News Analysis

Uncertainty persists over GST levy on supplies by clubs to members

Satya Sontanam | Updated on October 09, 2019 Published on October 09, 2019

A recent Supreme Court judgement rules that supply of food or services by a club to members do not constitute a sale

BL Research Bureau

The Supreme Court, on October 3, 2019, has ordered that the supply of food or beverages or any services by a club to its members do not form a sale transaction and thus concluded that there’s no requirement to collect sales tax or service tax in such cases.

This raises questions over whether the rationale applied by the Supreme Court in the present case becomes applicable under GST (Goods and Services Tax). GST law mentions specifically that transactions of providing goods or services by the club to its members are taxable.

This judgement by the Supreme Court was given in respect of the case between State of West Bengal V. Calcutta Club Limited. The Commercial Taxes department issued a notice to the club that it had failed to make payment of sales tax for the quarter ending June 2002 on sale of food and drinks supplied to its members. The dispute belonged to the pre-GST era during which sales tax was levied on supplies.


It has been a contentious issue for long whether the services being provided by the club to its members are taxable or not. While the tax departments argued that ‘sale’ exists, assessees believed that club and its members are the same and any supply provided by former to latter was said to be provided by the member to self. The contention of assesses was based on the doctrine of mutuality – a theory that advocates that a person cannot make a profit from himself.

For a long time, many disputes depended on the judgment in a famous case, CTO v. Young Men's Indian Association. The order applied doctrine of mutuality and says that the club - even though a distinct legal entity - is only acting as an agent and there is no sale as the element of transfer is entirely absent.

To nullify the above ruling, Article 366 (29-A) (e) was inserted in the Indian Constitution. This article says that tax on sale or purchase of goods includes a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration.

But recently, the Supreme Court, in the State of West Bengal V. Calcutta Club Limited, pronounced that the doctrine of mutuality continues to be applicable to incorporated and unincorporated members’ clubs even after insertion of Article 366(29-A) to the Constitution of India. It also ordered that the Young Men’s Indian Association and other judgements which applied this doctrine will still hold good.

Grey area under GST

Tax experts believe that this might bring new questions about the taxability of such transactions under GST law. The transactions under question are explicitly covered under the definition of the term ‘Business’ under the GST law. GST is applicable for supply of goods or services in the course of a business and the definition of ‘Business’ - as per the CGST Act - includes any provision of benefits provided by a club, association, society, or any such body (for a subscription or any other consideration) to its members.

Nirmal Singh, Partner- GST, Nangia Advisors(Andersen Global) says, “By including the specific provisions for such transactions under GST, the Centre intends to bring them within the tax ambit.” He adds that it would be interesting to see how the courts would interpret the specific provisions for such transactions under GST vis-à-vis the doctrine of mutuality.

However, Vishal Raheja, DGM, GST from believes that the judgement in Calcutta Club is applicable in the GST regime as well, and the said transactions will be non-taxable. He points out that, “GST is applicable only when there is a supply. But the SC’s order that the doctrine of mutuality prevails in the case of supplies by the club to its members, rules out the sale between club and its members.” Raheja also believes that new litigations might come up for the inclusion of such transactions in the definition of Business under GST.

Published on October 09, 2019
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