GST on Professionals and Trade Associations - A Study on Mutuality Aspect

1. Brief Introduction

The issue of taxability of membership fees, annual renewal fees, seminar charges and other receipts collected by associations, clubs, and professional and trade bodies under the Goods and Services Tax (GST) regime has been a subject of significant legal debate. The controversy primarily revolves around the applicability of the doctrine of mutuality and the constitutional validity of statutory provisions introduced to tax such transactions.

Recent judicial developments, particularly the Supreme Court ruling in Calcutta Club' s case and the Kerala High Court decision in Indian Medical Association's case, have added new dimensions to this issue. This article critically examines these rulings, the statutory framework under GST, and the constitutional principles involved.

Our views are merely an analytical study since the matter is already sub-judice before the Hon'ble Supreme Court in the case of Indian Medical Association [SLP (C) No. 18349-18350/2025 filed in July 2025]. The entire discussion surrounds the concept of mutuality and legislative competence of levying GST on the activities having a mutuality element.

2. Concept of Mutuality

The principle of mutuality is a concept borrowed from the 'English decisions' and has been adopted and refined over a long period of time by the courts in India. The principle of mutuality has been mainly held to be applicable in the context of the levy of income tax as well as the erstwhile sales tax regimes. The doctrine of mutuality is founded on the principle that a person cannot make a profit out of himself. Therefore, transactions between an association and its members are treated as transactions with oneself, lacking the essential element of plurality required for taxation.

In a landmark recent decision by the larger bench of the Hon'ble Supreme Court in the case of State of West Bengal & Ors. Versus Calcutta Club Limited And Chief Commissioner of Central Excise and Service & Ors. Versus M/s. Ranchi Club Ltd. - 2019 (10) TMI 160 - Supreme Court (LB), it was held that the supply/sale of goods or rendering of services by incorporated / unincorporated associations or clubs to their members are not liable to sales tax/service tax by application of the principle of mutuality even after the 46th Amendment to the Constitution in Article 366(29A). The Supreme Court also held that the judgment in The Joint Commercial Tax Officer, Harbour Division II, Madras Versus Young Men´s Indian Association, Madras and Others  - 1970 (2) TMI 87 - Supreme Court, which applied the doctrine of mutuality, continues to hold the field even after the 46th Amendment.

3. Few Related Terms and Concepts under the GST Law

(i) Central/State Goods and Services Tax Act (CGST Act, short) has come into effect from 01.07.2017. Chapter III of the said Act provides for the levy and collection of GST. The term 'Supply' has been defined under section 7 of the Act to include all forms of supply, such as sale, transfer, barter, exchange, license, rental, lease or disposal of goods or services or both, made or agreed to be made in the course or furtherance of business and for a consideration and,

• Includes activities mentioned in Schedule I to the Act which are made or agreed to be made without consideration.

• Excludes activities or transactions specified in Schedule III, which are neither to be treated as a supply of goods nor supply of services.

(ii) Further, any supply of any transaction or activity, whether is a good or service, would be identified from Schedule II to the Act, which considers them to be a supply of goods or supply of services, as mentioned therein. That is, if any supply under this schedule is deemed to be a supply of goods or a supply of services, then such activity would be of such nature, i.e., goods or services for the purpose of GST Law, and applicable GST rate for that activity would be applied.

(iii) The term 'business' has been defined under section 2(17) of the CGST Act to include (only relevant clause extracted below):

(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activities, whether or not for a pecuniary benefit.

(e) 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.

(iv) The term 'person' is defined under section 2(84) of the CGST Act, which, inter-alia, includes an association of persons or a body of individuals, whether or not incorporated and trust.

4. Concept of Mutuality Circumvented in the GST

Concept of mutuality has been bypassed in the GST Law at various places since the inception of GST itself; for instance:

(i) We have already seen the definition of the terms 'person' and 'business' which inter-alia includes association of persons, whether or not incorporated, and provision of the facilities or benefits by the association to its members.

(ii) Separate registrations of the same person (same PAN) have been treated as 'distinct persons'; and supply of goods/services by one to another is taxable.

(iii) Import of services by a person from any of his other establishments outside India, in the course or furtherance of business, has been considered as a supply vide entry no. 4 of Schedule I to the CGST Act.

(iv) Entry no. 77 of Notification No. 12/2017-CT (Rate) dated 28.06.2017 gives exemptions to certain services by specified unincorporated bodies or non-profit entities registered under any law for the time being in force, to their own members by way of reimbursement of charges or share of contribution.

(v) Likewise, Entry no. 77A of Notification No. 12/2017-CT (Rate) dated 28.06.2017 exempts certain services provided by specified unincorporated bodies or non-profit entities registered under any law for the time being in force to their own members against consideration in the form of membership fee up to an amount of Rs. 1,000/- per member per year.

Various Trade and Professional Associations may fall under this entry, subject to the monetary limit of annual membership fee.

(vi) Entry no. 10F of Notification No. 15/2018-IT(R), dated 26 July 2018, w.e.f. 27 July 2018, grants exemption to the services supplied by an establishment of a person in India to any establishment of that person outside India, which are treated as establishments of distinct persons in accordance with Explanation 1 in sec 8 of the IGST Act.

(vii) Clause (aa) to section 7(1) was inserted w.e.f. 01.07.2017, retrospectively, by the Finance Act, 2021 (No. 13 of 2021) (s.108) dated 28.03.2021, read with Notification No. 39/2021-CT, dated 21.12.2021. The said clause reads as follows: (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.

5. Departure in GST Provisions, Comparing State VAT/CST and Service Tax Provisions, relating to Activities by one Person to another

(i) Section 2(g) of the Central Sales Tax, 1956, defines the term 'sale', reads as,

(g) 'sale', with its grammatical variations and cognate expressions, means any transfer of property in goods by one person to another for cash or deferred payment or for any other valuable consideration..........

(ii) Section 2(1)(zc) of the Delhi VAT Act, 2004, defines the term 'sale' as,

(zc) 'sale' with its grammatical variations and cognate expression means any transfer of property in goods by one person to another for cash or for deferred payment or for other valuable consideration (not including a grant or subvention payment made by one government agency or department, whether of the central government or of any state government, to another) and includes......

(iii) Section 65B (44) of the Finance Act, 1994, in relation to the charge of 'service tax', inserted with effect from 01.07.2012, reads as,

(44) 'service' means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include.......

(iv) Section 66B of the Finance Act, 1994, in relation to the charge of 'service tax', inserted with effect from 01.07.2012, reads as,

66B. There shall be levied a tax (hereinafter referred to as the service tax) at the rate of fourteen per cent. on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed.

(v) Section 7(1) of the CGST Act defines the term 'supply' as,

(1) For the purposes of this Act, the expression 'supply' includes--

(a) 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;

Thus, in the definition of the term 'supply' in the CGST Act, the words 'to another' after 'by a person' are missing.

6. Hon'ble Supreme Court in Calcutta Club Limited Case (1970) (Supra)

(i)Scope of the Judgment:

The Supreme Court decision was rendered in the context of service tax under the Finance Act, 1994. The Hon'ble Court examined whether services provided by clubs to their members could be taxed. In Para 55 of the judgment, the Hon'ble Court also noted that members' clubs (Respondents) were registered as Companies under Section 25 of the Companies Act, or registered co-operative societies under various State Acts. The Hon'ble Court distinguished between:

• Unincorporated associations or bodies of persons, and

• Incorporated entities, such as, companies and co-operative societies.

(ii) Position before 1 July 2012:

In Para 73 of the judgment, the Hon'ble Supreme Court observed that 'incorporated clubs or associations' were not included in the service tax net before 1 July, 2012.

(iii) For the period from 1 July 2012:

The Hon'ble Supreme Court noted:

• The definition of the term 'person' in section 65B(37) of the Finance Act, 1994, includes any association of persons or body of individuals whether incorporated or not. [Para 75]

• Explanation 3 (a) to section 65B(44), defining the term 'service', reads as,-

(a) an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons; [Para 77]

(iv)Ratio of the Judgment:

Looking at the Explanation 3 to section 65B(44), defining the term 'service', the Hon'ble Supreme Court in Para 81 of the judgment held that services provided by the incorporated clubs, such as Calcutta Club and Ranchi Club are not taxable to service tax as the scope of Explanation is confined to unincorporated association or a body of persons, and is not extended to all associations of persons or bodies of individuals, whether incorporated or not. The Hon'ble Court also noted that the concept of mutuality has not been done away in service tax.

Therefore, had the legislature used the phrase 'all associations of persons or bodies of individuals, whether incorporated or not' or simply 'person' instead of 'unincorporated association or a body of persons', the judgment might have been different. This judgment is primarily on the drafting of the statute.

(v) GST Framework - Departure from Service Tax Regime:

The GST law has consciously addressed the ambiguities present in the service tax regime. We have already seen the definition of the terms 'Business' in section 2(17), 'Person' in section 2(84), and 'Supply' in section 7(1) of the CGST Act. The explanation of section 7(1)(aa) also states that 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.

(vi) Comparative Conclusion:

Unlike the Finance Act, 1994, the GST law removes interpretational gaps. Therefore, the ratio of the Calcutta Club judgment cannot be directly applied under the GST.

7. Hon'ble Kerala High Court in Indian Medical Association Case (2025)

[Indian 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]

(i) Overview:

This judgment has provided significant relief to the Associations by holding that GST is not leviable on services provided by them to their members. However, the Union Government has challenged the decision before the Hon'ble Supreme Court (SLP filed in July 2025). Notably, no stay has been granted, and the matter is presently pending.

(ii) Factual background:

As recorded in Para 3, the petitioner association operated various mutual benefit schemes for its members, such as, Social Security Schemes, Professional Disability Support Scheme, etc. These schemes were primarily designed to support member-doctors and, in certain cases, their immediate family members.

(iii) Core question (Para 11):

When the Constitution has understood a taxable transaction as necessarily involving two persons, can a legislature deem a transaction that does not involve two persons as a taxable transaction?

(iv) Interpretation of the term 'service' (Para 12):

Their activities cannot be treated as 'service' since the concept of service under the GST law itself contemplates the existence of two entities, viz., a service provider and a service recipient, and excludes the concept of self-service for the levy.

(v) Effect of Clause (aa) to Section 7(1) (Para 16):

The concept of 'supply' and 'service' as understood under the Constitution and the CGST Act (before their amendment) excluded transactions informed by the principle of mutuality, i.e. a supply/service from one entity to itself (self-supply/self-service). Thus, even if there is now a deemed 'supply', based on the amendments [Sec 7(1)(aa)] effected to the CGST Acts, there is no deemed 'service' in circumstances where the service is rendered by a club or association to its members, since the definition of service has not been amended.

(vi) Declaration of unconstitutionality (Para 23):

The Hon'ble High Court declared the provisions contained in Section 2(17)(e) and Section 7(1)(aa), including its Explanation of the CGST Act, as unconstitutional and void, being ultra vires the provisions of Article 246A read with Article 366 (12A) and Article 265 of the Constitution of India.

(vii) Articles of the Constitution referred to in the Judgment:

Let us look at the Articles of the Constitution of India referred to in Para 23 by the Hon'ble High Court:

• Article 246A. Special provision with respect to GST:

(1) Notwithstanding anything contained in articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of every State, have power to make laws with respect to goods and services tax imposed by the Union or by such State.

(2) Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce.

Explanation.- The provisions of this article shall, in respect of goods and services tax referred to in clause (5) of article 279A, take effect from the date recommended by the Goods and Services Tax Council.

• Article 265. Taxes not to be imposed save by authority of law:

No tax shall be levied or collected except by authority of law.

• Article 366(12A) - Definitions:

'Goods and services tax' means any tax on the supply of goods, or services or both, except taxes on the supply of alcoholic liquor for human consumption.

• Article 366(26A) - Definitions:

'Services' means anything other than goods.

(viii) Key Takeaways from the Judgment:

1. Reaffirmation of the doctrine of Mutuality: The Court upheld that an association and its members constitute a single entity; hence, the transactions inter se cannot be treated as 'supply.'

2. Limits of Legal Fiction: The legislature cannot override a constitutional concept (requiring two distinct persons) merely by introducing a deeming fiction in a statute. Such a change would necessitate a constitutional amendment.

3. Invalidation of Retrospective Levy with effect from 01 July 2017.

8. Our Prima Facie Analysis on the Taxability of Associations

With utmost respect to the judgment by the Hon'ble Kerala High Court, we hold certain contrary views on the issues involved. Our analysis is set out below:-

(i) Interpretation of the Supreme Court ruling in State of West Bengal vs. Calcutta Club Ltd.:

In the aforesaid case, the Hon'ble Supreme Court denied taxability primarily on account of the language employed in Explanation 3(a) to Section 65B(44) of the Finance Act, 1994, defining the term 'service.' The expression used-'unincorporated association or a body of persons'-was restrictive in scope. Had the legislature instead employed broader terminology such as 'all associations of persons or bodies of individuals, whether incorporated or not,' the outcome of the judgment may well have been different. Thus, the ruling hinges significantly on statutory drafting rather than a blanket endorsement of the doctrine of mutuality.

(ii) Constitutional validity vis-a -vis definition of 'service':

The Hon'ble Kerala High Court observed that prior to the insertion of clause (aa) in Section 7(1) of the CGST Act, a corresponding constitutional amendment-similar to Article 366(29A) creating the deeming fiction of sale-was necessary. The Court appears to have proceeded on the premise that a specific constitutional authorisation is required to tax transactions involving 'self-to-self' supplies.

However, this reasoning may not be entirely tenable. The insertion of Article 366(29A) was necessitated by the decision in State of Madras v. Gannon Dunkerley & Co. (1959), where the Hon'ble Supreme Court restricted the meaning of 'sale' to that under the Sale of Goods Act, 1930. In contrast, neither 'service' nor 'supply' has been narrowly defined in the Constitution or linked to any pari materia legislation.

Further, Article 366(12A) defines the term 'services' expansively as 'anything other than goods'. In light of this wide definition, no additional constitutional amendment appears necessary to validate the levy of GST on such transactions.

(iii) Scheme of GST and doctrine of mutuality:

A holistic reading of the GST framework indicates that the legislature has consciously sought to overcome the doctrine of mutuality. If mutuality were to be strictly applied under the GST, several charging provisions (as highlighted in Para 4 of this Note) would become redundant, potentially rendering parts of the statute unconstitutional. The design of GST, therefore, implicitly negates mutuality in specified contexts.

(iv) Validity of Section 7(1)(aa) of the CGST Act:

The Hon'ble Kerala High Court has declared clause (aa) of Section 7(1) as unconstitutional, holding it ultra vires Articles 246A, 366(12A), and 265 of the Constitution. However, a careful reading of these provisions does not indicate any apparent transgression. Article 246A confers wide legislative competence for GST, and the inclusive definition of 'services' under Article 366(12A) supports a broad tax base. Hence, the constitutional infirmity identified by the Court appears debatable.

(v) Inapplicability of Article 366(29A) of the Constitution of India:

Article 366(29A) of the Constitution of India, which deals with deemed sales, was introduced in a specific historical context and is confined to the taxation of goods. Its principles cannot be directly extended to the concept of 'supply' under GST, which is a distinct and broader taxable event.

(vi) Retrospective insertion of Section 7(1)(aa):

On the issue of retrospective applicability, we concur with the Hon'ble Kerala High Court. It is a settled principle that a new levy cannot ordinarily be imposed retrospectively.

(vii) Whether Professional/Trade Associations qualify as charitable entities:

As per Para 2(r) of Notification No. 12/2017-CT(R) dated 28 June 2017, 'charitable activities' are narrowly defined, which primarily means specified public health care or counselling or awareness, advancement of religion, spirituality or yoga, advancement of educational programmes or skill development and preservation of environment, including watershed, forests and wildlife. The activities of an Association-such as, professional networking, representation, and seminars-do not fall within this definition.

Accordingly, such associations, which, by and large, do not provide charitable activities defined under the GST Law, would not qualify for exemption under Entry No. 1 of the said notification, even if registered under Sections 12AA/ 12AB of the Income-tax Act, 1961. The said Entry No. 1 exempts services by an entity registered under section 12AA or 12AB of the Income-tax Act, 1961 by way of charitable activities.

(viii) Taxability of membership-related receipts:

In our considerate view, amounts collected by professional Associations-such as admission fees, membership fees, annual subscriptions, and seminar or delegate fees-may constitute consideration for the supply of services and are liable to GST: of course, subject to the final verdict of the Hon'ble Supreme Court. If the annual membership fee is up to Rs 1,000/- per member, then the exemption is available vide Entry no. 77A of Notification No. 12/2017-CT (Rate) dated 28 June 2017.

(ix) Taxability of receipts from non-members:

Receipts from non-members stand on a fundamentally different footing, as the doctrine of mutuality has no application where there is no identity between the contributor and the participant. In such cases, the association and the recipient are unquestionably distinct persons, and the transaction squarely falls within the ambit of 'supply' under Section 7 of the CGST Act. Consequently, amounts collected from non-members-such as seminar fees, delegate charges, sponsorship receipts, training fees, or any other consideration-would be unambiguously liable to GST.

(x) Applicability of IGST and threshold exemption:

Where members are located in different States, the supply would qualify as inter-State, attracting IGST. It seems that the Associations are required GST registration mandatorily under section 24 of the CGST Act, without any threshold limit for registration, even while making single inter-state supply. However, the benefit of threshold exemption (currently INR 20 lakhs, subject to specified exceptions) remains available under Notification No. 10/2017-IT dated 13 Oct. 2017, even in cases involving inter-State supplies, provided the aggregate turnover across India remains within the prescribed limit.

9. Binding Effect of a High Court Judgment

Notwithstanding our views stated in earlier paras, the facts and present position are that the Hon'ble Kerala High Court has declared the provisions contained in Section 2(17)(e) and Section 7(1)(aa) (including its Explanation) of the CGST Act as unconstitutional and void, being ultra vires the Constitution of India.

Judgments from the jurisdictional High Court are strictly binding on all lower Courts, and tax authorities within that state.

A judgment from another High Court generally has 'Persuasive Value'. However, the Hon'ble Bombay High Court has held otherwise. It is observed that until a contrary decision is given by any other competent High Court, which is binding on a Tribunal in the State of Bombay, it has to proceed on the footing that the law declared by the High Court, though of another State, is the final law of the land. [Commissioner Of Income-Tax, Vidarbha Versus Smt. Godavaridevi Saraf - 1977 (9) TMI 24 - BOMBAY High Court; also Aerocom Cushions Private Limited Versus Assistant Commissioner (Anti-Evasion), CGST & CX, Nagpur-1, Superintendent, CGST & Central Excise, Anti – Evasion, Nagpur. - 2026 (1) TMI 701 - BOMBAY HIGH COURT]

10. Conclusion

The Hon'ble Kerala High Court has revived the doctrine of mutuality in the GST context; its reasoning-particularly regarding the necessity of constitutional amendment-remains open to serious debate.

In light of the favourable ruling of the Hon'ble Kerala High Court and the absence of any stay by the Supreme Court, the Professional/Trade Associations may, as a matter of considered prudence, evaluate the option of not discharging GST on membership-related receipts. Nevertheless, amounts collected from non-members and seminars/events organised for members as well as non-members will undoubtedly be subject to GST, subject to the threshold limit for registration.

However, given the fact that the issue is subjudice before the Hon'ble Supreme Court and lacks finality, such a position for non-taxability should be adopted with caution, backed by proper legal documentation, disclosure, and internal resolutions. Associations may also consider maintaining adequate records, creating contingent provisions, and, where feasible, adopting a protective approach to mitigate future exposure in the event of an adverse ruling by the Hon'ble Supreme Court.

[Personal views of the Author; only for academic discussion]***