Club membership fees and annual subscriptions now subject to GST under amended Section 7 CGST Act 2017

AAR Maharashtra ruled that membership fees, annual subscriptions, and games fees collected by a club from its members are subject to GST under amended Section 7 of CGST Act, 2017. The Authority held that clubs and members are distinct persons, making fee collections consideration for supply of goods/services. The principle of mutuality, previously applied to exempt such transactions, no longer applies post-amendment. The ruling clarified that commercial activities need not generate pecuniary profit to attract GST, and specific provisions for clubs under the Act do not require profit motive for business classification.

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Issues Involved:
1. Taxability of membership fees collected from members at the time of giving membership under CGST/SGST Act.
2. Taxability of annual subscription and annual games fees collected from members of the club under CGST/SGST Act.

Detailed Analysis:

1. Taxability of Membership Fees:

The applicant, M/s. The Poona Club Limited, sought an advance ruling on whether the membership fee collected from members at the time of giving membership is liable to tax under the CGST/SGST Act. The applicant contended that the principle of mutuality applies since the club and its members have the same identity, and thus, there is no supply of goods or services. The applicant cited the Supreme Court decision in State of West Bengal v Calcutta Club [(2019) 19 SCC 107], arguing that the membership fees are collected to meet administrative and maintenance expenses and do not constitute a supply as defined under the Act.

The Authority for Advance Ruling (AAR) examined the definition of "supply" under Section 7 of the CGST Act, which was amended in the Budget 2021 to include activities or transactions by a person, other than an individual, to their members for cash, deferred payment, or other valuable consideration. The amendment clarified that the person and their members or constituents are deemed to be two separate persons, thus nullifying the principle of mutuality in such cases.

The AAR concluded that the membership fees collected by the applicant are indeed consideration for the supply of goods/services and fall within the scope of "business" as defined under Section 2(17) of the CGST Act. Consequently, the membership fees are liable to tax under the CGST/SGST Act.

2. Taxability of Annual Subscription and Annual Games Fees:

The applicant also sought a ruling on whether the annual subscription and annual games fees collected from members are taxable under the CGST/SGST Act. Similar to the membership fees, the applicant argued that these fees are collected for administrative and maintenance purposes and do not constitute a supply. The applicant relied on the principle of mutuality and cited the case of Lions Club of Pune Kothrud, where it was held that membership fees collected for administrative purposes are not taxable.

The AAR reiterated that the amendment to Section 7 of the CGST Act, which came into force on January 1, 2022, explicitly states that transactions between a club and its members are considered supplies. The fees collected for annual subscriptions and games are thus deemed to be consideration for the provision of services or facilities to the members.

The AAR clarified that the principle of mutuality is no longer applicable post-amendment, and the fees collected by the applicant are subject to GST. The AAR also noted that the order in the case of Lions Club of Pune Kothrud was passed before the amendment and is not applicable in the current context.

Conclusion:

The AAR ruled that both the membership fees collected at the time of giving membership and the annual subscription and annual games fees collected from members are liable to tax under the CGST/SGST Act. The amendments to Section 7 of the CGST Act have clarified that transactions between clubs and their members are considered supplies, and the principle of mutuality does not apply. The applicant must therefore pay GST on these amounts received from its members.

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