Membership fee, annual subscription fee and annual games fee collected from the members of club will now attract Goods & Services Tax (GST), the Maharashtra Authority for Advance Ruling (MAAR) has said.
This is the first ruling after the Centre notified an amendment in Section 7 of the CGST Law which brings clarity on the issue that club and members are two distinct persons. The amendment has been made effective from July 1.
Case study
The applicant, Poona Club, collects membership fees at the time of enrolment. All members have to pay annual subscription and games fees. Services and facilities provided to members are charged at rates, as fixed by the club. It moved the MAAR to seek advance rulings on whether membership fee collected from members at the time of giving membership, annual subscription fee and annual games fee were subjected to GST.
The applicant was of the opinion that such fees are not liable to GST as “the principle of mutuality is applicable in their case because the club and its members have the same identity.” It argued that there is no profit motive, and the fee is collected for meeting various expenses such as administrative, maintenance etc. It emphasised that money collected through fees are taken to a common pool, from where it is spent back on members. “In the absence of two distinct persons and also in the absence of consideration, fees received from members do not qualify as a supply,” it said.
The applicant also highlighted a ruling by the Supreme Court in favour of the assessee in the matter of Calcutta Sports Club. It may be noted that the Jharkhand High Court (in the matter of Ranchi Club) and some Authorities for Advance Ruling (Bowring Institute of Bangalore, etc) had given similar directives.
Defining ‘supply’
Going through all the facts and after hearings, MAAR highlighted the notification issued on December 21, 2021, related to the amendment in Section 7 of the GST Act, which inserted a new clause that says the expression ‘supply’ will also include activities or transactions by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration. This new clause comes into effect from July 1, 2017.
What this means is that a club, an association or a society and their members will be treated as two distinct persons. Transactions between these two will be considered taxable. It may be noted that although such a provision was part of the schedule, some clubs, associations and societies were taking shelter under the principle of mutuality and not levying GST. Their stance was bolstered by the Supreme Court ruling.
Citing the notification, MAAR held that GST is to be applicable on membership, annual and games fees. Though the Authority has not specifically mentioned about restrospectivity, going by the provisions of the law, GST may be collected from July 1, 2017.