Club services to members taxable under GST despite mutuality doctrine after Finance Act 2021 amendment to Section 7(1)

AAR Rajasthan ruled that services provided by clubs to members are taxable under GST despite the doctrine of mutuality. The Finance Act 2021 retrospectively amended Section 7(1) of CGST Act by inserting clause (aa) effective July 1, 2017, expanding the scope of supply to include transactions between clubs/associations and their members for consideration. The amendment deleted Para 7 of Schedule II and added an explanation deeming clubs and members as separate persons, overriding existing laws and court judgments. Club services to members became taxable from July 1, 2017.

---

---

Issues Involved:
1. Applicability of GST on services provided by clubs to their members.
2. Interpretation of the Supreme Court's decision in the context of GST.
3. Analysis of relevant provisions under the CGST Act, 2017.

Issue-wise Detailed Analysis:

1. Applicability of GST on Services Provided by Clubs to Their Members:

The applicant, a club providing various services, sought clarification on the applicability of GST on services provided to its members, referencing the Supreme Court's decision in the case of State of West Bengal & Others vs Calcutta Club Limited. The applicant argued that since the provisions in GST laws are similar to those in the erstwhile service tax regime, the Supreme Court's ruling should apply to the GST regime as well. The Supreme Court had previously concluded that incorporated clubs or associations were not included in the service tax net for the period 16.06.2002 to 30.06.2012, and this principle should extend to the GST regime.

2. Interpretation of the Supreme Court's Decision in the Context of GST:

The applicant submitted that the definition of "person" under the CGST Act, 2017, is similar to the service tax laws and includes an association of persons or a body of individuals, whether incorporated or not. The applicant referenced entry No. 7 of Schedule II of the CGST Act, 2017, which treats the supply of goods by any unincorporated association or body of persons to a member as a taxable event. The applicant argued that the explicit mention of "unincorporated association or body of persons" indicates that GST should only apply to unincorporated bodies, and the Supreme Court's interpretation should be applicable in the GST regime.

3. Analysis of Relevant Provisions under the CGST Act, 2017:

The jurisdictional officer contended that the applicant's reliance on the Supreme Court's decision was misplaced in the context of the GST regime. The officer emphasized that the definition of "services" under the GST Act includes anything other than goods, money, and securities, and the scope of "supply" under Section 7 of the CGST Act encompasses all forms of supply of goods or services for consideration by a person in the course of business. The officer argued that the GST regime, which encompasses both goods and services under one umbrella, has exclusive power to levy tax on supplies made by registered persons, including clubs providing services to their members.

Findings, Analysis & Conclusion:

The Authority for Advance Ruling (AAR) clarified that its scope is limited to the GST regime and not the erstwhile service tax regime. The AAR examined the relevant provisions of the CGST Act, including the definition of "person" under Section 2(84) and "services" under Section 2(102). The AAR noted that the GST laws expanded the scope of "supply" to tax supplies between clubs/associations and their members, overcoming the principle of mutuality. A retrospective amendment was made to Section 7(1) of the CGST Act, inserting clause (aa) to include activities or transactions between any person (other than an individual) and its members or constituents for consideration. This amendment, along with the deletion of Para 7 of Schedule II, clarified that GST is applicable to services provided by clubs to their members.

Ruling:

The AAR concluded that GST is payable on the services provided by clubs to their members as per clause (aa) of sub-section (1) of Section 7 of the CGST Act, 2017, effective from July 1, 2017.

---