Retrospective effect of new Sec 7(1)(aa)

[G srikanth]

The newly inserted Sec 7(1)(aa) of the CGST Act comes into force from 1 Jan 2022, but has retrospective effect from 1 July 2017. This requires clubs and associations to pay GST on contributions from Members which was hitherto held to be NOT a service by the Supreme Court in the Calcutta Club Judgement based on the principle of mutuality. The amendment has created unique problems for Clubs and Associations as well as for members. Such of the clubs or associations who are unable to collect from members who are no longer members have to fork out the GST from their own pockets. Further, members who have contributed to Associations towards various building funds etc will now have to pay against debit notes for a period of 4 years and 6 months. This affect the members in two ways - one is the difficulty in finding cash to pay the GST for 4 1/2 years; and the other is to have enough output liability to adjust the payments. Thus, the retrospective amendment that was carried out to overcome Calcutta Club has been passed with no regard for difficulties faced by tax payers. Members may share their views on these mindless amendments.

AI Summary

Retrospective taxation of member contributions creates historic GST liabilities for clubs and members, prompting council appeals and litigation risk.
The insertion of Sec 7(1)(aa) treats member contributions to clubs and associations as taxable supplies, overruling the mutuality principle and creating retrospective GST exposure from July 2017, which raises collection, limitation, penalty and interest issues and prompts calls for GST Council representation and administrative relief.