 per member per month may also take advantage of the above ruling in case there is any demand in future.
15. The view of the High court that a retrospective amendment to collect GST which was neither collected by the registered person from the customers nor there was a possibility to assume that the particular provision is likely to be amended in future with retrospective effect stands on fundamental principles.
16. It may be concluded that the decision of the Kerala High Court has opened the views on GST when the supplier and recipient happen to be one and the same. Though REVENUE may get over on this view of the High Court either through Supreme Court or proper amendment to ensure that GST is collected from RWA, this decision shall help all RWA who have either SCN pending on this issue or for those RWA which may get SCN in future on this issue for the period up to March 2025.
