2021 (11) TMI 932 - AAR - GST

Membership fees deemed taxable as supply of services under GST Act

In Re: M/s. Rotary Club Of Nagpur Vision

The authority ruled that the amounts collected as membership subscription and admission fees from members by the applicant club are considered as a supply ... Supply or not - amount collected as membership subscription and admission fees from members by the applicant club to meet out the expenses for the object for which it is incorporated - meeting expenses - communication expenses - Audit fees - Rotary International (RI) per capita dues - subscription fees to the Rotarian or Rotary regional magazine and the like - furtherance of business in this activity or not - supply of services to its Members under GST - principles of mutuality - HELD THAT:- In view of the amended Section 7 of the CGST Act, 2017, it is found that the applicant society and its members are distinct persons and the fees received by the applicant, from its members are nothing but consideration received for supply of goods/services as a separate entity. The principles of mutuality, which has been cited by the applicant to support its contention that it is not rendering any supply to its members and GST is not leviable on the fees collected from its members, is not applicable in view of the amended Section 7 of the CGST Act, 2017 and therefore, the applicant has to pay GST on the said amounts received from its members. The meetings conducted by the applicant which includes food, refreshment, etc. are nothing but activities carried out by the applicant for its members and therefore we hold that, contributions from the members, recovered for expending the same for the weekly and other meetings and other petty administrative expenses incurred including the expenses for the location and light refreshments, amounts to or results in a supply, in the subject case - The impugned activities performed by the Applicant for the welfare activities of its members which includes meetings with food and refreshment, etc., is a service rendered by the Applicant to its members as per the definition of the term ‘services’. In the instant case, the monthly contribution made by the members to the association is in return for receiving the services of the Applicant Club. The money collected by the Appellant from its members is used to procure services and goods from a third party and provide the benefits of such procured goods and services to the members of the association. Under GST, the term ‘person’ has been defined in Section 2(84) of the CGST Act, 2017, to include an Individual’ as well as an ‘association of persons or a body of individuals, whether incorporated or not. Therefore, the individual members who are members of the Applicant Club are beneficiaries and the contributions made by them is to be considered as consideration for the services received. The applicant club and its members are distinct persons and the amounts/consideration received by the applicant from its members are nothing but consideration received for supply of goods/services as a separate entity. The principles of mutuality, which has been cited by the applicant to support its contention that GST is not leviable in its case, is not applicable in view of the amended Section 7 of the CGST Act, 2017 and therefore, the applicant has to pay GST on the said amounts received against membership subscription and admission fees from members. Issues Involved:1. Whether the amounts collected as membership subscription and admission fees from members by the applicant club can be considered as supply of services under GST.Detailed Analysis:Issue 1: Whether the amounts collected as membership subscription and admission fees from members by the applicant club can be considered as supply of services under GSTRs.Applicant's Contentions:1. The applicant club is affiliated with Rotary International, an organization aimed at providing humanitarian services and promoting goodwill and peace. The club receives fees from its members to defray expenses related to meetings, communication, Rotary International dues, and other administrative costs. These activities are conducted on the principle of mutuality, meaning the funds are used for the mutual benefit of the members (Paragraph 2.2).2. According to the applicant, the transactions between the club and its members do not constitute a supply under Section 7 of the CGST Act, 2017, as there is no furtherance of business or rendering of services. The applicant argues that since the association and its members are not treated as different persons under Section 2(84) of the CGST Act, the key condition for taxing a transaction under Section 7(1)(a) is not satisfied (Paragraph 2.3).3. The applicant also cited a previous ruling by the Hon’ble AAAR Maharashtra, which held that amounts collected as membership subscription and admission fees from members are not liable to GST as a supply of services (Paragraph 2.4).Officer's Contentions:1. The officer noted that the club collects separate funds for administrative and fellowship expenses, which are used to provide facilities to members, such as meetings and social gatherings. These activities facilitate personality development and other benefits for members, which indirectly support the club's main objective (Paragraph 3.1).2. Under Section 2(17)(e) of the GST Act, the term “business” includes the provision of facilities or benefits to members by a club, association, or society for a subscription or other consideration. Therefore, the officer contended that the applicant is conducting “business” as defined under the GST Act, and the subscription and fellowship dues should be considered as consideration for the supply of services (Paragraph 3.2).3. The officer further argued that the activities undertaken by the applicant do not conform entirely to the definition of charitable activities and should be treated as a business under Section 2(17)(a) of the GST Act. Hence, the subscription and fellowship dues are taxable as a supply of services (Paragraph 3.3).4. The officer referenced an amendment to Section 7 of the CGST Act, 2017, which clarified that activities or transactions between a person and its members are considered a supply of goods/services, thereby deeming the club and its members as separate entities for GST purposes (Paragraph 3.5).Authority's Findings:1. The authority examined the definition of “supply” under Section 7 of the CGST Act, 2017, and noted the amendment that included activities or transactions between a person and its members as a supply of goods/services. This amendment received the President's assent on March 28, 2021, settling the issue of mutuality in such cases (Paragraphs 5.5-5.8).2. Under Section 2(84) of the CGST Act, the term “person” includes an association of persons or a body of individuals. Therefore, the applicant club and its members are distinct persons, and the fees received by the applicant are considered as consideration for the supply of goods/services (Paragraphs 5.9-5.10).3. The authority held that the contributions from members for meetings and administrative expenses amount to a supply under the GST Act. The principle of mutuality is not applicable after the amendment to Section 7 of the CGST Act, 2017 (Paragraphs 5.11-5.12).4. The authority also referenced Section 2(102) of the CGST Act, which defines “services” to include activities other than goods, money, and securities. The activities performed by the applicant for its members, such as meetings with refreshments, are considered services under this definition (Paragraphs 5.13-5.14).5. The authority concluded that the applicant's activities fall under the definition of “business” in Section 2(17)(e) of the CGST Act, as they involve providing facilities or benefits to members for a subscription. Therefore, the amounts received from members are taxable as a supply of services (Paragraphs 5.15-5.18).Order:The authority ruled that the amounts collected as membership subscription and admission fees from members by the applicant club are considered as supply of services under GST (Paragraph 6).