Clubs, members separate entities; GST is Applicable on transactions between the two

Finance Minister Nirmala Sitharaman proposed many new measures in the Budget 2021 to prop up the declining economy amid the Covid-19 pandemic and boost spending across sectors. Budget 2021 focused on the seven pillars for reviving the economy – Health and Wellbeing, Physical and Financial Capital and Infrastructure, Inclusive Development for Aspirational India, Reinvigorating Human Capital, Innovation and R&D, and Minimum Government Maximum Governance. Several direct taxes and indirect taxes amendments were also proposed.

What do you mean by Supply under GST?

The taxable event in GST is supply of goods or services or both. Various taxable events like manufacture, sale, rendering of service, purchase, entry into a territory of state etc. have been done away with in favour of just one event i.e., supply.  Section 7 of CGST Act read with Schedule I & III covers the provisions relating to the term ‘Supply’.

According to Section 7(1), the expression “supply” includes:

• all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business
• import of services for a consideration whether or not in the course or furtherance of business

Amendment brought by Finance Bill 2021

Clause 99 of the Finance Bill 2021 proposes to amend Section 7 of the Act i.e., the term supply by inserting a new clause (aa) in sub section 1 with retrospective effect from 1^st July, 2017, so as to ensure levy of tax on activities or transactions involving supply of goods or services by any person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration.

It has also inserted an explanation stating the term person and its members or constituents will be treated as two distinct person and hence, any the activities or transactions between them will deemed as supply between two separate persons.

Members of clubs and other bodies were enjoying tax free services and goods so far. This position will change from next financial year once the Finance Bill is passed by Parliament. Most of the supply may attract 18% GST.

Also, the term person and its members or constituents will be treated as two distinct person and hence, any the activities or transactions between them will be deemed as supply between two separate persons.

This has resulted in overruling of judgment of Supreme Court judgement in case of Calcutta sports club related to service tax era which was based on the doctrine of mutuality which stated that if there are no members there will be no club and vice-versa. Hence, the decision was that the clubs were not entitled to charge, collect and pay service tax on any services made to members. The Jharkhand high court also gave similar ruling in case involving Ranchi Club.

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