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Where members of applicant club contribute by way of subscription fees and infrastructure development fund which is used for purposes of provision of services and foods and a reading room, library, chambers for accommodating family and guests, etc., it is held that unless the amendment under section 7 of the CGST Act, 2017 is notified the applicant is not liable to pay GST on subscription fees and infrastructure development fund collected from members on the basis of principle mutuality

  • vide decision of Authority for Advance Rulings, Karnataka
  • Applicant: Bowring Institute, Bengaluru

Facts of the case:

  1. The applicant is a club and a non-profit organization established by the British in the year 1868 as a literary and scientific society. It is a members-club as opposed to a proprietary club.
  2. The members contribute by way of subscription fees and infrastructure development fund which is used for the purposes of provision of services and goods and a reading room, library, chambers for accommodating family and guests, a bar and sports facilities. The applicant is collecting GST on  subscription fee  and infrastructure development fund from its members.
  3. In addition to the subscription fees at the time of admission of the member to the Applicant, an admission fee as an infrastructure development fund is collected. In addition, the applicant outsources catering services who supply foods and beverages and run a super market within the premise of the applicant. These facilities are only available for use by the members. 
  4. These outsourced agencies charge GST  on  their  supplies  of food, beverages and sale of goods to members. The applicant bears the cost of such goods and services from the subscription fees paid by the members.
  5. The applicant submits that the provisions of CGST Act, 2017, in so far as it seeks to cover member's clubs as opposed to proprietary clubs are illegal in the light of the Supreme Court judgment in the case of M/s. Calcutta Club.
  6. The applicant referred to the Karnataka Societies Registration Act and stated that in the event of dissolution of the society the members of the club will not be entitled to profits of the club and the same shall be given to other society.
  7. In the Central Goods and Services Tax Act, 2017 in section 7, in sub-section (1), after clause (a), the following clause shall be inserted and shall be deemed to have been inserted with effect from the 1st day of July, 2017, namely:—
  8. the 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.
  9. By virtue of Section       1 of Finance Act,2021, the amendment brought in Section 7 of CGST Act, 2017 by way of Section 108 of Finance Act, 2021, will only come into effect on the date when Central Govt notifies the same and then the same will be notified with the corresponding amendments passed by the respective States and Union territories in respective SGST/ UTGST Act.
  10. The Finance Act, 2021 has over ruled 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.
  11. Therefore, the authority concluded 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 the Hon'ble Supreme Court judgment in the case of M/s. Calcutta Club Ltd.

Ruling: The Authority for Advance Rulings, Karnataka held the case as follows:

  • Whether amount collected as membership subscription fees paid by the members of the applicant towards facilities provided by the applicant are liable as supply of service under GST?
  • Whether amount collected as  infrastructure development  fund  for  the development and maintenance of the facilities provided by the applicant are liable as supply of service under GST?
  1. The applicant  is not liable to pay GST  on subscription  fees  and Infrastructure development fund collected from the members and this ruling is subject to the amendment to the CGST Act by section 1 of the Finance Act 2021, as and when it is notified.

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