AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (12) TMI 1086
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....y made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / MGST Act would be mentioned as being under the "GST Act". 02. FACTS AND CONTENTION - AS PER THE APPLICANT The submissions, as reproduced verbatim, could be seen thus - STATEMENT OF RELEVANT FACTS HAVING A BEARING ON THE QUESTION(S) RAISED: FACTS: 1. The Applicant, Banking Codes& Services Board of India is a Society registered under the Societies Registration Act, 1860 and is also registered as a "Public Trust" under the Maharashtra Public Trust Act, 1950. The Applicant Board was formed in the year 2006 by the Reserve Bank of India (RBI) in pursuance of the Report of the Taraporewala Committee for the purpose of creating awareness and ensuring the correct following of the Codes and Standards for Services by the Banks in India. For the first 5 years i.e. from 2006 to 2011, it was fully funded by the Reserve Bank of India and the Applicant started to raise its own Corpus Fund for its activities from the Membe....
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....it. vii. To take up specific assignments, if any, in the areas coming under the Society's objects as projects, turnkey solutions or on any other terms of contracts with in-house resources or with the participation of outside agencies in order to fully implement the Code. viii. To organize teaching and training courses, conferences, seminars, lectures and similar other activities relating to the Codes and Standards or implementation of the said Codes and Standards. ix. To publish journals, reports, pamphlets, books, booklets, research papers in furtherance of the objects of the Society. x. To maintain close contacts with Indian Banks' Association, other similar institutions, Boards & organizations having similar objects or allied objects by way of subscription, enrolment as a member thereof, financial or other kind of assistance, collaboration, cooperation and in any manner as the Society may deem fit. xi. To initiate, establish and participate in collaborative activities with other institutions/ organizations having similar objects within and outside the country. 3. The Applicant raises annual invoices upon its member banks for contributing to the Corpus by way of Annua....
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....rt of services for a consideration whether or not in the course or furtherance of business; (c) the activities specified in Schedule I, made or agreed to be made without a consideration; and (d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II. (2) Notwithstanding anything contained in sub-section (1),- (a) activities or transactions specified in Schedule III; or (b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services. (3) Subject to the provisions of sub-sections (1) and (2), the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as - (a) a supply of goods and not as a supply of services; or (b) a supply of services and not as a supply of goods." From an analysis of the above definition of scope of the term "Supply", it is essential that there has to be a supply of goods or services by a....
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....y are engaged as public authorities;" A sum total of the analysis of the terms 'Supply", "Consideration" and "Business" would make it clear that the activity of the Applicant does not fall under either of them, as discussed herein under: SUPPLY: It is clear from the definition of 'Supply' that firstly the same involves all forms of supply of goods or services. In this regard, there is no question of any goods in this case. As such, it is to be seen whether any service is provided by the Applicant. As already stated above, applicant is collecting Corpus Fund from Member Banks and the entire activity is related to public awareness about the codes & standards followed by member Banks. This entire activity, including the salaries of the staff is paid only through the interest earned at present from the Corpus Fund, which is capitalized. There is no facility or benefit of any kind offered by the Applicant to Member Banks for their contribution to the Corpus Fund. Also, the entire activity of public awareness programmes and salaries is funded only through the interest earned by the Applicant at present. As such, there is no element of any supply by the Applicant to anyone including ....
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....uch members, various High Courts and Tribunals have held such activities not eligible to Tax on the Principle of Mutuality. Principle of Mutuality is guided by the gospel that "No man can trade with himself; he cannot make, in what is its true sense or meaning, taxable profit by dealing with himself". Mutuality principle offers a tax shelter, as long as its character of a mutual association is retained, with its income not tainted by commerciality. A formal organization indicating mutuality as between members with bye-laws spelling out mutuality may, however, be necessary as proof of claim to mutuality either as a society or a company registered under Section 25 of the Companies Act, 1956, or even as managed by a public trust, with such activities primarily intended to be confined to its members. What is Principle of Mutuality? Often, we come across situations where a group of people forms an association (could be formal or informal) and pool in their surplus income in the association's common fund. The fund so collected is then used for the benefit of the members when needed. Take for e.g. where the members associate themselves together for the purpose of insuring each oth....
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....ded on 15-3-2012 Club - Incorporated as Company and formed on principle of mutuality - Liability to Service tax for services utilised by members of club, viz. mandap keeper, etc. - HELD : In view of mutuality, if club provides any service to its members, it is not a service by one legal entity to another, and is not liable to Service tax - Explanation to Section 65 of Finance Act, 1994 that 'taxable service includes any taxable service provided or to be provided by any unincorporated association or body or persons to a member', found to be similar to Explanation-I to Section 2(n) of Madras General Sales Tax Act, 1959 including within definition of sale any transfer of property by club to its members, considering which Apex Court in Young Men's Indian Association [1970 (1) SCC 462] had held supply of preparations by club to its members was not a sale as there was no transfer of property from one to another, and even though club had distinct legal entity, it was acting only as an agent for its members - Sections 65(66) and 65(67) of Finance Act, 1994. [para 18] Sale and service - Nature of - Sale entails transfer of property whereas service does not - However, both transactions re....
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....return - Institutions also become members - Membership fee to be paid without expecting any return - Revenue not brought out the services or advantages received by members on paying fees or other amount - Service tax not leviable on amounts received from members, member-institutions and trade - Sections 65(25a) and 73 of Finance Act, 1994. [paras 4.11, 4.12] Convention service - Commercial concern - Service tax liability attracted only if Convention service rendered by commercial concern prior to 1-5-2006 - Impugned demand pertaining to period prior to 1-5-2006 - Appellant held as not a commercial concern while holding non-liability under Commercial Training or Coaching service - Demand not sustainable under Convention service for impugned period - Sections 65(32) and 73 of Finance Act, 1994. [para 4.13] Appeal allowed The Tamilnadu Sales Tax Tribunal in Cosmopolitan Club V. State (115) STC 183 = 1998 (12) TMI 579 - TAMIL NADU TAXATION SPECIAL TRIBUNAL has summarized the principles in the context of the "clubs". In all cases it was held that "In the case of clubs it cannot be treated as a trader and the commercial venture is totally absent" As regards the Principle of Mutuali....
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....s, therefore, support the contention of the Applicant Board that they are not liable to Goods and Services Tax. Additional Submission in Advance Ruling Application for "Banking Codes And Standards Board of India" We are thankful for the patient hearing given on 25-04-2018. Our Clients have made submissions in their Advance Ruling Application pertaining to their activity i.e. collecting Membership Fees from all its Member Banks, which is neither falling under the definition of "Supply" nor under "Consideration" or under the definition or "Business" as provided under CGST Act, 2017, as explained in detail during the said hearing dated 25-04-2018. To elaborate the said legal provisions along with the factual matrix pertaining to our Clients "Banking Codes and Standards Board of India" (hereinafter referred to as "BCSBI" for the sake of brevity), as desired, we make the additional written submissions, on the below mentioned points: 1. THE OF BCSBI IS NOT FALLING UNDER THE DEFINITION OF "SUPPLY"; "Supply: 7. (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, license, ....
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....to be self sufficient for meeting its expenses. We are pleased to inform you that with co-operation front all its Members, BCSBI has been able to meet all its expenses out of its own income since last two years. 2. In terms of Rule 5.1 of the Banking Code Rules, 'Membership fees payable by Members shall be in proportion to their gross domestic assets as on March 31, of the previous year and shall be of such amount, as the Governing Council may determine as payable by each Member. The Governing Council (CC) in its 103rd Meeting held on 31.01.2017 reviewed the financial position of BCSBI and has decided to retain the total membership subscription for 2017-18 at last year's level Rs. 800 lakh. Further, as the subscription is calculated based on individual "member's gross domestic assets as on 31.03.2016, the overall "Rate" for computing the Annual Membership Fee for the year 2017-18 has reduced to********%) (previous year's rate was ******%) This annual membership will be credited to the Corpus Fund of BCSBI as hitherto." The Applicant, BCSBI collects contribution from its Member Banks, which is credited to their Corpus Fund. The interest earned on this amount is the only income o....
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....irection of the donor. In the absence of any written direction of the donor, a contribution or grant cannot be transferred to Corpus Fund but for all practical purposes corpus fund is a permanently closed fund with no strings or restriction for future application attached. As such, it can be seen that Corpus Fund, for BCSBI, which is a Public Trust/Charitable Organization, is its "Capital", which cannot be used for any of its functions. It is only the interest, if any accrued on the same, which can be used for meeting the objects of the Trust. It is in the form of a Donation and Donee i.e. 'Member Bank' gives specific direction that the contribution given by them, entirely, to be credit to the Corpus (Capital) of BCSBI. As such, this amount cannot be termed as "Consideration" for BCSBI as they have no control on the said amount like in the manner they wish to use the said contribution. In fact, the Corpus Fund cannot be used for fulfilling the Objects of the Trust but the same has to be kept intact for all times as being "'Capital" of the Trust. Sample Copy of BCSBI Letter to Banks for Contribution and Direction of the Banks to imply their Contribution to "Corpus Fund" is annexe....
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....COURSE OF OR IN FURTHERANCE OF BUSINESS: For any activity to be considered as '"Supply", these 3 elements have to be fulfilled. From the submissions made above, it is clear that there is no "Consideration" involved in this activity and there is no existence of "2 persons", who will be "Supplier" & "'Receiver". The third criteria is that if any activity is to be termed it as a "Supply", it has to be in the course of Business or in the furtherance of "'Business". The definition of '*Business" has specific mention of activities of a "Club" in a particular manner, to be considered as "Business". Firstly, the rational of it being termed as "Business" is incorrect and is Unconstitutional as it is a cardinal Principle of Law that no man can trade with himself. However, without going to the nitty-gritties of Constitutional validity of the definition of "Business" to the extent it add the provision of Club to its Members, the Applicant wish to state and submit as under: "Section 2(17) Business includes- ........... (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;" The detai....
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....n made in the Application and the submissions made during the hearing in the matter, it is evident that the activity of the Applicant does not fall under the definition of "Supply" by any parameter and as such the Applicant are not required to obtain registration for such activity. In this backdrop, the issues which are requested to be addressed by the Advance Ruling Authority are as under: 1. Whether the activity of BCSBI I.e. The Applicant is falling under the definition of "Supply", as per Section 7 of the CGST Act, 2017? 2. Whether the contribution made by Member Banks to "Corpus Fund" can be considered as "Consideration", as per Section 2 (31) of the CGST Act, 2017, when the said is not "Income" of the Applicant? 3. Supply is meant to be between 2 persons, whether the Applicant Association/Trust and Its Members are legally distinct from each other? 4. Whether "Principle of Mutuality" hold good in GST? 5. Whether the activity of Applicant is to be termed as "Business" as provided under Section 2 (17) (e) of the CGST Act, 2017? It is respectfully submitted that in view of the submissions made (in the Application, during the Personal Hearing and on the basis of the ab....
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....it; Section 7 * Scope of supply. (1) For the purposes of this Act, the expression "supply" includes-- * 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 fora consideration by a person in the course or furtherance of business; * Section 2(31) "consideration" in relation to the supply of goods or services or both includes--- * any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, * the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given * by the Central Government or a State Government; In this submission the BCSBI emphasized the principle of mutuality and on the basis of which pleaded that its activities are not taxable under the GST Act. It is to be noted the principle of mutuality is based on the doctrine that the person cannot make profit from himself. The essence of this principle of mutuality is present only in situation wherein the group of persons forms an association (formal or informal) and pull there surpl....
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.... is as to whether GST is liable to be paid on the contribution made by Members towards "Annual Membership Fees and registration fees" to the Corpus Fund of the applicant and recurring expenditure being incurred by the applicant, The primary issue before us is as to whether the applicant is providing supply of services to their members and if so, is there any consideration received by them for such supply of services/ goods. We clearly find that in the subject case at hand there is no supply of goods. Hence the discussions would be restricted to supply of services only. Section 7 of the CGST Act, 2017 defines the term "Supply" which is as under:- "Section 7 (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 "lade or agreed to be made for a consideration by a person in the course or furtherance of business; (b). ..................; (c) the activities specified in Schedule 1, made or agreed to be made without a consideration; and (d) the activities to be treated as supply of goods or supply of services as referred to in Sch....
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.... the Code. vii. To organize teaching and training courses, conferences, seminars, lectures and similar other activities relating to the Codes and Standards or implementation of the said Codes and Standards. viii. To publish journals, reports, pamphlets, books, booklets, research papers in furtherance of the objects of the Society. ix. To maintain close contacts with Indian Banks' Association, other similar institutions, Boards and organizations having similar objects or allied objects by way of subscription, enrolment as a member thereof, financial or other kind of assistance, collaboration, cooperation and in any manner as the Society may deem fit. x. To initiate, establish and participate in collaborative activities with other institutions/organizations having similar objects within and outside the country. We find that these activities are undertaken only for and in respect of the Member Banks, who have voluntarily become their members. Hence their primary objective is to guide the public and publicise about the Codes and Standards and Commitment of their Member Banks. Hence we find that the applicant is firstly developing and publishing and then publicizing Banking Co....
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.... their activities. In other words if there is no fee there is no corpus fund and no interest payment which can be used to fund their activities which are in the form of supply of services to their member banks. Thus here there is no doubt that consideration is flowing from Banks to the applicant in the form of Annual Membership Fee and Registration Fee which are being utilized by the applicant for generating further income as found feasible by them. Thus the consideration is clearly in the form of Annual Membership Fee and Registration Fee. The third part of the definition says that "all forms of supply...........for a consideration should be in the course or furtherance of business". We find that the term "Business" is defined in Section 2 (17) of the CGST Act, 2017 as "business" includes- (a).................; (b).................; (c).................; (d) .................; (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; (f) .................; (g).................; (h).................;and (i).................; As per Section 2 (17) (e) of the Act, the app....
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....mers and guidelines prescribed by the Applicant which clearly imply that adherence to codes and standards of the applicant gives further credence to the functioning and services of these banks. We find that they have submitted that the RBI guidelines are for the benefit of people who undertake any transaction with banks such as their Account Holders etc. This is an obligation on the Banks and the Applicant undertakes research and related work to prepare the Codes of Banks commitment to Customers that are required to be adhered to, by the Member Banks. It may be mentioned here that all the Banks are obliged to follow the guidelines issued by RBI without exception and the applicant are framing codes and standards within the limits as set by RBI guidelines. Here the applicant has submitted that only those Banks who are their members will be facilitated and that too for a membership fee and annual fees. This is clearly in the form of benefit to Member Banks as opposed to non-member banks and these services are clearly with a view to enhance the credibility of their Banking services and therefore to grow their banking business. The applicant has finally put forth a stand that their en....
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....Membership and Registration fees from the Banks. With respect to the applicant's contention that "as regards the Principle of Mutuality in Service Tax matters, which is now replaced by GST, the issue is now pending before the Honorable Supreme Court of India (Constitution Bench). As such, till such time as the issue is settled by the Apex Court, the Principle of Mutuality should be extended to the levy of GST and no GST is leviable on the their activity even under the CGST Act, 2017 and the Rules made thereunder". We find that the applicant has proceeded on the assumption that there exists a principle of mutuality in their case. However, for reasons mentioned above we find that since the said principle does not exist in the case of the applicant, their request for extension of the principle to the levy of GST is not sustainable. In view of the foregoing we find that the applicant is supplying services to their Member Banks, against a consideration received from them in the form of Annual membership fees and registration fees and their supply is in furtherance of business as defined under Section 2 (17) (e) of the Act. ("provision by a club, association, society, or any such body ....