Mutuality principle: Bowring Institute gets AAR reprieve on GST

Shishir Sinha New Delhi | Updated on May 04, 2021

In its application, the club said that it was collecting GST on subscription fee and infrastructure development fund from members

But says waiver willend once Finance Act amendment is notified

The 153-year-old Bengaluru-based club, Bowring Institute, has got a respite from paying Goods & Services Tax on fees and infrastructure development fund collected from its members, with the Authority for Advance Rulings giving a favourable order.

However, this will be subject to amendments as and when notified in GST law proposed in Finance Act 2021.

Also read: Amul dairy case: Flavoured milk taxable at 12 per cent under GST, AAR rules

The club approached AAR-Karnataka with advance ruling on two questions: First, whether the amount collected as membership subscription fees paid by the members towards facilities provided by it were liable as supply of services under GST; and second, whether the amount collected as infrastructure development fund for the development and maintenance of the facilities provided are liable as supply of services under GST.

Bowring Institute, set up as non-profit organisation by Britishers in 1868, is a members club as opposed to a proprietary club. The members contribute by way of subscription fees and infrastructure development fund which is used for the purpose of provision of services and goods and a reading room, library, chambers for accommodating family and guests, a bar and sports facilities. In addition to the subscription fees at the time of admission, one time infrastructure development fee is also collected.

Quoting precedent

In its application, the club said that it was collecting GST on subscription fee and infrastructure development fund from members. However, it highlighted the ruling by the Supreme Court in the matter of State of West Bengal versus Calcutta Club (2019) where it was held that doctrine of mutuality applied to these clubs and the levy of admission fee and subscription fee do not attract service tax under the Finance Act, 1994. In the light of this ruling, the applicant submitted that the provision of CGST Act 2017, in so far as it seeks to cover members’ club as opposed to proprietary clubs are illegal.

While acknowledging the decision of the Supreme Court, AAR took note of the retrospective amendment in the section 7 of the CGST Act 2017 through Finance Act of 2017. “We observe that the Finance Act 2021 has overruled what the Courts have held till now and has countered the Principle of Mutuality by way of explanation which states that the members or constituents of the club and the club are two separate entities and persons for the purpose of section 7 of CGST Act 2017 which defines supply,” AAR said.

The authority also observed that this amendment will come into effect only when Centre notifies the same along with notification by different States/Union Territories. “We conclude that unless the amended Section 7 of CGST Act, 2017 is notified, the applicant is not liable to pay GST on subscription fees and infrastructure development fund collected from the members as per Supreme Court judgement in the case of Calcutta Club Limited,” it said.

Published on May 04, 2021

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