No GST on membership fees collected by clubs
- Mar 19, 2020 | Viren Shah
GST is applicable for the supply of goods or services in the course of business, and the definition of business includes any provision of benefits provided by a club, association of person, society, or any such body to its members. However, considering the principle of mutuality, there is a lot of controversy over the levy of GST on supplies by clubs to its members.
Recently, the Appellate AAR, Maharashtra, in the case of Rotary Club of Mumbai Queens Necklace,[i] has held that no GST is payable on the fees collected since there is no supply. Further, since there is no supply, the question regarding availing ITC on the input services does not arise.
In this case, the taxpayer is an unincorporated association of individuals and is registered under GST. The taxpayer collects fees from its members, and it is currently charging GST on the same. The fees so collected are utilized for administration purposes (i.e., meeting expense, stationery, audit fees, etc.) of the club.
The taxpayer had approached the AAR, Maharashtra, to contend that no GST was payable on the fees collected by it from its members. However, the AAR[ii] held against the taxpayer. Accordingly, the taxpayer filed an appeal before the Appellate AAR and contended as under:
- There is no deeming fiction in the definition of a person under Section 2(84) of the CGST Act to treat the taxpayer and its members as different persons.
- The mere inclusion of the association of persons under the definition of a person does not imply that the members and the association are different persons.
- For a transaction to be regarded as supply, there should be a business activity and for a consideration. Both of these requirements are not there in the present case.
- The taxpayer and its members are the same, and they cannot be regarded as a related person under Section 15 of the CGST Act.
- Based on the principle of mutuality, various Courts under the erstwhile regime (i.e., service tax) have held that the club and its members are not distinct persons, and therefore, no service tax can be levied.
- If the fees are subject to GST, then ITC on food and beverages should be eligible since the fees are collected for providing various services (i.e., catering, meeting expense, etc.). These services provided along with the club membership services constitute composite supply and the principal supply being of supply of club service. Accordingly, the ITC should be eligible for the taxpayer.
After considering the various provisions/rule of GST law, the Appellate AAR observed as under:
- The taxpayer is not doing any business as per Section 2(17) of the CGST Act, and accordingly, it would not come under the scope of supply under Section 7(1) of the CGST Act.
- If the activities of the taxpayer are held to be supply, then the fees collected by the taxpayer, being purely in the nature of reimbursement for the meetings and administrative expenses would lead to double taxation, since the suppliers have already charged tax on input goods or service that are used in meeting and administrative functions of the taxpayer.
Based on the above, the Appellate AAR held that no GST is payable on the fees collected since there is no supply. This is a welcome decision in favor of clubs or associations of persons. However, it is to be noted that there is a contrary ruling of Appellate AAR, Maharashtra, in the case of Lions Club of Poona Kothrud[iii] where it was held that the membership fees collected are not only meant for administrative expenses but also for organizing leadership programs for direct benefits of the members. Therefore, GST is leviable on the amount collected by the club.
Also, considering the decision of the Supreme Court in the case of Calcutta Club[iv] under the erstwhile regime, wherein it has been held that clubs are not entitled to charge, collect, and pay service tax on any services made to members, the CBIC should come out with the necessary clarification on the matter in order to avoid any litigation.
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[i] Order No. MAH/GST-AAAR-15/2019-20 dated 8 August 2019
[iii] Order No. MAH/AAAR/SS-RJ/32/2018-19 dated 13 April 2019
[iv] Civil Appeal No. 4184/2009