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GST on Transactions by a Club / Association or Activities with its members retrospectively w.e.f. July 01, 2017 (Under Section 7(1)(aa))
The definition of supply was expanded to cover services provided by members to club/AOP and vice versa. To overcome the Apex court's verdict in the Calcutta Club case for service tax regime, which would have been applicable under GST regime as well, The aforementioned revision is retroactively effective as of the first day of new litigation on July 1, 2017.
The following is the bare provision:
“(aa) the transactions or activities, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration.
Explanation .- It is hereby clarified that, for the purposes of this clause:, notwithstanding anything contained in any other law for the time being in force or any judgment, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another;]”
Mutuality Principle says that one cannot supply services or goods to oneself.
In the previous regime of indirect taxes, the same idea was upheld by the Hon'ble Apex Court in the landmark judgement of Calcutta Club Limited.
But, the legislator has made a retrospective amendment to the law, effective July 1, 2017, by inserting under Section 7(1)(aa), which states that 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 will be considered "Supply."
Moreover, they have clarified with an explanation that the club / association and its members shall be two independent individuals
As a consequence, the services / goods provided by an association / club to its members are now subject to GST, with effect from July 1, 2017 & they must decide obligation. The claiming of ITC (due to Section 16(4) restriction) and interest imposed on it will be a key issue in determining liability.
It has been proposed to delete Paragraph 7 of Schedule II of the CGST Act, which is related to 'supply of goods by unincorporated associations or bodies of persons to a member thereof for cash, deferred payment, or other valuable consideration' as an activity/transaction treated as supply of goods, retroactively (as of July 1, 2017).
